After some 17 months of highly repressive military rule and enforced political calm the Thai economy continues to struggle. During 2014 GDP expanded by 0.7%, making Thailand by far the slowest growing of the major South East Asian economies.[1] While the Thai economy appeared to rally during the last quarter of the year, growing at 1.7 %, largely as a result of falling oil prices and the rebounding of tourism, leading to predictions of a major recovery, the first quarter of 2015 saw growth collapse to 0.3%, with exports contracted by 4.3%, and the key Bank of Thailand investment and consumption indicators also declining. The second quarter showed little improvement with GDP growing by 0.4% and exports contracting by 1.5%. By September 2015 exports been contracting for 9 consecutive months, while consumer prices and industrial output had been in decline for 8 and 6 months respectively. This failure of recovery is particularly disturbing given that in the past the Thai economy has been remarkably resistant  to any long-term impact from political disruption – some even termed it the ‘Teflon Economy’- with significant capacity to recover rapidly from both economic and political crises. Though, perhaps one should not underestimate the cumulative impact of the repeated periods of disruption that Thailand has faced since early-2006,[2] which became particularly serious between November 2012[3] and the 22 May 2014 coup. In addition, the failure of the Thai economy to recover does have to be understood in terms of increasingly uncertain regional and global trading and financial conditions. Though it must be stressed that the other South East Asian economies faced similar difficulties, they generally maintained their growth levels.[4]This leads to the critical question of the extent to which the imposition and persistence of military rule, with no clear end in sight or idea of what might follow, offsets any benefits that might be expected from a return to stability; not least because of the widespread belief that the present calm is both imposed and temporary, given that nothing has been done to either promote reconciliation or address the root causes of the deep divisions in Thai society. Thus, serious tensions continue to simmer below the surface. The overall level of uncertainty is further increased by concerns over how the death of the ailing 87-year old King will impact on the stability and political directions of the country.[5]

While it is the uncertainty surrounding the present situation that must be seen as critical to the lack of confidence in the Thai economy, there is no doubt that the coup and the reality of repressive military rule, have had some very negative impacts on Thailand’s image, international relations and economic prospects. In particular, relations with the USA and EU have become strained. This is reflected in reductions in American military assistance and the EU postponing the signing of the Partnership and Cooperation Agreement, which was completed last November but has yet to be ratified. This would have boosted cooperation in tourism, employment, education, migration, transport and environment as well as allowing closer political dialogue. Potentially more serious is the EU’s suspension of negotiations over a FTA (Free Trade Agreement), which was expected to offset the progressive loss during 2014 and 2015 of preferential tariff arrangements. This will result in some substantial increases in EU tariffs levied on Thai imports, not least for marine products. For example, from 1 January 2015 duty on Thai raw shrimp increased from 4.5% to 12%. For the fishing industry an even greater threat is emerging with the mounting evidence of the use of slave labour and involvement with people trafficking. This is leading the EU to contemplate a complete ban on Thai marine products. Though while these activities have been exposed under the military rule, the abuses long predate the 22 May 2014 coup and extend well beyond the fishing industry. However, these revelations do neither the image of Thailand nor international views of the military any favours. This is also the case with regard to the widely publicised treatment of recent migrants from Bangladesh and Myanmar. Here, the military may be more directly blameworthy (though previous Thai governments have not exactly excelled in their treatment of such people). A similar point could be made over the military’s handling of the resurgence of violence in the South.

