Bangkok, May 2010: Perspectives on a Divided Thailand

5. The Impact of the Red Shirt Rallies on the Thai Economy

The฀Impact฀of฀the฀Red฀Shirt฀Rallies฀on฀the฀Thai฀Economy 55 This essay is an extended version of Aekapol Chongvilaivan, “Economy and Jobs Are Also Victims”, Straits Times, 24 May 2010.. 5 THE฀IMPACT฀OF฀THE฀RED฀SHIRT฀ RALLIES฀ON฀THE฀THAI฀ECONOMY Aekapol Chongvilaivan INTRODUCTION Early expectations for Thailand’s economic performance in 2010 were cheery, as its 2009 performance coupled with upbeat business confidence around the globe in the last quarter of the same year painted a fabulous picture of the Thai economy reaching a GDP growth rate of 4.5 to 6 per cent in 2010. All major sectors — manufactures, tourism, finance, and trade — exhibited positive growth figures during the country’s strong recovery from the global economic downturn. By June, however, the country appeared to be on the verge of losing all gains from the global economic turnaround, as the Red Shirt army had jeopardized livelihoods in the Ratchaprasong district — the hub of business activities in Thailand. This essay aims to provide a realistic assessment of the impacts of Thailand’s never-ending political pandemonium. The analysis of several 05฀BangkokIT.indd฀฀฀55 12/15/11฀฀฀10:41:21฀AM Aekapol฀Chongvilaivan 56฀ economic indicators reveals that economic hardship in the aftermath of the Red blockade will prove transitory and limited only to a plunge in GDP growth by 1 to 2 per cent as business confidence bounced sharply back to its pre-crackdown level and as the manufacturing sector — a key driver of Thailand’s economy — continued to enjoy the global economic recovery and a surge in export demand from emerging Asia. However, closer examination at the sectoral level reveals that Thailand’s generally resilient economic condition conceals the excruciating pain felt by the labour force. The Red uproar pushed millions of workers, especially those employed in the service and the wholesale and retail trade sectors, into unemployment. Several policy responses to shield the economy against weakening sentiment and the physical damage done during the protests are proposed. These measures include tax relief, provision of liquidity to businesses in the erstwhile no-go zone, direct subsidies for those affected by the crackdown, and long-term economic policies to bridge Thailand’s income gap. The organization of this essay is as follows. The second section reviews developments in the Thai economy leading up to the 2010 crackdown. The third section assesses the economic impacts of the Red strife on the economy. The fourth section concludes and discusses several policy measures intended to revive economic sentiment and shield the most vulnerable against the knock-on effects of the country’s political conflict. ECONOMIC฀OUTLOOK฀LEADING฀UP฀TO฀THE฀2010฀ CRACKDOWN The Thai economy was hit hard by the global economic downturn and domestic political turbulence in 2009. The economy entered its worst post-1997 recession with a contraction in GDP of 2.3 per cent. Demand from Thailand’s major trading partners plunged by 13.9 per cent, and de-leveraging in the global financial hubs of New York and London triggered a massive reversal in FDI inflows, amounting to US$1.2 billion. Poor consumer and business confidence led to cutbacks in domestic consumption and investment, as durable goods consumption and investment in new projects were deferred. Table 5.1 paints a clear picture of deteriorating economic performance in Thailand against a backdrop of the economic catastrophe of 2009. 05฀BangkokIT.indd฀฀฀56 12/15/11฀฀฀10:41:21฀AM The฀Impact฀of฀the฀Red฀Shirt฀Rallies฀on฀the฀Thai฀Economy 57 Even though several stimulus pushes, such as health and infrastructure investment and public transfers, were implemented to mitigate the adverse effects of the downturn, the drastic fall in private consumption and investment fuelled a remarkable drop in the domestic demand of 2.4 per cent. Domestic political unrest worsened the sombre outlook for the Thai economy, as many countries issued travel warnings for Thailand. In the first half of 2009, Thailand experienced a sharp plunge in the number of tourist arrivals of 16.1 per cent. The global economic crisis and political uncertainties likewise severely deterred private investment, which exhibited an exponential decline of 12.8 per cent Thailand’s external trade picture was equally bleak. Export and import volumes declined by 12.7 and 21.8 per cent, respectively. The deglobalization trend observed in 2009 made itself felt via proliferating production networks connecting the Southeast...