Political Instability Returns To Thailand
Impact on EU-Thailand FTA talks; coalition government's bid to improve consumption; and the 2025 budget
For a little under a year, Thailand has experienced something resembling stability, but the country is now returning to its usual political turbulence. A petition is currently before the Constitutional Court to dismiss Prime Minister Srettha Thavisin over an apparent ethical breach. Former Prime Minister Thaksin Shinawatra, who thinks of himself as a kingmaker since his release from prison in August, which has pissed off the royalists and militarists, faces charges of lese-majeste. The fate of the Move Forward Party, the largest party after last year's elections and the primary opposition party (and still by far the most popular party), is also hanging in the balance before the Constitutional Court.
The political landscape is uncertain. Much of this turmoil is tied to forthcoming Senate elections later this month, arguably the most complicated in the world. After the elections, the senators, including the military-appointed ones, will lose the ability to vote on who becomes prime minister. (The senators were the ones who stopped Move Forward’s Pita Limjaroenrat from becoming PM last year).
There is hope that the Constitutional Court will reject the petitions to dissolve the Move Forward Party and to dismiss Srettha. The very odd coalition government—composed of “democrats”, militarists, business conservatives, and reactionaries—would struggle to manage the consequences of such decisions. None of these would welcome the return of the street protests we saw in 2020 and 2021. Moreover, if the Move Forward Party was dissolved, a successor party would quickly emerge, effectively continuing the same political agenda (and giving the party even more ammunition to launch against the royalists and Pheu Thai, the “pro-democracy” party that split from a pact with Move Forward last year and got in bed with the reactionaries).
Prime Minister Srettha is not particularly popular, but neither are any figures outside the Move Forward Party. The reactionaries and conservatives within the coalition are unlikely to support Pheu Thai’s Paetongtarn Shinawatra, Thaksin’s daughter, as a replacement. Similarly, Pheu Thai would not accept a militarist leader. The push to eliminate the Move Forward Party is most probably being pursued to keep Pheu Thai's position within the coalition. Pheu Thai is the second-largest party in parliament and could potentially partner with Move Forward to form a supermajority coalition. Additionally, changes in the Senate will strip military senators of their power to choose the prime minister, which was the primary reason the Move Forward-Pheu Thai partnership failed last year after the Senate rejected Move Forward’s leader, Pita Limjaroenrat, as prime minister.
Most people are downbeat about the economy. It grew by just 1.5 percent in the first quarter, and the baht is the second or third worst-performing currency in Asia. What growth there is comes from the services and tourism sectors. Personally, I doubt if it will enter a recession this year. Figures from April across the board were much better than the first quarter. The first quarter was probably weak because the state hasn’t yet properly started doling out money due to the delay in forming the government last year. The National Economic and Social Development Council is probably right that growth will be between 2 to 3 percent this year, although probably on the lower end. It was just 1.9 percent last year.
Three Considerations For Europe
THE 2025 BUDGET. The major short-term risk is that the turmoil delays parliament’s approval of the government’s 2025 budget. The Thai economy has already suffered due to the delay in the 2024 budget following last year's post-election stalemate, resulting in growth slipping to 1.5 percent in the January-March quarter, the lowest in Southeast Asia. Investors won’t put up with two delayed budgets.
THE EU-THAILAND FTA. The ongoing political instability in Thailand is unlikely to affect the EU-Thailand free trade agreement (FTA) negotiations. Although Prime Minister Srettha has been a strong advocate for the agreement and set a very optimistic deadline of the end of 2025 for concluding the talks, the negotiations are primarily being managed by the Commerce Ministry and its apolitical officials. An FTA is seen as beneficial by Thai politicians across the spectrum. However, this FTA is expected to be the most challenging one Thailand has ever negotiated. A significant stumbling block will be the issue of labor rights in the fishing industry, a long-standing concern for the EU. Despite these challenges, there is little appetite in Brussels to make the FTA talks contingent on domestic political developments in Thailand, barring another coup in Bangkok. The focus remains on the economic benefits and mutual interests that the FTA would bring to both parties. So short of another military coup, expect talks to go ahead
CONSUMPTION-RISING POLICIES. While Srettha has been business-friendly, he has also had to adhere to some of Pheu Thai’s more senseless policies, such as the multi-billion cash handout scheme (giving 10,000 baht each to about 50 million Thais). In fact, this political turmoil could kill that signature policy, which isn’t entirely a bad thing. That said, Pheu Thai and Srettha’s allies understand Thailand’s principal demographic challenges. As I’ve noted before, Thailand could lose around 400,000 people from its workforce every year between now and 2050, while the percentage of over-60s in the population will rise to nearly 40 percent by then.
When demographics are discussed, mostly the focus is on production-side problems. I’m not so concerned. Thailand, accustomed to migrant labor from Cambodia, Laos, and Myanmar, can count on its immediate neighbors to supply even more migrant workers in the coming years (all their working-age populations will grow). Bangkok would also benefit from attracting Filipino workers. That’s why I’ve been positive about the government’s attempt to massively increase the minimum wage. Unemployment and surplus labor are going to be a thing of the past very soon, so companies better get used to higher and higher worker demands. However, often overlooked is the consumption side of demographics. While more migrants will aid production, they save or send their money at home, contributing little to local consumption. Thailand's problem lies in boosting domestic consumption, which has surprisingly picked up in recent months.
I discussed this extensively in my recent Diplomat column, emphasizing why I support Pheu Thai’s efforts to significantly increase wages.For investors, the main concern amid political instability is whether Pheu Thai’s economically savvy officials will be overshadowed by populists or conservatives within the ruling coalition (like Paetongtarn’s faction). The latter might prioritize boosting production over consumption, and they would certainly put short-term growth-by-any-means policies above some of the longer-term things that Srettha is trying. While this could benefit exporters in the short term, failing to address the consumption side of the economy could become problematic as demographic issues intensify in the coming years.
What are the odds that Myanmar Balkanises by the end of the decade?