The Economist 04Apr2020

The EconomistApril 4th 2020 Asia 45

D

espite coups, floods and mass pro-

tests, visitors have flocked to Thailand

in recent decades. Almost 40m of them ar-

rived last year to blister on its beaches and

dance in its discos. But as the globe shuts

down because of covid-19 and holidaymak-

ers stay at home, the land of smiles feels

glum. Travel and tourism, broadly defined,

were worth more than 3.5trn baht ($109bn)

in 2018, according to the World Travel and

Tourism Council, equivalent to about 20%

of the country’s gdp. The Kasikorn Re-

search Centre, a Thai outfit which conducts

economic analysis, estimates that if the co-

vid-19 pandemic lasts into September,

Thailand’s losses will amount to 400bn

baht ($12.1bn).

The country has scrambled to respond

to the coronavirus, which has infected at

least 1,771 people. But the policies adopted

were initially confused. At first foreign vis-

itors were required to present embassy ap-

provals and certificates declaring them-

selves free of covid-19 before boarding

planes to Thailand. Now a state of emer-

gency has been declared and the country’s

borders are closed to foreign visitors. Bang-

kok is under a “soft lockdown”, with enter-

tainment venues and malls shut. The

governor of Phuket, normally a tourist hub,

declared there is now a curfew in place for

visitors between 8pm and 3am.

The economic response to covid-19 has

been more robust. On March 10th the

government unveiled a stimulus package

worth $12.7bn, about 2.5% of gdp, which

includes tax deductions for businesses and

a 20bn baht fund for workers affected by

the pandemic. On March 24th the govern-

ment promised another 45bn baht in cash

handouts. The Bank of Thailand, the coun-

try’s central bank, cut its key interest rate

by 25 basis points to 0.75% after a special

meeting on March 20th. It is also leading

efforts to shore up systemic liquidity by of-

fering special credit facilities and support

for bond markets, among other measures.

More is likely to be needed.

The Thai economy seemed sickly even

before the new coronavirus emerged. It

grew by just 2.4% last year, the slowest pace

since 2014. This year it seems sure to

shrink. Growth has been disappointing for

more than a decade. From 2009 to 2019,

Thailand’s growth rate (3.6% on average)

lagged behind poorer neighbours like Viet-

nam (6.5%) and the Philippines (6.3%), and

even richer ones such as Malaysia (5.3%). A

small number of huge firms, family-owned

businesses and state-owned enterprises

dominate the economy. They face little

pressure from competitors to innovate.

The poverty rate has stagnated for the

past few years, having fallen dramatically

in the decades before (see chart). About a

tenth of the population lives on less than

$2.85 a day. Average household consump-

tion declined in 2017-18, while household

debt stands at about 80% of gdp, one of the

highest ratios in Asia. About a third of the

labour force still works in agriculture,

which is plagued by inefficiency. Thai-

land’s most severe drought in decades has

cut production of sugar, rice and rubber.

Thailand’s demography is not too ap-

pealing to investors either. The country is

ageing: its fertility rate is lower than Eu-

rope’s. Over a quarter of Thais will be older

than 65 by the middle of the century. It took

France 160 years for the share of its popula-

tion aged 65 or above to rise from 7% to 21%;

the un estimates Thailand will do the same

in just 35 years. The elderly lack retirement

savings—national surveys suggest that

eight in ten of them rely on income from

their children.

Thailand’s low labour costs once per-

suaded carmakers, steel producers and

others that it was a good place to build fac-

tories. But competitiveness had been slip-

ping. Against the dollar the Thai baht was

one of the best-performing currencies in

Asia last year. The coronavirus has reversed

those gains, but Thai workers’ wages still

seem expensive when compared with

those in places like Vietnam. In December

Mazda, a Japanese carmaker, shifted pro-

duction of its suvs to Japan. In February

General Motors, an American giant, pulled

out of Thailand altogether.

This combination of economic ills

would test the wisest lawmakers. Thai-

land’s elites are distracted by internal

strife. There have been two coups since

2006. Almost five years of military rule
      damaged Thailand’s international stand-
      ing and prevented it from negotiating free-
      trade agreements with Western countries,
      argues one Bangkok economist. The
      government prefers flashy but ineffective
      schemes like “Thailand 4.0” which in-
      cludes the Eastern Economic Corridor
      (eec), a special economic zone.
      There are some small spots of good
      news as Thailand tackles covid-19. Its uni-
      versal health-care system means citizens
      will have greater access to help when ill
      than many others in developing countries.
      And the government’s existing welfare
      scheme means it is ready to funnel money
      to people through the crisis. Building new
      infrastructure, such as a new railway and
      airport planned near Bangkok, would bol-
      ster its competitiveness in the long term.
      But the grim truth is that Thailand’s mala-
      dies will outlast the pandemic. 7

SINGAPORE

Covid-19 only compounds the country’s

long-standing economic woes

Thailand’s economy

Sigh-am

The hangover, two parts

Thailand

Sources: National sources; World Bank

60

40

20

0

1988 2000 10 18

Household-poverty rate, %

16

8

0

-8

1988 2000 10 19

GDP, % change on a year earlier

T

he commanderdid not mince words.

Furloughing half of the 9,000 South Ko-

reans who work for the American military

forces in the country for an indefinite per-

iod was “unthinkable” and “heartbreak-

ing”, General Robert B. Abrams said in a

televised address on April 1st. Yet he had to

do it. As of this month thousands of local

civilians working at American bases across

the country will stay at home, unpaid, for

the first time in the history of the alliance.

However heartbreaking it may have

been for General Abrams, the decision was

evidently no longer unthinkable enough

for his superiors to avoid it. The local staff

looking after the 28,500 American troops

stationed in South Korea provide a range of

services including security, catering and

electrical installations. Their wages are

covered by an agreement that divvies up

the cost of hosting the troops between the

two allies. The latest version of the agree-

ment expired at the end of 2019. Three

months later, emergency funds to cover

wages are running low. The workers now

on unpaid leave will remain there until the

two countries agree on a new deal.

That is precisely what negotiators have

failed to do so far, despite months of talks.

The reason is Donald Trump. Previous

presidents saw America’s alliance with

South Korea as an essential part of a broad-

er strategy—keeping the peace in Asia for

the benefit of the whole world, including

SEOUL

America’s army puts its South Korean

workers on unpaid leave

South Korea and America

Stay-at-home allies

1