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Thailand’s political landscape has been shaken by a surprise election result that saw the pro-democracy opposition parties win a majority of seats in parliament.
Thailand has just witnessed a historic election that could reshape its political landscape for years to come. But will this change of power have any impact on Thailand’s economy, which has been struggling with low growth, high inequality and declining exports?
The election result is a rebuke of the military-backed government of Prayuth Chan-Ocha, who took power in a coup in 2014 and has faced widespread protests over his handling of the crisis. Prayuth has claimed that he still has enough support to form a government, but analysts say he faces an uphill battle.
The military-appointed Senate, which has 250 seats, can vote for the prime minister along with the 500 elected members of parliament, giving Prayuth an advantage. However, some senators may defect to the opposition camp.
Even though, the outcome has boosted the baht, which rallied by the most in five weeks, as investors expect the new government to pursue pro-growth policies and reforms. But the stock market has been more cautious, as uncertainty remains over the formation of a coalition and the role of the military-backed Senate.
The leader of the Move Forward Party, Pita Limjaroenrat, is seeking to become Thailand’s new prime minister, with the support of five other parties. He has promised to revive the economy, which has been hit hard by the Covid-19 pandemic and social unrest, and to amend the constitution that gives the military a strong influence over politics.
Investors will be watching closely how the coalition talks unfold and what policies the new government will implement.
The Challenges Facing Thailand’s Economy
Thailand’s economy is one of the most tourism-dependent in the world, accounting for about 12% of its GDP. The COVID-19 pandemic hit the sector hard, as travel restrictions and lockdowns reduced the number of visitors from China and other countries. Although tourism has recovered somewhat in recent months, it is still far from its pre-pandemic levels.
Another challenge facing Thailand’s economy is its reliance on exports, which make up about 60% of its GDP. Thailand is a major exporter of automobiles, electronics, agricultural products and textiles, but it faces increasing competition from other countries in the region, such as Vietnam and Indonesia. Moreover, global trade tensions and weak demand have also hurt Thailand’s export performance.
A third challenge facing Thailand’s economy is its high level of inequality. According to the World Bank, Thailand has the fourth-highest level of income inequality in Asia, after China, India and Indonesia. The gap between the rich and the poor has widened over the years, as the benefits of economic growth have not been shared equally among different regions and groups. This has fueled social discontent and political instability in the country.
The Opportunities for Thailand’s Economy
Despite these challenges, Thailand’s economy also has some opportunities to grow and improve in the future. One opportunity is to diversify its economy and reduce its dependence on tourism and exports. Thailand has a large domestic market of about 70 million people, which could be tapped by developing new industries and services that cater to local needs and preferences. For example, Thailand could invest more in education, health care, digital technology and green energy.
Another opportunity for Thailand’s economy is to enhance its competitiveness and innovation. Thailand has a strong manufacturing base and a skilled workforce, but it needs to upgrade its technology and productivity to keep up with global standards. Thailand could also foster more research and development, entrepreneurship and creativity among its people, especially its youth.
A third opportunity for Thailand’s economy is to promote more social inclusion and cohesion. Thailand could address its inequality problem by improving its tax system, social protection programs and public services. Thailand could also foster more dialogue and reconciliation among different political factions and groups, especially between the urban elite and the rural poor.
According to Morgan Stanley, a stable and reform-oriented government could boost investor confidence and support economic recovery. However, there are also risks that could derail the positive outlook. The new government may face resistance from the military establishment and royalists, who could challenge its legitimacy and policies in court or on the streets. And global factors such as rising inflation and interest rates could also weigh on sentiment.
The Role of the New Government
The Move Forward party has promised to restore democracy, reform the constitution, increase public spending and raise the minimum wage. These policies could boost consumer confidence, stimulate domestic demand and reduce inequality. However, they could also face resistance from the military establishment, which could undermine political stability and investor sentiment.
Some of the key policies that the new government could implement to boost the economy are:
- Increasing public spending on infrastructure projects, such as roads, railways, airports, and ports, to improve connectivity and competitiveness.
- Enhancing social welfare programs, such as health care, education, and pensions, to reduce inequality and poverty.
- Promoting innovation and digital transformation, such as e-commerce, fintech, and smart cities, to create new opportunities and jobs.
- Improving governance and transparency, such as fighting corruption, strengthening institutions, and respecting human rights, to restore trust and credibility.
The outcome of the election will have a significant influence on how Thailand’s economy will fare in the coming years.
The baht has been one of Asia’s best-performing currencies this year, as Thailand’s current account surplus and foreign reserves have provided a buffer against external shocks. The stock market, however, has lagged behind its regional peers, as domestic demand and tourism have been weak. The SET Index fell as much as 1.3% on Monday amid political uncertainty.
The new government will have to balance competing interests and demands from various stakeholders, such as businesses, workers, farmers, civil society and international partners. The new government will also have to deal with the legacy of the military rule, which has left behind a constitution that gives considerable power to the army.