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ECONOMY

Military coup raises fears over Thailand's sick economy

Investors are concerned whether soldiers will repeat the mistakes of the last putsch in 2006 and impose drastic foreign capital controls

PUBLISHED : Monday, 09 June, 2014, 3:29am
UPDATED : Monday, 09 June, 2014, 3:29am
 

The last time Thailand had a coup, the stock market crashed when the kingdom imposed strict capital controls. This time round, investors hope the generals have learned their lesson.

Markets have largely taken May's military takeover in their stride, but there is still nervousness about a regime that has put the air force chief in charge of the economy and appointed the navy commander to oversee tourism. Experts say the last putsch, in 2006, showed that soldiers lacked the expertise to run the economy.

"The military government struggled to manage the economy, reflecting the lack of technocratic skills in economic management and administration," recalled Rajiv Biswas, chief Asia economist at consultancy firm IHS. The regime was also unable to move ahead with significant reforms because of its caretaker status, he added.

After the 2006 coup, markets were particularly frightened by drastic foreign capital controls introduced several months later to try to curb the appreciation of the baht, said Ryan Aherin, Asia analyst at risk advisory company Maplecroft.

"The measure was very unpopular with investors," he said. The stock market suffered a plunge of 15 per cent in just one day before authorities quickly backtracked.

The regime also briefly considered limiting foreign investment in businesses. By the time it abandoned the idea, "investor sentiment had already plummeted due to fears of nationalistic policies", said Aherin.

So far, the Thai stock market is up about 4 per cent since the May 22 coup, helped by buoyant global investment sentiment. But Japan, Thailand's largest foreign investor, is watching events with trepidation.

Toyota Motor, Honda Motor and Nissan Motor have invested heavily in Thailand, attracted by its skilled workforce and the ease of doing business.

Even before the coup, Thailand's economy was reeling from nearly seven months of deadly street protests, which dented consumer confidence and scared off foreign tourists.

The economy shrank 2.1 per cent quarter on quarter in the first three months of 2014, according to an official estimate. The fear is that it will contract again in the second quarter, sliding into recession.

"The economy is like a dying person - it's sick so it needs oxygen," said Tanit Sorat, vice-chairman of the Federation of Thai Industries.

Thai consumers appear relieved that the military takeover has, for now at least, brought a halt to the bloody political unrest.

Consumer confidence rose in May for the first time in 14 months, said the University of the Thai Chamber of Commerce.

But the government expects economic growth of just 1.5 to 2.5 per cent for this year, compared with a previous forecast of 3 to 4 per cent.

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