If protests are being driven by economic dissatisfaction, emergency decrees won’t work
Economics and politics are inseparable. The current nationwide demonstrations against the government might appear to have only political agendas, but the underlying driving force of the burgeoning demonstrations might be economics.
The question is: Why now? The prime minister has been in office since early 2019 and, if one counts his previous term, he has been in office since mid-2014. Furthermore, the current constitution has been in effect since 2017.
Shouldn’t the natural time to protest against the prime minister and the constitution have been right after the dissolution of the Future Forward Party in February of this year? Why do we see hundreds of thousands protestors coming out eight months later? What kind of “extra” conditions triggered these events? The answer could be the bad economy. Let me show you two real examples.
The first story happened on a public bus heading towards Bang Na intersection. With a large demonstration taking place near the intersection, the traffic was horrendous. One of the passengers loudly complained about the inconvenience of traffic caused by the demonstration. The bus driver turned around and asked: “Are you comfortable riding on this broken-down bus that never comes on time?” The bus ticket lady quickly added: “Perhaps the demonstration could bring a better tomorrow.”
Another story. One of the demonstrators went to a store to buy a megaphone. The seller asked whether this was to be used in the demonstrations.
The answer was “yes.” The seller exclaimed he could not tolerate the economic situation anymore and asked all employees in the store to help pay for the megaphone. All employees gave their money without a second thought.
When we see hundreds of thousands of demonstrators (and millions more silent supporters like the bus driver, the ticket lady, and megaphone store employees), they might not be out there because they share similar political standpoints. They might be there because of their intense economic dissatisfaction. If that is the case, the government is in big trouble because the economic situation will only get much worse. Here’s why:
First, business owners are at the end of their rope. Thailand will not see foreign tourists for a long time to come. According to the Bank of Thailand’s assumptions, foreign tourists will not visit Thailand again until the third quarter of next year. More importantly, less than half of the tourists are expected to come back. Recent explosions of the Covid-19 outbreak in Europe and the US are likely to further affect this, so Thailand may not see large numbers of foreign tourists until 2022.
Businesses cannot wait that long. As a matter of fact, businesses cannot afford to wait until the second half of next year either. Most of them will run out of cash by the end of this year. Massive layoffs are to be expected.
Don’t believe me? Ask Thai Airways. All Nippon Airlines just received $3.8 billion in bank loans to keep them afloat until the second half of next year. Thai Airways, along with most Thai businesses, has no such borrowing power.
Foreign tourist income -- amounting to 2 trillion baht per year in 2019 -- is critical to the survival of the Thai economy. Not only because the amount is equivalent to 12% of GDP, but because it is “net” money. Compared to the income earned from exporting goods, we have to import raw materials in order to produce exported goods. Roughly half of the money is left in the Thai economy.
To replace the 2 trillion baht of tourism income, Thailand thus has to export 4 trillion baht more goods, equivalent to a 50% export expansion.
Not possible? I agree. The government is better off spending time solving this long-term and critical problem of the country than trying to stop the demonstrations and control the media.
Second, the government could run out of money trying to provide meaningful economic stimulus or support packages. I do not need to explain much on this issue. In the second quarter, the government spent 600 billion baht in stimulus packages. The three packages announced for this quarter had a combined worth of only 60 billion baht, one-tenth of the previous budget. The 600 billion baht of spending in the second quarter failed to have the desired effects as the economy still contracted 12.2%. One should not have any hopes for a stimulus budget that is a tenth of its previous size.
Third, debtors (aka, consumers and business owners) have to start repaying their debts. This issue is an important one. According to Bank of Thailand, the owners of 6.89 trillion baht of debt, about 27% of total private debt in this country, have asked for payment holidays and debt restructuring. The Bank of Thailand’s loan payment holiday program will end this month and debtors will have to start paying interest and principal, which means that less money will be available for consumption.
Unfortunately, the Bank of Thailand does not provide adequate detailed data to estimate the impact, but I can safely say the impact of debt repayments is in the neighbourhood of 100 billion baht per month, which could drag the economy down by 7%. Rest assured that not all of the 12.5 million debtors under these programs will resume their loan payments. Therefore, the impact on consumption might not be as bad.
Why are debt repayments hurting consumption now? Because in regular years, banks will use repayment money to give out new loans for a larger loan portfolio. Repayment money is recycled to spur consumption. This has not happened this year.
It is easy to blame all this on Covid-19. But, China’s economy grew 3.2% in the second quarter and grew even further to 4.9% in the third quarter of 2020. China has proved that the Covid-19 crisis can be economically managed and the disease is not the sole factor for a sagging economy. All you need is well-crafted economic policies and a capable government in place.
If the “unwritten” driving force of the mass protests is economic dissatisfaction, no emergency decree and information control measures can help the government. It is time to change strategy for the sake of the Thai people.
Chartchai Parasuk is a freelance economist. This article first appeared on The Bangkok Post and has been reprinted by special arrangement.