The serious crackdown on red-shirt protesters in Bangkok yesterday not only saw the Stock Exchange of Thailand Index tumble 23 points, or 3.11 per cent, soon after trading opened, but also led to the closure of embassies, bank branches, petrol stations and mass-transit lines.

The Bank of Thailand (BOT) remains optimistic the present political mess will not seriously affect the country’s financial stability, although it admits this is difficult to predict.

The Fiscal Policy Office said the political unrest would trim 0.3-0.4 per cent from growth in gross domestic product (GDP) this year, leaving an annual figure of a little over 4 per cent.

(SET) Stock Exchange of Thailand

The SET Index ended the day down 2.02 per cent to close at 753.26 points as investors showed a lack of confidence in the country after the government launched a series of fighting measures against the red shirts.

SET president Patareeya Benjapholchai said the stock market would close early – at 3.30pm – again today out of concern for safety and convenience. In the morning session, the market will operate as normal, between 10am and 12.30pm.

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Financial shocks from crackdown

Public investment will expand only slightly next year as the Thai Kem Kaeng Program will just about compensate for the reduction in the government’s on-budget investment in 2010.

The medium-term outlook is sobering, with growth expected at 3.5 percent in 2010 and likely remaining below potential for the next three years. Because the Thai economy is largely dependent on final demand in advanced economies, a return to pre-crisis rates of economic growth (a full recovery vs. a rebound to pre-crisis levels) will require a combination of (a recovery of demand from advanced economies and a rebalancing of the sources of growth to reduce Thailand’s dependence on demand from advanced economies. Neither process is likely to be swift. Recovery from a financial crisis is a lengthy process that involves the rebuilding of balance sheets, and the IMF estimates that half of the losses in the financial system in advanced economies are yet to be recognized.

Long-term growth will require improving productivity and greater focus on distributional issues. Imbalances present before the crisis remain, but the crisis has increased the urgency of reforms to improve productivity, enhance competitiveness, and promote more equitable growth. Openness to trade and investment have been – and will continue to be – essential to Thailand’s long-term growth. However, a return to high growth will require boosting domestic consumption and developing additional sources of external demand.

Despite the rebound, Thailand’s export recovery is still subject to several downside risks

Financial shocks from crackdown

Most of the infrastructure development in Thailand has been responsive to demand rather than forward-looking. Availability and accessibility appear to no longer be a challenge. The next step for Thailand is to put more emphasis on quality of service delivery, management, and sound regulation.

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