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Thailand’s
new constitution will soon be approved through
referendum and an election date set. With
improvements sought to the political situation,
and speculation as to where Thai politics,
society, and economy could go, questions are now
being asked.
Will a
one-party government rule, as in 2005? Though
Thai Rak Thai (TRT) was dissolved and its party
executives temporarily suspended, they continue
to actively aid and abet cronies in political
campaign activities. As TRT have a strong
political base, the chance they will once again
win the election with 200-300 MPs is still high.
While one-party TRT government may not be
possible, a TRT core party could set up
government by inviting other parties to join.
The Democrat
and
Chart Thai major opposition
parties are expected to gain more seats than in
2005, which even with an estimated 180-240 MPs,
would be insufficient to set up their own
coalition government without necessitating the
participation of other political parties, such
as the Matchima (middle path) party, Suwat
Liptapanlop’s party, the Ruam Jai Thai grouping,
and the Pracharach party, expected to have
around 40-80 of its MPs elected. These
relatively new political parties will be central
to help a certain political camp set up
government.
Nevertheless, possible
problems between national administration
coalition parties, will affect government
stability. One study showed a coalition focus on
personal advantages for the next election,
rather than on working together for the common
good. If this happens in 2007, resignations and
protest may result. Other politicians abuse
their power to benefit their own cliques and
associates. Thus, regardless of its MP strength
in Parliament the coalition could be shaken and
prevented from remaining to full term.
On the
economic side, the post-election Thai economy
should experience higher growth than at present,
with gross domestic product explained as
follows:
Consumption and Private Sector Investment
The
post-election trend of consumption and private
sector investment is expected to edge upwards
due to several positive factors. Firstly, the
election itself will directly inject billions or
trillions into the economy, the electoral budget
being as high as four billion baht. Thus, the
economic sector will expand.
The second
factor is psychological; namely, private sector
confidence. The expansion of consumption,
particularly private sector investment, depends
directly on confidence. In 2007, politics has
eroded private sector confidence the most
through political instability and lack of trust
in the interim government’s policy trends and
the overall direction of the national economy.
Thus, any new government should bring about more
certainty and clarity that will boost private
sector confidence to stimulate consumption and
expand investment.
The last
factor is interest rate. The easing of inflation
due to decreasing oil price has prompted the
Bank of Thailand (BoT) to reduce the policy rate
in 2007. If no major war breaks out next year,
oil price in the global market should remain at
its present level. Also, the fuel oil fund will
stop collecting levies from motorists to pay for
the fund’s debts next year, which will cause the
domestic oil price to decrease a little. These
factors combined are likely to cause the 2008
inflation to remain at a low level, in turn
prompting the BoT to keep the 2008 policy rate
low enough to accommodate consumption and
private sector investment.
Public sector spending
One outcome
of the Thaksin Administration’s populist
policies over the last five years is the
public’s dependence on small credit schemes and
consumption-stimulating packages. So, no matter
which political party will form the next
government, it will have to retain some populist
policies in order to keep popularity. Fiscal
year 2008 will also see a budget deficit of over
16 billion Baht. Thus, these factors combined
will help to spur a short-term boom. Public
spending as a percentage of national GDP is,
however, still not so high. Therefore, the new
government’s role in economic growth will be
only somewhat limited.
Nevertheless, if government proposed mass
transportation and sky-train projects can start
by the end of 2007, the money invested in these
mega projects will be a significant stimulus to
economic expansion and private sector
investment, especially in property and real
estate with locations near new routes.
International Trade
In the
first half of 2007, Thailand’s export volumes
continued to rise despite rapid Baht currency
appreciation through foreign investment inflow.
Such a scenario may be due to short-term export
volumes not yet reflecting the changing value of
the Baht currency. As the Baht quickly
appreciates, export values rise, while import
values decrease. But longer term, the strong
Baht will result in the upward adjustment of
import and the downward change of export
according to the J-curve theory.
During the
past several years, the international trade
factor has not had direct impact on changes in
the government. As such, the next election
should not have a direct impact on international
trade, which depends more significantly on the
global economy and trade outlook. Therefore, if
the Baht does not weaken in the next period,
export expansion will slow down while imports
will rise until the current account is in
deficit. Then, international trade will not help
to push economic growth as expected.
If the above trend becomes a
reality, the Thai economy will be driven largely
by internal rather than external factors, while
economic problems will change in nature, from
problems of political stability to those of
economic stability. The challenge that the new
government will face in managing the economy
will also change, from a problem of economic
slowdown to a lack of economic stability.
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