Military junta in Thailand undermines economic competitiveness

Military junta in Thailand undermines economic competitiveness

In Thailand, a military-appointed council has rejected a draft constitution and the election has been postponed to no sooner than July, 2017. An extension of the military regime means political instability will persist and undermine Thailand’s economic competitiveness.

Earlier this month, Thailand’s National Reform Council, appointed by the junta government, voted down the draft constitution composed by the military-appointed constitution draft committee.

A ‘no’ vote by the Council kick starts another painstaking constitution draft process, while prolonging the much-delayed democratic process for another two years. In essence, this extends the rule of the self-appointed junta government in unelected power until at least 2017.

The rejection underlines the political struggle in Thailand between the military government and pro-democracy supporters. The draft constitution was criticised as deliberately preventing former prime minister Thaksin’s return to power and keeping the military’s political influence strong.

If passed by popular referendum, the draft constitution would have allowed the military to take over the government in the event of ‘national crisis’. It was widely speculated that the draft would be rejected by the popular referendum and some believe the junta anticipated such an outcome, thus voting it down to avoid debacle.

Election hangs in the balance

The military government postponed the promised elections three times previously, with the first original date set for October 2015. Prime Minister Prayuth announced on September 18th that an election could be held in July 2017.

However, the likelihood of an election taking place depends on whether the junta government is able to pass a constitution that favours the traditional elites and ensures the military’s strong political influence. A military-friendly draft constitution, however, is unlikely to be passed by referendum, given declining government legitimacy and robust opposition.

The public is exhausted from political infighting, and many Thais believed that if the democratically elected government cannot improve their living standards, perhaps the generals can. But GDP grew only 0.7% in 2914, the lowest among ASEAN member countries. Consumer confidence dropped to a 15-month low in August to 72.3, and household debt rose 13% since 2014, its highest in ten years.

Opposition and criticism of the government have increased, and the authorities have responded with an iron fist. Crackdowns on political opposition have increased and dissidents have been thrown in jail. The public is becoming alienated in the political process created by Prayuth, and political observers and human rights activists are concerned that the Thai people may come to see violent protest as the only way to restore democracy.

Pro-democracy protestors disregarded a ban on demonstration and staged a rare rally against the military government on September 18th, a sign that the supporters of Thaksin and democracy remain active. Opposition party United Front for Democracy against Dictatorship (UDD) has no faith that the new draft constitution would be democratic and wishes to reinstate the 1997 constitution, which specifically made military coups in Thailand illegal.

Political uncertainty holds back the economy

The political uncertainty that has undermined economic growth will persist for the medium term. Nomura Securities’ economists believe “political issues will likely be given priority, leaving the economic agenda (including structural reforms and large-scale infrastructure projects) on the backburner.” Thailand’s finance ministry has revised 2015’s growth figure three times down to 3%, with first quarter growth at 3% and second quarter growth at 2.8% this year.

While external factors such as the slowing growth of China are partly to blame for the drop in exports, political uncertainty bears great responsibility for making Thailand the one of the worst performing ASEAN countries.

Thailand has seen a huge drop in foreign direct investment this year as other companies choose the Land of Smiles’ neighbouring countries with better business environments. According to stock exchange data, foreign investors withdrew a net $1.2bn from domestic equities in August this year, the biggest monthly outflow in two years.

Furthermore, the military regime has prevented Thailand from integrating with the world economy. Military rule led to the suspension of free trade talks with the European Union last year. With the military regime being extended for at least another two years and no sign of a return to democracy, it is unlikely we will see the EU-Thailand Free Trade Agreement (FTA) negotiations finalised in the foreseeable future.

Meanwhile, neighbouring countries Vietnam and Singapore have concluded their EU FTAs, and it did not take long for foreign companies to switch business partners and trade with these two countries to take full advantage. While the junta government is occupied with “attitude adjustment,” Thailand is losing its competitiveness to other ASEAN countries.

Categories: Asia Pacific, Politics

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.