International Relations Diplomacy 3
Thailand Country Risk Mr. Santos Winarso (Country Risk Assessment, 12 May, 2014)
NAME
: Cornelius Susanto
NIM
: 016201200005
I.
Background
Thailand is one of the large economy countries located in South East Asia. It is bordered by the Andaman Sea and the Gulf of Thailand. Thailand’s neighboring countries are Burma, Cambodia, Laos, and Malaysia. The geography consists of a mountain range in the west and a southern isthmus that joins the land mass with Malaysia. The government system is a constitutional monarchy, which means that the chief of state is the King and the head of government is the Prime Minister. Thailand has a mixed economic system in which there is a variety of private freedom, combined with centralized economic planning and government regulation. Thailand is a member of the Asian Pacific Economic Cooperation (APEC), Association of Southeast Asian Nations (ASEAN), and Bay of Bengal Initiative for MultiSectoral Technical and Economic Cooperation (BIMSTEC).
QUICK FACTS • •
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Head of State: King Bhumibol Adulyadej Head of government (four-year term): Prime Minister Yingluck Shinawatra (since August 2011). But since 7, May 2014, Yingluck was forced to step down by the constitutional court due to the evidence that showed her using the abuse of power. So, until July 2014 which will be the next election, Niwatthamrong Boonsongpaisan named as her replacement (He was the Ministry of Trade under her regime) Next legislative elections: July 2014 Thailand has a GDP worth US$602 billion (on a purchasing power parity (PPP) basis). This classifies Thailand as the 2nd largest economy in South East Asia, after Indonesia. Despite this, Thailand ranks midway in the wealth spread in Southeast Asia as it is the 4th richest nation according to GDP per capita, after Singapore, Brunei and Malaysia.1 Per capita Income (USD): 4,150 Thailand is the world's largest exporter of rice, and also the largest newspaper market in ASEAN Population: 67.6 mn
1 Insights, G., Desk, R., Data, T., Connected, G. and Academy(for students, t. (2014). Country Rankings >> globalEDGE: Your source for Global Business Knowledge. [online] Globaledge.msu.edu. Available at: http://globaledge.msu.edu/countries/rankings [Accessed 12 May. 2014].
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Income group: Upper middle income Manufacturing, agriculture, and Tourism are leading sectors of the economy Main export products: Electronics (11.7% of current account receipts), tourism (9.6%), automotive (8.3%), agro-industry products (6%), machinery & equipment (6%), petrochemical (4.3%), electrical appliances (4%) Thailand ranked second in the best quality of life in ASEAN2. Its large population and growing economic influence have made it a middle power in the region and around the world
PROBLEM AND RISK OVERVIEW Thailand had abled to stabilize its political areas since the won of Yingluck Shinawatra on July 2011 in the general election, in which before Thailand suffered on the lack of distrust as the corruption done by the previous Prime Minister, Thaksin Shinawatra (Yingluck’s brother that now is expelled and stays in Dubai). But in fact, the socio-political tensions did not stop as there is mistrust between the pro-Shinawatra regime (which mostly their supporters are rural poor people) and the urban population, royalists, and military on the other hand. In which these political factions broke a political tension in the end of 2013 (around October) which led by Suthep Thaugsuban (former deputy prime minister) that demands for the restructuring of Thailand government system followed with the step down of Yingluck Shinawatra and elects the new “Unelected Government” in order to ease the influence of Thaksin’s regime (due Yingluck is believed as a puppet leader of her brother). In which the tension that occurred called for a sudden election by PM Yingluck on February 2014, but it seems that the snap election failed to resolve the crisis. The caretaker government that she led had limited authority to govern. The opposition movement continues to demand that Yingluck steps down and Thailand forms an unelected ‘peoples council.’ And due to number of legal challenges have been lodged against the PM Yingluck and her government on 7th May 2014, Yingluck Shinawatra was forced to step down the government by the constitutional court as there is evidence that she uses the abuse of power to unlawfully transferring National Security Council chief Thawil Pliensri from his role in September 2011, alleging the move was 2 Thainews.prd.go.th, (2014). สำำนักข่่ ำวแห่ งชำติ : Thailand ranks 2nd in ASEAN for the best quality of life. [online] Available at: http://thainews.prd.go.th/centerweb/newsen/NewsDetail?NT01_NewsID=WNSOC5703270010003 [Accessed 12 May. 2014].
