As the new Thai parliament opens, figure out this week show Thailand’s exports declined in the first quarter by up to 2% and the rate of decline actually increased into April to 2.6%. The Thai economy only grew by 2.8% in the first quarter driven by higher private consumption. However, new lending curbs introduced by the Bank of Thailand on April 1st on motor and housing loans will also impact the economy in the second quarter. It all means that as the new Thai government is being formed, the biggest challenge facing it is the economy rocked by an escalating US China trade war. The decline in economic fortunes began in 2018 and if it continues, it could morph into something more serious.
Thailand’s new parliament is opened this week. Bargaining and negotiations between MPs and political parties have already begun. It is nearly guaranteed that Prayut Chan ocha, having skillfully led Thailand for five years since the 2014 coup, will emerge as the newly elected prime minister. Prayut led the country to adapting a new constitution in 2017. His government then led the country to an election on March 24th that despite controversies, has thrown up a viable parliament. The key political battle now is to put together a working arrangement in parliament for the new government and to manage expectations raised by party manifestos. However, despite the best laid political plans, a bigger consideration has emerged. The Thai economy is facing rapidly deteriorating conditions. It will require all the Prime Minister’s political skill and acumen to forge an effective new Thai government that must now put the economy front and center where previously it was political reform.
As Thailand’s new politicians and political parties jockey for position in the next Thai government and in parliament, the current Prime Minister is standing above the fray. He has reason to be pleased. Although there is every chance that he will lead the next government, things are also moving forward to establish a working majority in the lower house of Parliament with which to pass new legislation.
Talk of a Democrat and Bhumjaithai coalition is helpful but it will be a Prayut led government
It was revealed this week that constructive talks are taking place between the Democrat Party and the Bhumjaithai Party to form a working alliance in the new parliament. There has been talk of both the Bhumjaithai and the Democrat Parties being approached by the Pheu Thai Party, which has the largest number of seats and an alliance already forged with other parties but this is an avenue that exists only in theory. The constitutional provisions and exceptions for the first five years mean that only a government led by Prayut Chan ocha can be approved by a joint sitting of the national assembly.
2017 Constitution so far has delivered what it set out to achieve despite its detractors
The 2017 Thai Constitution so far is working in that Thailand will have a functioning government made up of democratically elected ministers and pursuing grassroots policies while also have the imprimatur of the Thai military and establishment. The constitution has achieved what it was set up to do. Among the Thai public that wants more democracy, including the people in Thailand who support Pheu Thai and the Future Forward Party, there is apathy at the way and indeed the manner that events have unfolded. They point to the deployment of the unelected Thai senate and have always opposed the constitutional provisions designed to limit the power of big parties pursuing populist policies. The problem is that these provisions were voted on and approved by the Thai public with a fairly decent turnout in the referendum of 2016.
Economic change now presents the greatest threat to Thai establishment and the people
The biggest problem facing the incoming Thai government and the Premier now is the fast deteriorating position of the Thai economy. Figures just out show only 2.8% growth in the first quarter and this is even beginning to look positive. A startling set of figures just released from the Commerce Ministry today shows that Thai exports for April have fallen by 2.6%. Significantly, the fall is in product areas impacted by the worsening US China trade war. It also points to a perfect storm of economic problems. Thailand’s performance in the second quarter will be anxiously watched as the Bank of Thailand implemented stringent credit controls on April’s 1st in respect of house loans and car loans. The leadership of the bank has since resisted calls to relax these regulations by pointing to firm evidence of higher bad loans in the the auto financing area and evidence of an unhealthy surge in home mortgages.
Problem is what could changing world economic environment driven from the White House
It is hard and indeed would be wrong to pin the blame for the worsening economic situation on the the Thai government. The problem, at least for Thailand, is an international one and the source is undoubtedly the White House in Washington DC. The common consensus that tends to develop is that this will right itself. Calls by the OECD (Organisation for Economic Cooperation and Development) and the IMF (International Monetary Fund) to the US administration to back off from its America First policies for now, however, are simply not being heard.
Decoupling of US and Chinese economy, the unthinkable may just be happening
Some economists have begun to think what only 12 months ago would have been inconceivable. That is the prospect of the complete decoupling of the US and Chinese economies altogether. Current right wing and populist movements in the ascendancy in the western world, are indirectly pushing nationalist economic policies as a long term option. This has complicated outcomes such as the acceptance by Italy this year of a partnership with China despite European Union concerns. This is an economic model of bilateral agreements between nations as opposed to a global consensus. It would be wrong to simply assume that one model is inherently better than the other. This new form of national economics is something more sophisticated than what critics assume when they point to the history books. Technology and scientific innovation have changed world. Inevitably, Chinese authorities will become tempted to become more aggressive if the situation continues or even deepens. There is talk about using China’s virtual rare earth monopoly of even the threat of China releasing American public debt bonds but understandably, China is reticent to over play its hand particularly with an unpredictable and bombastic US president.
