Asia Briefing has been speculating about when the Thai economy would tank on the back of the political unrest there and what form it would take.
On May 7th, that day appeared to get closer. Yingluck Shinawatra was ousted as premier for abuse of power, and acting leader Niwattumrong Boonsongpaisan was appointed with the mandate of holding on to power, and holding together the country until an election, tentatively planned for July 20th.
The Bangkok Post ran a story shortly after Ms Yingluck's ousting saying the Thai economy was "heading for collapse".
The signs are not good, and the turmoil, which has prevailed since November, would make matters worse for south-east Asia’s second-largest economy, already suffering from weak exports, a year-long slump in industrial output and a significant drop in tourism.
The protests have cost the Thai economy nearly 100 billion baht (€2.25 billion) and will impact on the once-booming tourism sector, which had expected to welcome 28 million international tourists this year.
Abuse of power
Ms Yingluck is the sister of deposed leader Thaksin Shinawatra, who lost power in a military coup. The former telecoms tycoon, who has won the unswerving loyalty of legions of Thailand's rural and urban poor, lives in exile to avoid a 2008 jail sentence for abuse of power.
Critics accuse Ms Yingluck and her family of crony capitalism and using populist policies to secure the support of rural voters. Mr Thaksin remains a potent force in the country’s political life and makes boosting the economy difficult too.
Even before the prime minister was ousted, the economy was underperforming vis-à-vis its neighbours and regional counterparts. Thailand is projected to grow 2.8 per cent this year, compared with 5.4 per cent for Indonesia, 5.6 per cent for Vietnam and 6.5 per cent for the Philippines, according to economists' consensus forecasts published by HSBC.
The constitutional court ruled that Yingluck and nine of her cabinet ministers had abused their power in 2011 over the transfer of a security agency chief. Meanwhile, Thailand's anti-graft agency decided she mismanaged a rice subsidy programme.
Growth under threat
Her government will have spent 880 billion baht (€19.8 billion) buying rice from farmers from October 2011 to February 2014, according to figures from the Bank for Agriculture and Agricultural Cooperatives, including about 100 billion baht (€3.1 billion) that hasn’t yet been paid. The government has recouped about 200 billion baht (€6.2 billion) through stockpile sales, according to Ministry of Commerce data.
According to Bloomberg’s calculations, Thailand accumulated rice reserves of 12.8 million metric tons in 2013, or about a third of the global export market. The country’s reserves more than doubled from 5.6 million tonnes in 2011, when the intervention began under Ms Yingluck’s Pheu Thai Party administration, to 14.7 million tons this year, US Department of Agriculture data shows.
According to Capital Economics, if the situation is not resolved soon, its 2 per cent gross domestic product growth forecast for 2014 would come under threat.
Meanwhile, Japanese investment bank Nomura said the ruling kicking Ms Yingluck out of power added downside risks to its 2.4 per cent growth forecast. Moody’s described the ruling as credit negative because it threatens to prolong the country’s political crisis.
