FDI into Thailand dropped by as much as a third during 2007 from 2006’s figures of US$9.6billion, and will struggle to reach US$3 billion for 2008, according to figures released by the Thai Finance Ministry. While much of Asia continues to boom, Thailand’s political problems continue to dampen investor interest in the country.

Thailand’s political problems have now become so acute that the government has been ousted from its own government house in Bangkok by protestors against the regime, and is now running the country holed up in executive suites at the old Don Muang International Airport. Quite how Thailand got itself into this position is a long and tortuous story. What should be a wealthy, attractive destination and a key regional business and transportation hub is fast turning into an Asian basket case.

The current government is a coalition, formed in February this year after winning a general election. However, much of its power base is still with now-disgraced former Prime Minister Thaksin Shinawatra, who has recently been sentenced in absentia to two years imprisonment for graft and is currently living in exile in London fighting extradition requests. The current prime minister, Somchai Wongsawat, is Thaksin’s brother-in-law, leading many to speculate that the country is actually being run from London by a convicted exile. Protests have gotten to a stage where many Thais, especially amongst the business community, have rejected the actual legitimacy of the current Thai democratic institutions and have occupied Government House for the past three months, forcing ministers to now work out of commandeered airline offices at the airport.

It’s a completely bizarre situation, and one that harks back to due diligence issues that used to be actively applied to Asia – including China and India – up until recently. The need to assess political risk when investing in a country is coming back. Thailand’s problems have certainly damaged the country extensively. FDI is plummeting along with GDP and a complete breakdown of investor and consumer confidence; and all at a time when the nation also faces challenges from the global financial crisis. Tourism, long a stable source of income during previous sporadic downturns and times of political chaos in Thailand is also taking a big hit this time.

Protests between government supporters and opponents turned bloody in Bangkok, with several deaths and tourists getting caught up in the street fighting. The military also momentarily lost control as activists took over three national airports, including that of the primary tourist destination, Phuket, occupied them for a week and shut them all down. Tourism losses in September alone are estimated at US$2 billion. The protesters, the People’s Alliance for Democracy (PAD), are believed to have supporters amongst the Thai elite, including the monarchy and the nation’s wealthy businessmen. The current coalition government, the Thaksin founded People’s Power Party (PPP), counts as its supporters the millions of farmers and peasants in the Thai countryside.

The resulting conflict – essentially a struggle for power between the rich and the poor in a nation whose wealth, and politics, has not been evenly spread – is a warning lesson to the other countries in emerging Asia. With wealth gaps starting to develop in almost every country in the region, Thailand is a case study of what can happen if that gap is not adequately addressed, or if politics gets out of hand. For investors in Asia, the time for an assessment of political stability has now returned. For Thailand, the king’s status as a revered icon is compromised between being able to bring an end to civil disruption and unite the nation, while seeking to maintain a policy of non-interference in politics and uphold the democratic process.

Clearly, a government administration, unable to operate in its own house, attempting to run the country from airline offices, and apparently being influenced by a convicted felon on the run via exile in London is not an ideal situation, and the lessons of how government administration can quickly unravel in Asia should not go unheeded. When looking at investing in emerging markets, conducting political due diligence has returned as a box that now needs to be checked off.

This entry was posted on Wednesday, October 29th, 2008 at 10:21 am and is filed under Government, Politics, Investment. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.