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intended to benefit her Pheu Thai Party and a family member 3. In which the step down of Yingluck and replaced by acting Prime Minister Niwatthamrong Boonsongpaisan has caused another political tension as the pro-Government group has started to express their opinion in regards of that by the political demonstration demanding for Yingluck to be able to join on the July election. Therefore, the political gridlock due to the very high polarization of society especially in the sensitive case of political groups and also the future of the monarchy system as the 85 years old King’s health is weakening shows no signs of abating and has begun to undermine consumer and investor confidence and economic growth on the back of 2013’s weak economic performance, which brings the fact that country risk assessment of political and economy issue is strongly needed in this very intense situation.
3 Tim Hume and Kocha Olarn, C. (2014). Thai PM Yingluck Shinawatra dismissed from office by court. [online] CNN. Available at: http://edition.cnn.com/2014/05/07/world/asia/thailand-yingluck-abuse-power-verdict/ [Accessed 12 May. 2014].
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Method of Assessment
II.
In defining and assessing country risk as country risk refers to “the probability that changes in business environment in another country where business is conducted that may adversely impact the operations or payment for imports resulting in a financial loss”, country risk will be evaluated and factor into four main categories of risk which are the economic risk, political risk, the financial system risk, and the sovereign risk. Also, in the conclusion part the risks will be assessed through the timetable categories, which are short-term risk, and mediumlong term commercial risk. And lastly, other additional risk that could be understood more in the analysis chapter. And to final assessed the country there will be five categorization of country risk’s scoring, which are: •
0 – 2 that equals with A This means that country risk in the country is very low; the legal environment and the business environment are very predictable, and transparent. The sophisticated financial system regulation with deep capital markets, and also mature industry framework.
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3 – 5 that equals with B This means that country risk in the country is low; the legal environment and the business environment are very predictable, and transparent. But the financial system regulation is sufficient.
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6 – 7 that equals with C This means that country risk in the country is relative or so called as weak state; the legal environment is developed with developing capital markets and regulatory structure.
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8 – 9 that equals with D This means that country risk in the country is high or so called as failed state; the political, legal and business environments are unpredictable, and non-transparent. The inadequate regulatory structure is relatively or even fully.
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10 that equals with E
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This means that country risk in the country is very high or as called as collapsed state; the political goods are obtained through private or ad-hoc means. Security is equated with the rules of the strong.
In which every categorization of the risks will be scored in regards of their performance towards the risky gradients that are created to assess the country risk. And then after every categorization are scored, each numbers from the risks will be summed up altogether and averaged in attempt to get the final score which will be the conclusion of the assessment whether the country is having a very low, low, relative, high, or very high country risk.
Structure Evolution Analysis and Discussion
III.
In this chapter it will be explained the categorization of the risks as the index to assess the country risk of Thailand, whereas it will be explained and discussed due to the evolution of the risks from period to period as in the flow with the history. And also each risk will be scored like mentioned in the method of assessment to know the final score of the country risk that will be informed in the conclusion chapter.
POLITICAL RISK •
The continuity of political uncertainty is one of the largest problems that is faced by Thailand nowadays, in which there is high polarization of the political factions which are the pro-government that so called as the “red shirt” faction that support the Shinawatra regime, and also the opposition that so called as the “yellow shirt”. In which the country remains divided politically. The previous election of Puea Thai Party had improved stability but there continues to be conflict over potential constitutional amendments, like th what happened on 7 May 2014 which Yingluck was forced to step down.4
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The question about the health of King Bhumibol also another challenge as when the life of King Bhumibol ends; the monarchy system of
will be
4 Hodal, K. (2014). Thai prime minister Yingluck Shinawatra forced to step down. [online] the Guardian. Available at: http://www.theguardian.com/world/2014/may/07/thai-prime-minister-yingluck-shinawatra-steps-down [Accessed 12 May. 2014].
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Thailand will be questioned as the monarchy in Thailand itself is seen as a cohesive force in Thailand. Because prior to 1932, Thailand was an absolute monarchy, and after that the legislature was created due to the bloodless revolution by Khana Ratsadon (People’s Party) that undermined the House of Chakri that had ruled for the past 150 years, and created the constitutional monarchy. But the first directly elected constitution was the 1997 constitution that called as the People’s Constitution that created the bicameral legislature.
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While the legal system operates quiet fair in Thailand, it can be resisted and it is still impacted by the corruption that attempted by the government. In which this was prominently happened in the the January 2001 general election, the first election under the 1997 Constitution, which was believed as the most open, corruption-free election in Thai history, was actually involving the corrupted voting by buying the number of votes. And this happened again in the 2005 election, which The PollWatch Foundation, Thailand's most prominent election watchdog, declared that vote buying in this election, specifically in the North and the Northeast, and was more serious than in the 2001 election. The organization also accused the government of violating the election law by abusing state power in presenting new projects in a bid to seek votes.
