June predicted: The confidence generated both at home and abroad by Thailand’s election on March 24th may be in danger of being lost as political uncertainty grows. 

There are now multiple probes into the Future Forward Party and a number of other election candidates over irregularities as the election commission struggles to finalise a conclusive result.

Bickering and disagreement has already broken out about which party will form the next democratic government. Some of this is normal to elections in any country, some of it is not. There has been criticism of Thailand’s election commission for the handling of the poll.

The slight decline of the Thai baht this week still marks an overall rise in 2019 and a run that has made it Asia’s top performing currency this year. However, a deteriorating pattern in the Thai economy must correct itself by June when the political situation should also be clearer. There are warning signs of a fall off in exports and sluggish domestic consumption while many fundamentals are sound. There is also strong liquidity in investor markets but many are beginning to wonder just what the political and economic future has in store? It is called uncertainty and it is not good.

The decline in recent days of the Thai baht has raised questions about Thailand’s economy and the political situation. Although most analysts predict a return of a stronger baht in June, there might be more at play. The deterioration in economic data since the end of 2018 and the accelerating political uncertainty since the Thai election on March 24th means that Thailand has until the end of June to resolve its political future and halt a what is looking like a deteriorating economy to prove the analysts right. If not, then all bets may be off.

This week the World Bank downgraded its growth projection for Thailand to 3.8% for 2019. It is a far cry from the 5% touted at the middle of last year when things turned a bit sour.

This week, the consistently strong Thai baht was reported as faltering although it is still up for 2019 and far too high for the comfort of Thai exporters facing headwinds. The World Bank’s Kiatpong Ariyapratya confirmed in his own analysis in recent days that Thailand is suffering from a worldwide movement being driven by the US China trade war.

Meanwhile, the election on March 24th which looked initially like it cemented the position of current Prime Minister Prayut Chan ocha, has now turned into more uncertain political prospect.

Criticism of the election commission, some of which it itself has accepted as valid and apologized for, has led to a complaint this week being taken up by Thailand’s Ombudsman into the conduct of the poll on more specific grounds. This opens up the possibility of the election itself being nullified which would be a body blow to national confidence.

The election results are expected to be formalised on May 9th but this also has been thrown into question over a misunderstanding as to how the party list parliament seats are to be calculated correctly under law. A request to the courts to clarify this has been rebuffed. The mounting number of probes both by the Thai police and the election commission itself into the progressive Future Forward Party which reportedly came third in the poll with a powerful 80 seats in the lower house, is also giving rise to further instability and uncertainty.

These moves could see the party’s leader, Thanathorn Juangroongruangkit (centre), banned from politics or even jailed on criminal charges. Not least is a continuous pattern of declining exports and mixed signals from the economy which despite sound fundamentals, appears to be running of steam.

The Thai baht has fallen to its weakest level since the beginning of the year. It is the first time since the end of last year that the stubbornly highly priced currency, Asia’s best performing currency this year, has fallen beneath an average of its value for 100 days. However, the value of the currency to the US dollar still remains above ฿32 to the dollar. It is thought, at this stage by market experts, that any decline in the value of the baht in the short term will be corrected by the end of June.

Continuation of decline in Thai exports, seasonal factors and political instability behind the the fall off in Thai baht’s value
The key reason for the slight decline are numerous including increased uncertainty about the political situation since the March 24th election, a continuation in a declining pattern in Thai exports and seasonal factors. These seasonal factors include a weaker period for tourism and the annual repatriation of profits and dividends sent by foreign firms who have invested in Thailand. These fund transfers have now begun and are forecast to see ฿80 billion leave Thailand’s shores up to the end of May.

Decline is only slight, baht is still up on the year
However, US foreigners living in Thailand or living in the country should not breathe a sigh of relief just yet. The rate of decline in the Thai baht against the greenback has only been under 1% this quarter. This compared to a 2.5% gain even since the start of the year.

External factors aplenty on Thai currency
There are quite a range of factors simultaneously impacting the value of the baht and some of them are external to Thailand, in any event, such as increased economic uncertainty in the UK and the euro area as well as outflows from China over uncertainty there.

Fall in exports and decline in economic activity are of bigger concern for Thailand
In Thailand, the two key factors are the export trade and the political situation. Figures released on April 22nd showed an even steeper drop off in exports for March 2019 than earlier predicted with a worrisome 4.88% decline against figures for last year. Also of concern is a steep decline in imports which contracted by 7.63% following an even steeper decline in February of 10%. This suggests an economy where economic activity is slowing down. However, the trade surplus for March was ahead of forecasts ฿2 billion with a ฿4 billion surplus for February.

Thailand’s economic leaders are battling for increased international trade and exports
Thailand’s economic leadership is working hard to keep what has been a sound and performing economy moving forward in 2019. It is still projecting to see an 8% increase in exports for 2019 following growth of 6.7% in 2018. This seems optimistic but the easing in value of the Thai baht in recent days will only help. The strong value of the baht is seen as one of the key reasons for the fall off in Thai exports, the other perhaps greater factor is due to the spin off effects on Thailand from the US China trade war. Both factors may also be linked.

