Thailand's murky election aftermath poses risk to cooling economy

Thailand's first election since a 2014 military coup was thrown into disarray with accusations of cheating and both a pro-army party and the opposition claiming to form a government.
Thailand's first election since a 2014 military coup was thrown into disarray with accusations of cheating and both a pro-army party and the opposition claiming to form a government.ST PHOTO: KUA CHEE SIONG

BANGKOK (REUTERS) - Delays in final results from Thailand's first election in eight years have added to uncertainties facing the slowing economy, raising the risk of political gridlock that could disrupt government spending and keep foreign investors away.

Thailand's first election since a 2014 military coup was thrown into disarray with accusations of cheating and both a pro-army party and the opposition claiming to form a government.

It may take weeks until the results become clear.

That dashed hopes for a quick transition to a stable administration that would continue economic policies and investment projects to keep South-east Asia's second-largest economy ticking.

"We think political uncertainty will remain elevated, as it appears forming a government will likely be a long, drawn-out and difficult process," said Mr Charnon Boonnuch, economist of Nomura in Singapore.

"This represents a downside risk to growth, as it would result in a weaker investment outlook," he said.

Both the pro-army party seeking to keep coup leader Prayut Chan-o-cha on as prime minister and the opposition party linked to self-exiled former premier Thaksin Shinawatra have claimed they can form a coalition government.

 
 
 
 

Mr Kobsidthi Silpachai, head of capital markets research of Kasikornbank, said a delay in outlining the make-up of the next administration "would adversely affect the disbursement of government capex budgets and result in a decline in the velocity of money" in the US$515 billion (S$695.41 billion) economy.

Government spending is already short of the targets. That is holding back private investment, which is crucial to growth as exports sag and consumption is curbed by high household debt.

Initiatives such as the ambitious US$45 billion Eastern Economic Corridor project to draw investment into the country's industrial east could be delayed as the transition plays out.

There are also concerns that whether the pro-junta or anti-junta camp forms the next government, it will be an unstable one, which is not good for the economy and financial markets, fund managers said.

"This should put pressure on the Thai stock market over the next 3-4 months," said Mr Kamonyos Sukhumsuwan, fund manager at Asset Plus Asset Management.

"Even if (pro-army) Palang Pracharat can form a government, which is positive for the market, in the longer term there, there are risks of stability and difficulty in driving policies."

The Thai stock market ended up 0.4 per cent on Tuesday (March 26), after falling 1.2 per cent on Monday, but foreign investors are still selling shares, having sold a net 12.9 billion baht (S$550.08 million) worth this year.

The baht eased by 0.2 per cent against the dollar on Tuesday, bucking gains elsewhere in Asia.

Thailand reported its strongest economic growth in six years in 2018, at 4.1 per cent, but still lagged the Philippines' 6.2 per cent, Indonesia's 5.17 per cent and Malaysia's 4.7 per cent.

For 2019, the central bank last week cut its GDP growth forecast for a second time in three months, to 3.8 per cent from 4.0 per cent, citing increased global risks.

Businesses are not too pessimistic, however.

"Investors can accept whoever will be the next government only if they can make the political (situation) stable," said Mr Sanan Angubolkul, vice chairman of the Thai Chamber of Commerce.

"Still, they may wait for six months to see what the new administration's policies will be," he said. "What they don't want to see is unrest or a coup."