Although promoting political awareness is a boon for democracy, the rallies being organised by the yellow and the red shirts beg the question whether rival camps are drumming up support to settle old scores or to increase public participation.
The road to democracy is shadowed by all the shirts
Externally, the trade balance in January 2009 recorded a 1,688 million US dollar surplus. Export value contracted for the third consecutive month while import fell even more rapidly. Export value dropped 25.3 percent (yoy) to 10,382 million US dollars. This was due mainly to contraction across the board except for labour-intensive industries which still expanded from gold export. Import value contracted 36.5 percent (yoy) across the board to 8,694 million US dollars. When accounting for the net services, income, and transfers surplus of 601 million US dollars from lower investment income transfer compared to the previous month, the current account balance registered a 2,289 million US dollar surplus.
External stability in Thailand was upheld by high international reserves, while trade and current account were close to balance. Regarding internal stability, inflation rose from last year in line with higher oil prices, despite a downward trend during the second half of the year. Unemployment rate remained low in Thailand in 2008 but employment started to deteriorate in the forth quarter, particularly in the production sector affected by economic slowdown.
Thailand is among the region’s more open economies, with exports accounting for around 65% of gross domestic product (GDP)
So far Thailand has been hard hit by flagging global demand, particularly in the US and Europe. Exports fell 15.7% year on year in December, the second consecutive month of declining growth, according to Bank of Thailand statistics. The Ministry of Finance’s Fiscal Policy Office meanwhile projected the Thai economy contracted a worse-than-expected 3.5% in the fourth quarter. Independent analysts have carried forward that downbeat analysis, predicting economic and export growth will both be negative territory in 2009.Thailand’s shipments span the value-added gamut, with the country serving as a production and export hub for multinational automobile manufacturers, while maintaining its traditional position as one of the world’s leading rice, rubber and seafood exporters.
Thailand’s banks and finance companies were at the heart of the country’s 1997 collapse
Lower provisioning requirements for nonperforming loan (NPL) stocks and impressive year-on-year loan growth, which was up 11% for the entire sector, drove those countercyclical gains. While extending new credits, the Thai financial system’s overall NPL rate fell from 9% of total outstanding loans in 2007 to 7% at the end of last year. Meanwhile Thai banks’ Tier 1 capital and capital adequacy ratios (the ratio of capital to risk-weighted assets) are now strong by international standards at 11% and 14% respectively.
It seems likely in the deteriorating global and local economic environment that Thai banks will relinquish some of those recent balance sheet gains. Analysts point to two particular areas of potential volatility, which if aggravated in the year ahead could raise questions about possible systemic risk: the first entails state-owned Krung Thai Bank’s low 40% loan loss coverage ratio for its NPLs; the other Thai Military Bank’s stubbornly high 16.4% NPL ratio.
Those outlays are added to the stimulus measures written into the 2009 fiscal budget, which was devised to run a 2.5% of GDP deficit. The government has also implemented 40 billion baht worth of tax cuts mainly for the property sector and indicated it could launch another supplementary budget before the end of the fiscal year in September if the global economy slips further than expected.
The Bank of Thailand meanwhile has supported those measures with rapid monetary easing. Since December the central bank has trimmed 175 basis points off the benchmark interest rate, bringing down the 14 day bond repurchase rate to 2%. Economic analysts believe central bank authorities will slash rates further to around 1% before the end of the year. The local currency, the baht, has reacted mildly to the cuts fluctuating between 34 and 35 to the US dollar.
The same protest group occupied Government House for nearly three months beginning last August, effectively crippling the workings of two different Thaksin-affiliated governments. A modicum of stability has returned with the formation of Abhisit’s coalition government, which is believed to have military backing and has prioritized restoring foreign confidence.
Investor confidence has not yet fully recovered from the military appointed administration’s surprise move in December 2006 to impose and then retract capital controls on foreign equity, bond and currency transactions. A nationalistic motion the following year to amend the Foreign Business Act spooked Japanese investors, many of whom have their Thailand operations structured in a way legislators aimed to ban.
Indeed grass roots competition for government resources is intensifying. For instance the Farmers Rehabilitation and Development Fund is seeking 17.2 billion baht from the cabinet to buy back debts owned by over 62,000 farmers and rehabilitation and occupational training programs. During the 1997-98 financial crisis, a large number of unemployed factory and service sector workers returned to the rural countryside to eke out a subsistence living working in their relations’ fields. Agriculture currently accounts for 11% of GDP.
Higher agricultural prices drove up farm incomes during the first half of 2008, but fell sharply in the second half in line with declining global commodity prices. As the local economy slows and unemployment rates rise, it’s not clear that the rural sector will with falling food prices have the same absorptive capacity it did in the wake of the Asian financial crisis.