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Thailand’s Delicate Postcoup State Hindering Local Investment

A delivery motorcycle and taxi cab on the streets of Bangkok on July 1, more than a month after a Thai military junta took control of country.

A delivery motorcycle and taxi cab on the streets of Bangkok on July 1, more than a month after a Thai military junta took control of country.

BANGKOK – Thailand’s imports suffered further decline in June, showing the delicate state of the domestic economy, which has been run by a military junta for more than two months.

Imports fell 14% year over year. In a sign that local companies are putting off investment, imports of raw materials fell 12.2% and capital goods dropped 4.1%, the Commerce Ministry said Monday.

Exports grew 3.9%, led by increased shipments of major industrial items and agricultural products.

The weak domestic economy is a problem for Thailand’s military leaders, who took control in a May 22 coup. The military said it seized power from the previous government to restore peace and order after months of political rallies in a bid to oust former Prime Minister Yingluck Shinawatra stirred up social unrest, street violence and put the economy on the brink of a recession.

The Bank of Thailand said last month that it expected the economy to grow only 1.5% in 2014, down from its previous March projection of 2.7%. This compares with last year’s growth rate of 2.9%.

Thailand’s central bank said the downward revision was due to a larger-than-expected slowdown in the first quarter, when the economy contracted 0.6% year over year.

The junta has said it plans to accelerate the economic recovery and measures to restore business confidence, but its business expertise and ability to effect major economic changes have yet to be proven.

One of the weak spots is domestic demand and investment.

Army chief Gen. Prayuth Chan-ocha ordered a state bank to make a delayed payment to farmers for their rice under the government subsidy program of about $2.7 billion in June, which was aimed to help boost rural spending and consumption. The junta also sought to relieve the burden on households by capping the prices of diesel fuel and cooking gas in June and asking retailers to cooperate on a six-month suspension of price increases.

Consumer confidence and industrial sentiments have been improving in the past two months. The imports of consumer products have edged up 1.1% in June from a year earlier. Economists said, however, that domestic spending remains constrained by the nation’s rising household debt, which stood at above 82% of gross domestic product at the end of 2013, one of the highest in Southeast Asia.

The military leaders have also sped up the approval process for incentives applications to promote investment after political uncertainty that had delayed the process and shaken investor confidence. So far, the junta has approved more than 100 projects valued at a collective $6.3 billion. It said it would meet to discuss the master plan for infrastructure development this week, including the construction and expansion of road and rail links. The leaders also ordered the transport ministry to conduct feasibility for a high-speed train project on a route aimed at promoting trade.

The declines in imports in June might have stemmed from a delayed impact from the precoup uncertainty, said Sarun Sunansathaporn, an economist at TISCO Economic Strategy Unit in Bangkok.

The imports of capital goods, which are related to investment, contracted 4.1% in June but at a slower pace compared with the first five months of the year, Mr. Sarun said. “In fact, we begin to see some signs that imports may gradually normalize,” he said.

Economists said June’s export data pointed to a stronger outlook, which might help the junta boost the economy if the trend continues. The year-over-year rise in exports, the first such gain since February, was a result of improved demand in major markets and in almost every sector, said Department of Internal Trade Promotion Director General Nuntawan Sakuntanaga.

Industrial-sector exports grew 3.9% and overseas shipment of agricultural products increased for the first time this year to 2.6% on the back of rice shipments, the data showed.

Exports to key markets, especially the U.S. and European countries, continued to improve. Shipments to China increased for the first time in six months.

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Posted by on Jul 28 2014. Filed under Economy & Business. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.
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