Thailand’s cabinet reshuffle leaves investors anxious amid economic gloom
- The resignation of four economic ministers has sparked anxiety about the future of investments from China and Japan
- Their replacements will have to oversee the recovery of Southeast Asia’s worst-performing economy from the damage caused by Covid-19
Deputy prime minister Somkid Jatusripitak, known as the economic policy tsar, and finance minister Uttama Savanayana had overseen the roll-out of stimulus measures worth billions of dollars to boost the tourism-dependent economy, which was damaged by border closures and social distancing restrictions.
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The two other ministers who stepped down are energy minister Sontirat Sontijirawong and science, technology and higher education minister Suvit Maesincee. The ministers resigned after a weeks-long power struggle within the ruling Palang Pracharath Party of Prime Minister Prayuth Chan-ocha.
“Changing the main economic team in the middle of the pandemic will affect all investors’ confidence. Chinese and Japanese investors may be more nervous because of the high level of investment they already have in Thailand,” said Pavida Pananond, associate professor at Thammasat Business School’s department of international business, logistics and transport.
“The new team needs to build confidence by showing they know what they get themselves into and that they know what they are doing.”
Somkid and Uttama have been instrumental in shaping Thai economic policy since 2015, a year after the coup that installed former army general Prayuth as leader. A general election last year kept him in power.
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Somkid, a former academic who served as a cabinet minister under then prime minister Thaksin Shinawatra from 2001 until the 2006 coup overthrew his administration, looked to investments from China and Japan as a source of economic stability amid United States-China trade tensions that disrupted trade flows as well as the strong baht last year, which affected exports and tourism.
Predee Daochai – chairman of the Thai Bankers’ Association and co-president of Kasikorn Bank, the kingdom’s second largest lender – is tipped to replace Uttama, while the energy portfolio will reportedly be led by Pailin Chuchottaworn, the former chief executive of energy conglomerate PTT.
Prime Minister Prayuth on Thursday said the new team would be installed by August, though it is unclear who will replace Somkid.
“After the 1997 Asian financial crisis, Japanese carmakers’ headquarters helped inject cash into the manufacturing bases in Thailand. But now those headquarters are also affected,” said Surapong Pisitpattanapong, the Federation of Thai Industries’ deputy chairman.
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He said lower domestic sales would see Thailand’s car-manufacturing capacity reduced by more than half this year, from 3 million cars to between 1 million and 1.4 million.
Arm Tungnirun, law lecturer at Chulalongkorn University and the former director of the Thai-Chinese Strategic Research Centre, said the government’s priority was to stabilise the economy during the pandemic.
“We cannot expect a growing economy or robust investment this year. Most measures will primarily be directed towards maintaining economic and social stability,” he said.
Pavida from Thammasat Business School agreed. “The immediate tasks would be to revive the domestic economy by making sure that small and medium-sized businesses with less liquidity get the support to sustain their business and to be able to resume employment. This would require proper management of the budget to make sure that it is spent wisely and effectively.”
The shake-up of Thailand’s economic leadership comes amid the process to pick the new governor of the Bank of Thailand, which has forecast a record annual GDP contraction of 8.1 per cent – which would be the worst in Asean and even lower than the aftermath of the 1997 Asian financial crisis. Business leaders say as the global economy slows, foreign investment will be less of a cushion for Thailand, at least this year.
The 224 billion baht (US$7.06 billion) high-speed rail project connecting the airports at Suvarnabhumi, Don Mueang and U-tapao that was awarded to a consortium whose members included the Chinese state-owned China Railway Construction Corporation in late 2019 helped China become Thailand’s biggest source of investment for the first time, ahead of Japan, the country’s long-time largest investor.
The country last year benefited from companies relocating to avoid the impact of the US-China trade war, seeing a 69 per cent rise in foreign direct investment applications between January and September 2019.
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Due to the Covid-19 crisis, the Board of Investment has yet to release a foreign direct investment forecast for this year, even though former deputy prime minister Somkid met with officials from the Japan External Trade Organisation, who said investors were pleased with Thailand’s tax and investment packages.
Left unfinished is Somkid’s plan for Thailand to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a mega trade deal backed by Japan that was met with opposition from NGOs over food and drug security.
Piti Srisangnam, associate professor of economics at Chulalongkorn University, said the cabinet shake-up might be a sign of more transitions to come.
“Now that the four ministers are out, it is uncertain if other economic positions would change too, including at the commerce or industry ministries since they are part of the economy road map. Thailand will also name a new central bank governor who will start the post in October, so we do not know who will lead the Thai economy from this point on.”
The new ministers’ major task would be to oversee the use of a record 1.9 trillion baht aid package approved in June to counter the economic impact of Covid-19. Thailand has fared relatively well in containing the pandemic, with 3,239 cases as of Thursday.
Amid the cabinet shake-up and Washington’s rejection of Beijing’s expansive South China Sea claims earlier this week, Chinese President Xi Jinping had a phone call with Prime Minister Prayuth on Tuesday. Thailand is one of the US’ two security treaty allies in Southeast Asia, along with the Philippines.
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During the call, Prayuth applauded China’s approach in combating Covid-19 and affirmed Thailand’s support of the one-China policy, according to the state news agency.
Chulalongkorn University lecturer Arm said Thailand’s economic ties with China and Japan would remain intact despite the cabinet reshuffle.
“I think the status quo will prevail and we can expect friendly and productive ties with these two important economic partners,” he said. “The more important factors will be the pandemic situation in China and Japan, which will affect their domestic economies and in turn affect their outward economic strategies.”
