Thailand’s Cascading Confidence Drains
Thai bonds and equities, after spurting on Prime Minister Yingluck’s quick coalition-building and appointment of experienced private sector hands in the economic cabinet, reverted to net outflows in Q3 accompanying a decade-worst baht drop subsequently aggravated by record flooding which has inundated Bangkok and the surrounding region. The annual GDP growth forecast has again been shaved to under 4 percent as companies in the industrial parks which equip the global auto and computer supply chains have shut down without backup facilities in place. The administration’s plans to upgrade infrastructure, including bridges and drains, had aided $7 billion in FDI commitments, double the 2010 total, and the $25 billion package will now be expedited and tax credits will be offered to affected local and foreign firms for lost business. Japan’s Bank for International Cooperation will chip in to help exporters there. Altogether an estimated 1000 factories have been ravaged by the 40 percent above average rainfall, and both rural and urban dwellers face a rising death and disease toll as the government scrambles to install barriers against the waters along the capital’s main river artery and elsewhere. Despite the city center staying relatively dry, mass visitor cancellations have repeated after last year’s bloodshed, and closure of the former international airport which has been converted into a shelter. The critical rice crop will also be hit which could push inflation to 5 percent, well above the central bank target and increasing the cost of a subsidy promised by Yingluck during her campaign. A minimum wage hike to $10/day was likewise a core element of the platform, although many small enterprises opposed it as unaffordable. The coordinating minister for economic policy argues it will boost consumption and the hike will initially apply in a handful of provinces.
The change may not cover the lowest-paid foreign workers, especially from neighboring Myanmar, which has recently moved tentatively to alter its pariah diplomatic and investor status. The military has stepped back from total control with a functioning parliament in place, and it rejected a controversial dam project backed by longtime ally China. Nobel prizewinner Aung San Suu Kyi remains free from house arrest and regularly speaks in public, still insisting on trade sanctions against the regime. A special US envoy has met with top officials and an IMF mission arrives to engage in dialogue over the multiple exchange rate and other issues. A cross-border gas pipeline owned by France’s Total has contributed to foreign reserves over $6 billion, and export taxes have been cut. Indochina observers note that shunned authoritarian rulers in Laos and Cambodia have followed Vietnam in opening stock exchanges after embarking on primordial privatizations as undertaken in Yangon, although activity may be isolated and rigid.
