BANGKOK – It didn’t take long for Thailand’s ruling junta to discover the first lesson of building popular goodwill: when in doubt, spend. The National Council for Peace and Order (NCPO), the ruling junta led by General Prayuth Chan-ocha, has occupied itself in its first month in office airing out government coffers with a high-powered leaf-blower. It paid nearly 92.4 billion baht ($2.8 billion) to rice farmers under a subsidy scheme implemented by the deposed government of Yingluck Shinawatra. It is pondering ambitious transport schemes estimated to cost more than $72 billion.
It has also promised to clear a $21-billion backlog of projects awaiting approval from the Board of Investment (BOI)—of which Mr Prayuth has appointed himself chair. At the BOI’s first post-coup meeting, on June 18th, it approved 18 projects worth $4 billion. And after deposing a government founded on economic populism, the NCPO seems to have decided that sometimes mimicry is the better part of governance: it brokered a deal that brought World Cup matches to free TV channels.
Thais seem to have responded well: a survey taken after the coup showed that a consumer-confidence index had reversed a 13-month decline, rising from 67.8 in April to 70.7 in May. While the stockmarket dropped on May 23rd, the day after the military seized power, it has since marched steadily upward; by July 1st, the SET index was at 1,486, up nearly 17% since the start of the year. Thailand’s currency, the baht, similarly reversed its short post-coup slide.
But all is far from well. In the first quarter of 2014, Thai GDP fell 0.6% from the previous quarter and 2.1% year-on-year. Tourism, which makes up roughly 7% of the economy, has declined markedly: according to STR Global, a data provider, hotel-occupancy rates from January through May were 15% lower than in the same period of 2013. In June the Thai central bank nearly halved its 2014 growth forecast to 1.5%.
Foreign direct investors also seem skittish: in the first five months of 2014, they made applications to the BOI for 334 projects worth 230 billion baht, compared with 526 projects worth 256 billion baht in the first five months of 2013. Japanese investors, usually the biggest category, have proved particularly reluctant, with their applications more than halving in value.
Some of this decline is no doubt cyclical. Thailand’s economy boomed in 2012 and 2013 as the country recovered from the devastating floods of 2011. Easy credit and government schemes to encourage first-time home- and car-buyers led consumers to spend freely. But all that spending has left a nasty hangover in the form of worryingly high levels of household debt. And the decline in FDI represents more than a return to the norm: if the pattern established in the first five months of this year holds it will be well below pre-flood levels.
Thailand’s central bank says the country is probably not heading for recession; activity started to pick up in the second quarter. Sutapa Amornvivat, chief economist for Siam Commercial Bank, said she has started to see signs of modest rises in consumption: small shops ordering more, people eating more meals out and buying more household goods. Tourists will eventually return, as they did after Thailand’s previous coup in 2006 (after the latest putsch, the first places to see the curfew lifted were Koh Samui, Pattaya and Phuket—all tourist destinations).
By tackling FDI applications, the NCPO has signalled that Thailand remains open for business. The country’s manufacturing sector—it is the world’s largest rubber producer and its second-largest producer of hard drives and light pick-up trucks—has weathered years of political upheaval. Thailand still has comparatively good infrastructure and low corporate taxes.
But it also has a workforce that is aging quickly, and growing more expensive: from 2011 to 2013 wages rose by more than 30%. Its unemployment rate is less than 1%—the result of a large agricultural sector and a generous official definition of employment. Even so, in the second half of 2013, more than half of Japanese firms surveyed by JETRO, the Japanese trade-promotion agency, reported labour shortages. The NCPO’s promise to sort out the country’s labour market has so far accomplished little except to send hundreds of thousands of Cambodian workers fleeing for the border.
Small wonder that JETRO has been promoting a “Thailand Plus One” strategy, in which Japanese firms begin transferring more labour-intensive parts of their businesses to countries with cheaper labour and more potential growth. Rajiv Biswas, chief economist for Asia Pacific with IHS, a consultancy, says “that sense of Teflon Thailand is eroding” as other South-East Asian countries grow more attractive to investors and Thailand’s political outlook remains as hazy as the Bangkok skies.