Thailand must become agile as long as the US president’s poll numbers stack up
As long as the US economy continues to post record breaking figures, the US administration will be loathe to change course. Contrary to all the economic experts and in an astounding fashion, the US president looks like he has stumbled on a winning economic formula for his voter base and the American public. This leaves Thailand facing a shift in emphasis. The Commerce ministry is encouraging Thai firms to focus on the American market to replace suddenly uncompetitive Chinese exports while some Thai tourist chiefs this week suggested that new Chinese policies may cut Chinese tourist numbers to the US and consequently benefit Thailand.
Prayut Chan ocha already adapting a careful tactical position above the political fray
The man who is most likely to be Thai prime minister this week was adapting a careful and tactical political position. Thailand needs a new government but it also needs one that can function decisively at a time when an potential economic crisis developing. While welcoming the possibility of a government made up with potentially unwieldy combination of parties, Prayut warned that the political parties should have regard for the political process. He also clearly delineated as his own responsibility if elected prime minister, to choose what ministers will serve.
Challenge for skillful political operator is to steer Thailand back to strong economic growth
‘It’s okay. We have to look at it positively,’ the PM said. ‘With multiple parties, it can be good in a way that we can try to implement all the policies they have promised the voters. Many seasoned observers have suggested that the new government may be unstable because of the slim if any majority in the lower house. Recent notes from a Bank of Thailand meeting on interest rate policy refers to the uncertain political situation after the election. However, the ability of the current premier and his government team to steer a course and work with the 2017 Constitution has so far been impressive. If the prime minister’s challenge for his government in 2014 was to lead Thailand to stability, the challenge for this new government is certainly the economy. Conversely, a failing economy can unravel any political achievements over time.
Marijuana may be a contentious issue as Bhumjaithai Party appears to seek further relaxation
A key political issue that may arise is one of medical marijuana, a key pillar of the Bhumjaithai Party’s manifesto which promised even further liberalisation than that provided for in the legislation passed late last year and which is now the subject of a national roll out of a new dispensation and a strict medical marijuana regime administered by the Thai Ministry of Public Health and other regulatory bodies. The Bhumjaithai Party has 51 highly prized seats in the new parliament. It’s leader, Anutin Charnvirakul, has even emerged as a suggested candidate for prime minister but this clearly is only speculation as the reality is that the junta and military leadership is still at the helm of the government of Thailand for at least the next five years because of the constitutional provisions and the exceptions.
PM lays down a marker for MPs
The Thai Prime Minister may have been referring to such an issue this week when he warned that not all political policies put to the people can be implemented. ‘Even though I have significant power, I cannot make everything possible,’ he said. ‘I hope that the next government would just continue the good things. Politics should work that way. It’s not competition and all these positions are not for trading. Today, the parties are discussing among themselves. Please do not involve me in it. I won’t interfere with that.’
Prayut has shown skill as Thai leader since 2014, now he must navigate a deteriorating economic situation
The experience of the last five years and the election shows that Thailand’s Prime Minister is quite a skillful political player. The achievement of forming a government and getting its policy statement passed by the new national assembly will be his next goal. The involvement in the government of elected ministers and an active party political process will certainly lend vital legitimacy to the new Thai government. The man at the top has shown consummate skill in his inimitable fashion and is also presently popular although in a nation that is still polarised, now even more so, than before the election. However, the real challenge is going to be dealing with the economic problems that are fast coming on.
New government formation may actually hold back public investment at a critical time
Among a range of factors impacting Thailand economic performance is government investment in infrastructure and development. This was surprisingly off somewhat in the first quarter of the year according to this week’s data. The key engine that drove Thailand forward, at all, in the the first quarter was a pickup in consumer expenditure but this may not be altogether accurate. There was, for instance, a significant boost in expenditure in motor vehicles prior to central bank’s new regulation on April 1st and indeed housing loans.
Second quarter prospect for Thai economy worrisome
With exports actually declining at a faster and faster rate, the outlook for the second quarter is worrisome to say the least. Economists even suggest that a new government will take time to finalise a new budget and this may, in the short term, even hold back government capital investment particularly in a new political environment that underlines more oversight over government expenditure. On the other hand, this may allow more time to consider the government’s long term plans in view of a changing economic climate. In a word, it may also be a time for caution.
Prime Minister gently advises wrangling MPs that it will soon be time to think about the country
This appears to be already in the Prime Minister’s mind when this week he gently suggested that at some point, the political parties will have to start thinking about what is best for the country. That surely must entail a new stable government. ‘I think everything depends on mutual understanding about what the country needs right now. If it prolongs for too long, it would hurt the economy and international confidence.’