While the military rulers have done little to boost confidence in the Thai economy, they have made some significant efforts to restart growth. Notably, a US$11bn. stimulus package, new foreign investment incentives, a series of infrastructure projects amounting to some US$100bn., interest rate cuts, monetary easing and relaxing of capital controls by the Bank of Thailand. However, none of these measures, nor the military’s oft-repeated commitment to ‘prioritise the economy’, have had any appreciable impact on economic growth, factory output, exports, investment or consumption.[6] Although the military has been at pains to stress that this will change, particularly with the implementation of the infrastructure plans and a major expansion of expenditure in the 2016 budget, it is clear that the lack of success on the economy could seriously undermine their support, not least amongst the business community.[7] The concerns of the military over this were reflected from June 2015 in public statements that suggested a reshuffle of the economic responsibilities within the Cabinet and a major shift in economic strategy were being considered. Some reports suggested the military might be preparing to make a major policy u-turn, attempt to spend itself out of the economic stagnation and replace Pridiyathorn Devakula, the Deputy Prime Minister in charge of economic affairs.[8] There was speculation that the replacement would be Somkid Jartusripita, who was already an advisor to the military and whose influence   was detected in the June announcement that the government would allocate working land to needy farmers and mobilise existing village and community funds to support small- and medium-sized enterprises. Policies that were in tune with the range of progressive social and economic policies that Somkid had promoted as a founder member of Thaksin Shinawatra’s TRT party and a key member of the 2001-6 governments.[9] Such an appointment would clearly be radical and controversial amongst the military and their supporters, but it does appear that despite his earlier political career, Somkid has some powerful supporters.[10]

The above speculation proved to be well founded with Somkid’s appointed on 20 August and series of policy announcements following rapidly. These have included a national savings scheme to help those without pensions, a new rice price support system and a programmes of cheap loans for rural communities and house buyers. Very much the sort ‘populous’ policies aimed at promoting incomes levels and consumption that the military has been at pains to condemn since it took control.  Though, there has been an attempt to put a very different gloss on the policies, depicting them has part of a drive to create a ‘People’s State’ . While it is unclear how far down this new policy road the military is prepared to go, it seems unlikely that the measures announced by the end of October 2015 are enough to reinvigorate the economy under prevailing conditions, politically the policy shifts and appointment of Somkid smack of desperation.

Whatever the impact of the policy shifts on the economy, they are likely to be short-term and it must be stressed that the present economic difficulties have served to bring to the fore serious and deep-seated problems. While Thailand, has a very broad-based economy that has exhibited periods of remarkable high rates of growth, notably between 1986 and 1997, and recovered surprisingly rapidly from the 1997-8 Asian financial crisis, there are long-standing concerns over inadequate infrastructure, low levels of R&D, industrial upgrading and productivity (not least in agriculture), and poor levels of education[11] and training. None of these issues have been effectively addressed by previous governments, and there is no sign that the new military government will prove any different.[12] Thus, there are now real concerns that Thailand will be caught in the middle-income trap.[13] That is, Thailand is losing its advantage in less skill-intensive activities as cheaper locations emerge and the reality of an ageing population is starting to result in labour shortages and pressure on wages.[14] Indeed, Thai manufacturing wages have risen by 50% over the last 4 years – and investors are beginning to shift investments accordingly.[15] A recent example of this is Panasonic’s decision to produce flat television screens in Vietnam rather than expand its Thai facilities. To date, Thailand has exhibited a very limited ability to compensate for such shifts by making the transition to skill intensive, higher value added outputs. There is here a striking contrast with neighbouring Malaysia, which is moving production rapidly up the value chain.

Thus, Thailand’s present economic difficulties have to be seen as reflecting much more than the present domestic political situation and the state of the international economy. It is clear that imposed stability is in itself insufficient to return Thailand to even modest growth. For this to happen there needs to be a reasonable level of certainty over future political stability. This is unlikely to result from the continuation of military rule and the looming concern over the royal succession. However, no matter how and when direct military rule ends, or how smooth the royal succession proves to be, it is difficult to see the ingredients for long-term stability and orderly power transitions. There is indeed, a real concern that the military will attempt to leave in place a constitution that will reduce the elected component of government and entrench the power of the old elite of which it is a key part.[16] Such a framework is unlikely to lead to the sort of stable and effective government that is necessary for even short-term solutions to Thailand’s economic problems, leave alone providing the basis for addressing the long-term loss of global and regional competitive positions, which could lead to Thailand becoming stalled in the lower end of the middle income range.


[1] Indeed, overall in South East Asia, only in the narrowly focused Brunei economy where the impact of declining oil and gas production was reinforced by sharp price falls, was GDP performance worse than in Thailand. Elsewhere in the region growth remained generally robust during 2014:

Growth of GDP (%)

South East Asia8.