Economic fundamentals still sound
Roong Sanguanruang is a market analyst with Bank of Bank of Ayudhya Plc. Speaking with the Bangkok Post this week she said: ‘The decline should be limited as the fundamentals are still looking sound, if you look at the external position of Thailand.’

Conflicting signals sent by liquidity at investment level with increase in IPO activity
This was echoed by the World Bank this week which at the same time cut Thailand’s projected growth rate for 2019 to 3.8%. Many analysts now consider that this figure is too optimistic based on a consistent downward trend since 2018. However, there are conflicting signs for the Thai economy with reports of a growth in domestic auto sales although this could be due to rush to avoid the imposition of strict new lending rules on personal credit imposed by the Bank of Thailand on April 1st.

There are also reports of strong liquidity among investors in Thailand which is due to see a number of high profile IPOs in the months ahead. Some banking sources have suggested that ฿5 billion may be raised in IPOs in Thailand for 2019 compared to ฿2.5 billion in 2018. This would be the highest rate since 2013 when ฿6 billion was raised.

Worldwide trade downturn is hitting Thailand in both exports and domestic demand
The senior economist with the World Bank monitoring Thailand is Mr. Kiatpong Ariyapratya. He suggests that Thailand is suffering from a worldwide slowdown caused by the the US China trade war. He also proposes that the projected growth in Thailand’s tourism sector may be less than anticipated this year. However, so far, while numbers are slightly down from China, overall rates of tourism are up from more traditional markets.

The World Bank analyst underlined the importance of government investment in the economy but also the importance of a pickup up in domestic consumption which may be down in recent months. The analyst suggests that his projections are based on a growth of 4.6% and 4.2% in both areas for 2019.

Increased political uncertainty after the election accelerating as more questions arise
Both are directly impacted by the current political situation growing increasingly uncertain since the March 24th election. This has seen the government and the military junta carry on its work awaiting the finalisation of the poll results by May 9th. However, a range of controversies have erupted that threaten the smooth formation of a new Thai government in June and indeed, at this stage, the election itself and any prospect of a new parliament.

Now a threat to the election itself
This week, the Office of the Thai Ombudsman took up a request to investigate the activity of Thailand’s election commission on its handling of the election. Despite the commission’s own defense of the poll, it has come in for criticism from both the public and politicians. It has itself admitted to mistakes and has attempted to openly explain matters. This has seen the body apply to Thailand’s Constitutional Court to clarify the party list calculation procedure and be rebuffed. It has also had to organize election reruns in some constituencies. This raises the prospect and fear that a Thai court, at the most senior level, might even opt, at some point, to nullify the election altogether.

Controversies surrounding the embattled Future Forward Party and its leader
The other area of controversy has centred on the Future Forward Party and its tenacious, outspoken leader Thanathorn Juangroongruangkit. Already facing two criminal probes by police and prosecutors, this week he faced new complaints that he remained the shareholder of a Thai media firm after he declared his candidacy to run in the poll contrary to election law. This has caused the election commission to issue him with an orange card or warning which seems to be based on official evidence and filings. The young leader abruptly cut short a trip to the Netherlands this week to return on Thursday in order to submit evidence on the affair of the election commission. He has strongly declared his innocence to the public and his supporters.

Future Forward Party and its leader face the real threat removal from Thai politics
Even while absorbing this, a new complaint has emerged against the Future Forward leader’s endorsement of another candidate already removed by the commission over a similar failure. The culmination of these investigations may have grave implications. The Future Forward Party is believed to have come third in the election with a significant and powerful 80 seat tally. Thanathorn Juangroongruangkit may now face removal from politics in Thailand. He also could possibly be charged with new criminal offences. It could also plausibly see the party itself disbanded. The co founder of the party, Piyabutr Saengkanokkul and its secretary general, is also facing a number of probes into his activities.

Political uncertainty has grown even after what appeared a successful election for the government
Since the election on March 24th, the level of political uncertainty has shot up. It has been been suggested that the announcement of the election results on May 9th may now even be extended. The position is that while the government party, Palang Pracharat, emerged as the winner of the popular vote with a tally of seats far higher than expected, and the higher house or Senate, picked by the military, is expected to support the incumbent Prime Minister’s candidacy as Prime Minister if called to vote under a key procedure where no majority is seen in the lower house. There is now doubt not only about the result in terms of seats in the lower house and the participation of the Future Forward Party but also as to the election itself standing up to a constitutional challenge.

Thailand has until the end of June to see a turnaround on both fronts and this will impact future direction of what is still a strong Thai baht.

This uncertainty may undermine the Thai baht until the end of June or whenever the future of Thailand’s government is decided one way or the other. This may, ironically, benefit Thailand’s export trade. The formation of a government however and its ability to continue with key infrastructural projects and investments will also be critical. Everything is in play right now. In June, if a government emerges with a sustainable majority in Thailand’s lower house and and a new political will to provide leadership and stability, it will be a major fillip to the value of the baht. However, if the deterioration in economic conditions continues into June and the political situation remains in turmoil, it will spell an even bigger question beyond the grasp of politics.