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In which after the voting incident, it created such an intense political situation that led to the 2006 coup d’etat as Thaksin was overthrown from the government and replaced by General Surayud Chulanont. But the military domination did not finish the political instability and brought back the democratic general election on 23 December 2007. And still the political crisis remained happens in the 2008 – 2010 Thai political crisis which was basically between the “Yellow Shirts” political faction which refers to the group called People’s Alliance for Democracy and the “Red Shirts” which refers to United Front for Democracy where they basically are the supporters of Shinawatra family regime (which now defended the political status of Yingluck Shinawatra). And after that crisis Yingluck was elected on 2011, and political situation remained sort of stable until 2013 and now’s political instability.
In which from the political evolution and also political risk analysis like it is explained above, it can be concluded that the political situation of Thailand has never been very stable as the political structure evolved. The mistrust of the people towards the government that causes the political instability right now is one of the aspects, also followed by the intense political faction polarization between the pro-government and also the opposition. Aside from that, the corruption by the government in which actually through the corruption index Thailand
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ranked the 88th out of 176.5 And lastly the question in regards the destiny of Thailand’s monarchy system after the death of King Bhumibol would be another risky aspect in terms of political. And by weighting all of those risky aspects in the areas of political risk the political risk of Thailand is worth scored 7. In which it is scored 7 because the political situation in Thailand is sort of unpredictable and political conflict is easily happened over there even though the conflict is not as intense as happened in the Middle-East, this still affects the intention of businesses to invest over there. Therefore, score 7 perfectly matches the political risk of Thailand as it is not a failed state yet, but its political instability worth scored to the edge of relative country risk. ECONOMIC RISK •
The economy of Thailand is mainly relied on the exports of goods, such as the exports of rice, in which Thailand is the world’s number one rice exporter. Whereas the export of Thailand account for 65% of its national GDP. The high dependency of Thailand’s economy on agricultural and manufacturing exports, which along with a significant tourism sector, makes the Thai economy vulnerable to global economic conditions. In which causes of external developments such as the Euro Area crisis, China/Asian demand, and also the Federal Reserve Bank tapering effect could affect Thai economy very much.
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Thailand’s economy has recovered from the 2011 floods that due to the Tsunami in Japan, in which this helped by the strong investment and a dramatic pick up in output capacity. But yet for now, even the government attitude towards foreign investment and business remains positive, due to the instability that Thailand faces in terms of political, events have begun to negatively impact to business environment. Some companies are publicly contemplating shelving already planned to move production overseas, in which this also because of the key infrastructure projects impacting Thailand’s competitiveness to face delays.
5 Pundit, B. and Pundit, B. (2012). Transparency International: Thailand ranked 88th out of 176 in corruption index | Asian Correspondent. [online] Asiancorrespondent.com. Available at: http://asiancorrespondent.com/93078/transparency-international-thailand-placed-88th-out-of-176-countries-incorruption-index/ [Accessed 12 May. 2014].
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Consumer and business sentiment has improved in combination with a 40% minimum wage that increases, in which this is a drive for a pick-up in domestic demand. Whereas, the hikes of minimum wage followed with the opening up of Myanmar as another significant alternative source of foreign labor and this can add to market tightness and press the individual company expenses.
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And stronger global demand, especially from the United States and Europe on 2012 and 2013, could further boost growth of Thailand to go forward.
And due to all risk aspects of economic risk, it can be weighted that Thailand’s economic risk is scored as 5, in which it is because Thai has high exports which is good, but it can be affected by the global economy when it comes to economy crisis (like the domino effect). SOVEREIGN RISK •
Beside political instability that sort of happened nowadays, the past security issue also happened. In which security has deteriorated in the Southern part of Thailand, where it is a Muslim-dominated provinces. The longstanding insurgency that is mostly inspired by the pursuit of independence attempted by the using violent attacks. In which such as the 2012 Southern Thailand Bombings in which it were a series of bombings that took place in Hat Yai in Songkhla province and Yala in Yala Province on March 31, 2012, in which this attacks have been regarded by major attacks of South Thailand insurgency that most likely referred to the Gerakan Mujahidin Islam Pattani (GMIP) separatist movement. The issue is still unresolved even after the authorities have tried both hardline and negotiations approach.
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Beside that the dispute with Cambodia over the sovereignty of Thai-Cambodian temple, Preah Vihear temple, has been another factor of Thai’s sovereign risk. In which even since the Yingluck’s regime came to power the dispute had seemed to be eased, the dispute was brought to the International Court of Justice (ICJ), an due to the findings in the 1962 Judgment, on 11 November 2013 the court decided to give the full sovereignty of Preah Vihear temple to Cambodia and asked Thailand to withdraw all their troops.6
And from both two aspects of sovereign risk, it can be weighted that the sovereign risk of Thailand is worth scored 6, in which its sovereign risk in regards of security also, Thailand has faced some severe issues but it is not a high case of insurgency, therefore it is a relatively sovereign issues that faced by some countries. But the loss of one of its sovereign site is a minus point that decreased Thai’s sovereign score of sovereign risk.
