The Thai economy has come under severe strain in recent weeks amid heightened political tensions. Street protests and the occupation of government offices by demonstrators have shaken down the stock market and currency, and tourism revenues have been curtailed.
The Thai stock exchange fell to a 12-month low in the week beginning September 1, dropping in four of the five business days. By Friday September 5, the SET, the country's benchmark stock index, had closed at 645.8, down 1.38% on the day and 5.64% in the week. The exchange has lost more than 25% since late May, when anti-government protests first began. Meanwhile, on September 2, the baht dropped to a 13 month low of 34.50 against the US dollar.
Investors have been spooked by the length and intensity of the protests, which escalated on August 26 when supporters of the opposition People's Alliance for Democracy (PAD) invaded the prime ministerial compound in Bangkok calling for the resignation of Prime Minister Samak Sundaravej. Two weeks later, they remained encamped in the complex.
On September 9, the crisis escalated further when Samak and his cabinet were ordered to step down by a Bangkok court. Adding a new and somewhat surreal dimension to the situation, the conviction concerned a television cooking show in which the Prime Minister had appeared - a violation to the Constitution under which cabinet ministers are forbidden from working for private companies.
The conflict is widely seen in the international press as pitting the populist Samak, an ally of ousted former Prime Minister Thaksin Shinawatra, against businessmen and politicians opposed to the pair. The PAD has drawn its support from the cities, whereas the government remains popular in many rural areas.
The disturbances have darkened the market outlook, not least because the immediate political future and the country's direction have become uncertain. Thailand's tourism sector, which contributes 14.1% to the country's Gross Domestic Product (GDP) directly and indirectly, according to the World Tourism and Travel Council (WTTC), has also been particularly shaken. The Tourism Authority of Thailand expected tourists to bring some $17.4bn into the country this year, but with cancellations rising and a number of countries issuing travel advisories on visits to Thailand, receipts could be considerably lower. Apichart Sankary, president of the Association of Thai Travel Agents, estimates that the country is losing $11.7m of tourism revenue a day due to the political deadlock.
"The current political problems will later cripple the country's economic growth," Kavee Chukitkasemm, assistant managing director at Kasikorn Securities told the international press. Somchao Tanterdtham, president of the Thai Real Estate Association, was quoted as saying that the strife could exacerbate difficulties that his industry is facing due to high prices and project cancellations.
Though peaceful, the anti-government protests have forced the closure of three airports. The resort island of Phuket was the first airport to shut its doors, followed by Krabi and Hat Yai in the south of the country. The tourism sector at least looks set to continue to take a hit unless a swift resolution is found.
The outlook for the stock market and currency, however, is getting brighter. On September 8, the SAT rebounded 3.08% to 665.66 on the back of the news that the US government was taking control of stricken American mortgage giants Freddie Mac and Fannie Mae. A decline of 0.8% was reported on September 9 after the court called for Samak's resignation, but this was not enough to reverse the previous day's gain.
While analysts such as Viwat Techapoonphol of Tisco Securities quoted in the international press expect the recovery to lag behind that of other Asian countries due to the political situation, the partial reversal of the stock plunge of recent months will help ease investor's worst fears.
Meanwhile, on September 2, Bank of Thailand (BOT) deputy governor Atchana Waiquamdee announced that the institution had moved to bolster the baht, and gave notice that it was willing to do so again if it deemed necessary.
Ironically, though, the currency's weakness has helped boost Thailand's exports, which increased by 23.1% in the first half, helping the economy through the global slowdown. The International Monetary Fund (IMF) expects GDP to grow by 5.3% this year, partly on the back of strong export performance. The BOT, then, seems likely to avoid boosting the baht excessively, but it will move assertively to prevent a collapse.
While the search for a political solution continues, the army has ruled out intervening for the time being at least, reassuring Thais and investors that a return to a cycle of political coups can be averted.