Thai economy hit by political turmoil, Cabinet reshuffle planned

Thai Prime Minister Samak Sundaravej in Thailand's parliament in Bangkok in late June. Thailand's renewed political turmoil, with three top officials forced from office last week, is hurting an economy already hit by soaring inflation and weak investment.

(AFP/File/Pornchai Kittiwongsakul)

by Jutarat Tongpiam Sun Jul 13, 2008

BANGKOK (AFP) - Thailand's renewed political turmoil, with three top officials forced from office last week, is hurting an economy already hit by soaring inflation and weak investment, analysts say.

Prime Minister Samak Sundaravej's five-month-old government suffered a string of bruising court losses last week over vote-buying, share scandals, and a controversial temple deal with Cambodia.

The courts removed the health minister and the deputy leader of Samak's People Power Party (PPP) from office, while the foreign minister was pressured to resign -- all within 48 hours.

News of the impact that Thiland's political instability is having on the country's economy comes as Sundaravej announced plans for a major cabinet reshuffle following a series of legal battles that forced three of his ministers out of office.

The new cabinet line-up will be announced later this month, Samak said, implying that he might wait for a decision in late July in yet another court case that could force three more of his ministers to suspend their duties.

"I will absolutely reshuffle the cabinet. It will be a big reshuffle to make the cabinet better and stronger," he said in his weekly television programme.

"The instability of the current government caused by the ministers has devastated confidence in the Thai economy among investors and consumers," said Aat Pisanwanich of the University of the Thai Chamber of Commerce.

Businesses are now reluctant to invest in the country, while consumers have cut back on spending, he said.

"This is a pretty bad atmosphere for the economy, and no one knows what the government is going to do," Aat added.

Samak is widely expected to announce a major cabinet reshuffle to rebuild confidence in his government, but that means progress on major infrastructure projects and new economic policies are on hold.

"The government now lacks stability. So despite its policies to boost the economy, implementing the policy with concrete measures and actions is being put on hold," said Pongrat Ratanatavanananda, vice president at Bua Luang Securities.

Samak's election victory in December had raised hopes for an end to Thailand's economic troubles, after more than a year of haphazard economic management by the junta that ruled the country following a coup in 2006.

But now the stock market has dropped by around 15 percent since anti-government street protests broke out seven weeks ago.

Inflation in June hit a new 10-year high of 8.9 percent, and experts fear economic growth could be slower than the 6 percent predicted by the government.

High global oil prices and rising inflation have pressured countries around the world, but Pongrat said political turmoil was compounding Thailand's efforts to deal with a shaky world economy.

"Brokers say the government seems to have two alternatives -- either reshuffle the cabinet or dissolve parliament" to hold new elections, Pongrat said.

"Whichever choice it makes, the Thai economy is going to be hurt and the ramifications will be long-lasting."

Kavee Chukitkasem, assistant managing director at Kasikorn Securities, said the political uncertainty could hamper Thailand's ability to weather global economic problems.

"The current Thai politics just makes the Thai economy even more dismal, when it's already suffering from rising inflation and volatile global oil prices," Kavee said.

He said the political crisis would eventually resolve itself, and that a greater cause for concern was that exports could slow later in the year. Exports account for 60 percent of Thailand's economy.

He said that some Asian investors, particularly from Japan and Singapore, don't appear too worried by the political crisis.

"Investors have just delayed their decisions on investments. For example, Japanese investors consider the uncertainty in Thai politics is just part of Thai culture."