Yes vote for charter ‘no quick fix’
ECONOMISTS and business leaders yesterday expressed relief that the junta-backed constitution survived Sunday’s referendum, but most do not anticipate that a strong improvement in the economy will follow.
“It should bode good tidings for the mood of consumers over the rest of the year, but to what extent still hinges on how the government can make consumers feel comfortable and spend more,” said Boonchai Chokwatana, president of Saha Pathanapibul Plc, a major consumer goods group.
The results were expected and should boost the confidence of domestic and foreign investors, he said.
Isara Vongkusolkit, chairman of the Board of Trade and the Thai Chamber of Commerce, said government spending and tourism would still be the backbone of the economy during the rest of this year.
S&P Global Ratings said political uncertainties improved somewhat, but its sovereign credit ratings on Thailand (foreign currency BBB+/Stable/A-2; local currency A-/Stable/A-2; axAA/axA-1) are unaffected.
While the result of the referendum increases the likelihood of an election next year, the level of political uncertainty in the country remains significant.
“Early results of the referendum held in Thailand on Sunday suggested that a majority of voters expressed support for the draft constitution that the military government put forward.
“This makes it very likely that the military government will proceed with elections for a new government in 2017, as it promised.
“By the end of 2017, the new elected government is likely to be in place.” This development, however, has only reduced political uncertainties modestly.
Major political parties are against the constitution put forward in the referendum, although some have expressed acceptance of the result. Voter turnout was also low. Critics of the charter said it allows the military to exert significant political control even after an elected government comes into office.
Consequently, it is unclear if the next election will yield a government that bridges the political divide and pushes ahead with policies that could reinvigorate economic development.
“Given the uncertainties, private sector investment is likely to remain weak over the next year or two. “We expect economic performance to remain relatively subdued and prevent meaningful improvements in the sovereign credit metrics,” S&P said.
Nalin Chutchotitham, an economist at HSBC Thailand, said economic policies will likely be maintained for the coming four to six quarters, so there should be no significant shift in the economic and foreign exchange outlook.
Still, establishing a new constitution is an important step forward in the government’s political roadmap and should help to improve Thailand’s relationship with foreign partners.
Also, a more predictable political timeline can lift business confidence, even if it may not yet translate into significantly higher consumption and investment in the near term. Lastly, political disruption is only one factor that has caused the economy to grow sluggishly in the past decade.
To boost growth, Thailand still needs to reduce structural bottlenecks and solve other issues such as high household debt and weak private investment.
John Marrett, research analyst for Asia at the Economist Intelligence Unit, said they view the “yes” vote as an expression of Thai citizens’ desire for political and economic stability.
“Although many suspected that the new charter could undermine their previously held democratic rights, the perceived risk of greater political uncertainty and economic instability, if the constitution had been voted down, was far less appealing.
“The positive impact on political stability from public approval of the junta’s plans does not guarantee that a strong improvement in Thailand’s economy will follow,” he said.
Veerathai Santiprabhob, governor of the Bank of Thailand, said the referendum results could sweeten the economy in the latter half of this year, given the country’s clearer direction.
The Stock Exchange of Thailand Index rose sharply in morning trade, reflecting investor confidence after the end of the political uncertainty on expectation of foreign capital to flow into the Thai bourse and bond market.
And that could make the baht appreciate in the short term, he said.
TOURISM UNAFFECTED 4B