Source: ADB (2015) Asian Development Outlook 2015, Manila: 188.


[2] Major and disruptive demonstrations against the TRT (Thai Rak Thai) government of Thaksin Shinawatra started early in 2006, fuelled by the tax free US$1.9bn. sale of the Thaksin family controlled Shin Corp to Singapore’s state-owned Temasek Holdings.

[3] The beginning of major demonstrations against the PT (Pheu Thai) government of Yingluck Shinawatra, which was sparked by the attempt to pass a national amnesty bill.

[4] See Note 1 above.

[5] It may well be that the military intend to remain in control until the royal succession has taken place.

[6] While the failure of the latter to respond to stimulation measures, undoubtedly reflects a lack of income growth and confidence, it is also the case that consumption levels have in recent years been maintained through increased borrowing. This has led to household debt expressed as proportion of GDP increasing from 60% in 2009 to 85% in 2014 (80% is generally recognised as the danger level).

[7] It is tempting to ask how much longer key players in the economy will be prepared to accept that no growth with stability is better than the instability that preceded the coup.

[8] An experienced economist with a reputation for independent approaches to economic policy, who had been Governor of the Bank of Thailand (2001-6) and Minister of Finance (2006-7).

[9] During 2001-2006 served as Deputy Prime Minister, Finance Minister and Minister of Commerce..

[10] While Somkid broke with Thaksin following the 20O6 coup d’état, he was one of the 111 TRT executives that the Constitutional Court based from political office for 5 years. However, in 2007 he was briefly head of a government committee charged with promoting the King’s self-sufficient economy policy and seems to have had some on-going support amongst the military. This become rather more apparent following the 22 May 2014 coup d’état, when he was appointed as the military’s advisor on foreign economic relations and from September 2014 as a full member of the National Council for Peace and Order (NCPO) – one of the only two civilians appointed to that body.

[11] Even basic education remains a problem with in 2015 the World Bank reporting that one third of 15 year olds were ‘functionally illiterate’.

[12] While the military’s announcement of series of major infrastructure investments and the related Seven Year Investment Promotion Strategy (2015-22) are to be welcome, there are concerns that these are insufficient to address even this aspect of the Thailand’s long-term problems.

[13] There has over the last 20 years been no shortage of proposals and plans to address this looming prospect, but none have been effectively implemented. That is not to say that there has not been progress, particularly with respect to infrastructure, most notably in the BMR (Bangkok Metropolitan Region) and its immediate environs. However, developments have been piecemeal and sporadic, and were never part of any coordinated long-term strategy. This lack contrasts sharply with Thailand’s generally effective macroeconomic management noted above.

[14] With less than 1% unemployment labour shortages are being partly addressed by migrant labour (mostly from Cambodia, Laos and Myanmar). At the end of 2014 there were some 1.6m. registered foreign workers and perhaps as many against unregistered. The military has recognised the need for migrant workers, and after some initial heavy handed imposition of restrictions and deportations, eased the registration procedures, extended these to cover Vietnamese workers, and suggested that Bhutan and Bangladesh might be included.

[15] The June 2015 announcement of the ending of the national minimum wage, is, at least in part, a response to the labour cost issue.

[16] There are real concerns that the draft constitution that the military is promoting will produce weak and far from stable governments with limited power powers of legislation. The intention appears be for a largely appointed upper house and a lower chamber elected through a system that limits the prospects of any party being able to gain an outright majority, with provision for ministers (including the Prime Minister) to be appointed rather than elected, and unelected bodies empowered to vet individuals, legislation and policies. See for example: Khemthong Tonsakulrungruang (2015) ‘Turning Back the Clock: Thailand’s 2015 Constitution’, CONSTITUTIONNET, 20 February, retrieved on 27 May 2015 from; The Editors (2015) ‘What’s Wrong With Thailand’s New Constitution’, Bloomberg View,20 April, retrieved on 27 May 2015 from