Thomas White Global Investing
Thailand
December 12, 2008
A Postcard from Asia
Thailand: Bangkok Protests End but Economy’s Problems May Have Just Begun

Suvarnabhumi International Airport Suvarnabhumi International Airport in Bangkok handles around 45 million passengers and three million tons of cargo per year. It is estimated that the fallout from the airport’s closure could last for six months or more as Thailand struggles to regain dented tourist confidence.

The past few months have been tough for Thai tourism. Touted as the ‘Land of Smiles,’ images of Thailand range from beautiful beaches, to bustling cities, and breathtaking temples. It is an image that helps contribute almost 6% to Thailand’s gross domestic product (GDP). Yet over the past six months, protests demanding a change in government by the People’s Alliance for Democracy (PAD), have not only brought government functioning to a standstill but have also created huge dents in Thailand’s currently fragile economy.

The PAD obtained their wish to unseat the government on December 1 when a court order forced Prime Minister Somchai Wongsawat to step down, and his party, the People’s Power Party (PPP) disbanded. But before that, protesters occupied Bangkok’s posh $4 billion Suvarnabhumi International Airport for almost eight days, stranding thousands of travelers, and canceling hundreds of flights. Close by, the domestic Don Mueng airport was also shut.

It was a scene unprecedented – overnight Thailand’s reputation as a tourist-friendly, idyllic destination lay in tatters. The numbers aren’t pretty – 350, 000 tourists stranded, and tourist arrivals for 2009 expected to be halved from the 14.5 million visitors who came in 2007. Thailand lost around $90 million a day as cargo deliveries suffered. Occupancy rates at hotels have dropped, despite the onset of peak tourist season in Thailand when normally thousands of Western tourists descend for end-of-year vacations.

With the global crisis severely affecting Thailand’s main exports, clearly, the economy needs help. Thailand’s economy grew 4% in the third quarter, down from 5.3% in the second quarter. A further loss of tourism revenue will pull growth rates down further. The country’s central bank slashed interest rates by 2.75% this month, the largest on record. The bank was candid in its assessment of the situation, stating that ‘domestic political problems are likely to have greater repercussions on economic growth…particularly to confidence and tourism.’

The government too reportedly is drafting a $681 million rescue package to boost the tourism industry, including $53 million just for refurbishing the country’s tarnished image. Thailand’s tourism industry in the past has been resilient, weathering the Asian Financial Crisis of 1997 and the tsunami in 2004. With political uncertainty still rife in Thailand, only time will tell if the economy can withstand this storm too and win back tourist confidence.

 

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