FINANCIAL SYSTEM RISK •
The financial system in Thailand is more likely refers to capitalism in which Thailand implemented the privatization reforms, which were drafted in 1998. It is progressing in a slow rate, and its recent estimates the state-owned enterprises count for about a quarter of GDP in which this seen that the non-state companies build their country’s economy.
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Thailand’s insurance industry is also regulated by the Office of the Insurance under the Ministry of Commerce.
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And the monetary policy is likely on hold within much of 2013 following a rate cut in 2013 as the attempt to recovery from the devastating flooding and a weak external environment, and yet the political instability.
6 [online] Available at: http://www.un.org/apps/news/story.asp?NewsID=46461&Cr=court+of+justice&Cr1= [Accessed 12 May. 2014].
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And it regards of the financial system risk, Thailand can be weighted by the score of 5 as the financial system in Thailand is able to prove some number of GDP growth and makes Thailand as the 4th largest GDP in ASEAN. But yet again, the impact of political risk and natural disaster could affect the financial system itself, which is why Thailand is worth scored 5 in terms of the financial system risk.
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IV.
Conclusion and Recommendation
In this chapter there will be conclusion that will evaluate all the analysis and discussion from the previous parts by the statement of short-term and medium-long term risk, in which also both of the risks will be scored and at the end of the conclusion part there will be the final score of the country risk. And in the recommendation part, there will be solution for the risk. CONCLUSION Short-Term Risk: The economic momentum has significantly slowed down as the political instability happened in Thailand nowadays, and also the low economic growth from 2013. In which the payment risks which refer to the economy risk of Thailand may become further elevated as the currency has been weaken by the effect of US Fed Reserve tapering effect and also the unrest of political situation in Thailand. Medium-Long Term Risk: Even though there are the effect of US Fed Reserve and the political unrest in the short-term risk, the business environment remains attractive compared to some regional countries in ASEAN as Thailand has high potential yet in human resource and natural resource. But yet again it is still uncertain due to the socio-political uncertainty, and also the security risk in the Southern part of Thailand that can be such a threat, and the private sector external debt that should be watched over as it has been increasing. In which both short-term and medium-long term risks are weighted score of 6, and after calculation of all the risks that are assessed Thailand Country Risk score is worth 5.83 or equivalent with the score of 6. In which the country risk of Thailand is relative, as Thailand has political instability nowadays and the high dependency on export, but it is also covered by the performance of Thailand yet in the international world or around its regional peers as Thailand is being one of the major actors in its region. RECOMMENDATION Thailand has been the major actor in ASEAN yet in the areas of economy, political, and socio-cultural. But in fact Thailand’s internal problem has caused its performance slowed down for the past years. In which the political unrest is the major problem in Thailand, and in regards of that, it is recommended for Thailand to have high transparency in terms of political area, whereas this could eliminate the mistrust of people towards the government like what happened nowadays. And also it is very needed to create diverse political factions and clean competition between political parties so there will be no high polarization in terms of political factions like what is very happening right now in Thailand, which is between the pro-government (Shinawatra supporter) and also the opposition (mostly urban people). In which at last, if Thailand has already possessed clean, transparent, and also diverse politics, it might be a good idea to create singleparty system that representing every political factions in Thailand, so there won’t be another high polarization in terms of political factions like nowadays. But it will be such a long journey to achieve diverse political culture in Thailand. 12
REFERENCES Coface.com, (2014). Thailand / Economic Studies - Coface. [online] Available at: http://www.coface.com/Economic-Studies-and-Country-Risks/Thailand [Accessed 12 May. 2014]. Country Overview: Thailand. (2014). EDC Economic & Political Intelligence Centre, [online] p.1. Available at: http://www.edc.ca/EN/Country-Info/Documents/thailand.pdf [Accessed 12 May. 2014]. Insights, G., Desk, R., Data, T., Connected, G. and Academy(for students, t. (2014). Thailand: Risk Assessment >> globalEDGE: Your source for Global Business Knowledge. [online] Globaledge.msu.edu. Available at: http://globaledge.msu.edu/countries/thailand/risk [Accessed 12 May. 2014]. Thailand Country Risk. (2014). ONDD, [online] p.6. Available at: http://www.delcredereducroire.be/en/archives-cra-2013/#Thailand 2013 [Accessed 12 May. 2014].
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