FocusViolence in Thai political unrest dents business confidence

13 April 2009 08:18  [Source: ICIS news]

By Ng Hun Wei

SINGAPORE (ICIS news)--The ongoing political unrest could send Thailand’s economy into a tailspin and dent business confidence in its petrochemicals industry that is still reeling from the shock of the global financial crisis, analysts and market sources said on Monday.

About 80 people were reportedly injured early Monday morning after anti-government protestors and military forces clashed in the Thai capital of Bangkok amid a hail of gunfire, according to media reports.

The latest skirmish marked yet another escalation in the long-running showdown between the governing Democrat Party led by incumbent Prime Minister Abhisit Vejjajiva and supporters of ousted PM Thaksin Shinawatra.

The Thai government had declared a state of emergency in Bangkok and its surrounding areas on Sunday following the disruption of the Asian summit in Pattaya over the weekend. The government had to call off the meeting of southeast Asian economic leaders as the red-shirted supporters of Thaksin stormed the summit venue.

“The (political) situation looks really bad now. If the conflict goes on for another two to three months, we could see a much more significant economic contraction in the second quarter,” said Carl Rajoo, an economist at consultancy firm Forecast.

Thai government officials have warned late last month that the country’s GDP would shrink for the first time in a decade by 2-3% in 2009.

Last year, the country’s economic expansion slowed to 2.6% from 4.9% in 2007, with the fourth quarter registering an annual decline of 4.3%.

“I don’t think the Bank of Thailand (central bank) has factored in the degree to which the protests have escalated. The government has been saying not to be too worried,” said Rajoo.

The central bank may have taken a “very myopic” view of the ongoing protests that have been increasingly turning violent, he added.

Business sentiment has already been hit by the worsening political unrest. A plastic bag manufacturer in the Nongkem district, south of Bangkok, closed its factory for the Songkran Festival from Monday to Thursday but is now uncertain when it will restart the plant.

“I was planning to re-open my factory this Friday but looks like I’ll have to postpone the re-opening to next Monday because most of my workers are from the neighbouring provinces in northeastern Thailand,” he said. “I don’t know if they can get back in time.”

The rural north and northeast provinces of Thailand are considered Thaksin’s strongholds, where demonstrations have also been reported.

The mayhem would also have serious impact on the business centre in Bangkok if it was not resolved when business resumed next week, but the petrochemical hub at Mab Ta Phut in the Rayong province was unlikely to be affected, a senior official at IRPC said. “The petrochemical plants are operating normally,” he said.

Rayong province is 180km away from Bangkok.

No disruptions to other petrochemical plant operations were heard at the time of writing. A polyvinyl chloride (PVC) producer however said it was concerned about the impact of the political unrest on petrochemicals demand.

“(PVC) Demand has definitely improved from the low of last quarter and a part of it can be attributed to the government’s economic stimulus package. There will now be some uncertainty over the stimulus package’s implementation,” the PVC producer said.

PM Abhisit has earlier announced a $44bn (€33.4bn) stimulus package, part of which would be implemented over the next three years. The package includes major infrastructure projects, which industry players had expected to stoke demand for PVC.

Thailand, however, had seen its leadership changed four times since 2006, during which course the government’s budget had been rewritten several times.

The government had also planned to seek foreign financing for its massive stimulus package but could face difficulties depending on the political situation, industry sources said.

“On FDI (foreign direct investments), we did notice a downward trend from 2006, since Thaksin’s ouster. We have seen some form of reaction from the investors’ community and looking at that, it could get worse,” said Forecast’s Rajoo.

($1 = €0.76)

With contributions from Chow Bee Lin and Pearl Bantillo

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