Get New : topic_by_atricle_2585199

Bangkok Post - Timeline unnerves some sectors
Timeline unnerves some sectors
text size

Timeline unnerves some sectors

In a worst-case scenario, Thailand might have to wait until 2024 for a new prime minister

Mr Pita, front row centre, and Pheu Thai Party leader Cholnan Srikaew, to his left, make the shape of a heart at a press conference on Tuesday to unveil their commitment to an eight-party coalition in jointly forming a government. Pattarapong Chatpattarasill
Mr Pita, front row centre, and Pheu Thai Party leader Cholnan Srikaew, to his left, make the shape of a heart at a press conference on Tuesday to unveil their commitment to an eight-party coalition in jointly forming a government. Pattarapong Chatpattarasill

The Move Forward Party (MFP) and seven coalition political parties are expected to ascend to power in early August.

However, if their bid fails, the country may have to wait until May 2024 for a new prime minister, according to a timeline to set up a new government announced by Deputy Prime Minister Wissanu Krea-ngam during a cabinet meeting last month.

The timeline not only sparked concerns over the sense of uncertainty surrounding Thai politics, but could also delay state budget planning and implementation measures to address important economic and environmental issues.

Business leaders and analysts are monitoring the progress, although some remain upbeat regarding their business operations and still believe the MFP can open a new political chapter for the country.

LOSS OF CONFIDENCE

Capital market analysts said delays in establishing a new government would make investors lose confidence. A potential setback to fiscal 2024 budget approval would affect government spending aimed at stimulating the economy.

Supavud Saicheua, an advisor to Kiatnakin Phatra Financial Group, said the slow pace in establishing a new government would cause an economic vacuum amid the growing possibility that the US will fall into recession, making it difficult for the Thai economy to grow.

Mr Supavud said he backed the MFP's policy on breaking up monopolies.

"But if you want to destroy monopolies completely in the long run, you must do that with transparency to create a level playing field," he said.

Mr Supavud said the most likely scenario is MFP leader Pita Limjaroenrat is voted in as the new prime minister, with a new cabinet named.

Krungsri Research said uncertainty regarding the formation of the government could affect the investment environment.

While the Thai labour market has improved, household debt remains extremely high, said the research house. The number of applications for investment promotion submitted to the Board of Investment in the first quarter rose strongly, but Krungsri Research forecasts political uncertainties may affect investment sentiment.

Though eight political parties led by the MFP have a combined 312 parliamentary seats and signed a memorandum of understanding on their intent on May 22, questions remain about the policies of a new administration.

Overhanging factors include building a consensus among coalition parties on policy issues and political positions, the mobilisation of at least 64 more senators or MPs to support the election of Mr Pita as prime minister, as well as Mr Pita's ITV media shareholding case.

Fitch Ratings recently said political instability in the country and delays in forming a new government could lead to a disruption in budget spending. In addition, Thailand's fiscal situation deteriorated greatly during the pandemic.

If the next government is unable to stabilise the level of government debt, this problem could affect the country's credit rating, according to Krungsri Research.

Tisco Securities believes the Thai bourse will remain under pressure this month because of political uncertainty regarding which party will lead a new government.

Foreign capital outflow is likely to continue, pushing the Stock Exchange of Thailand (SET) index to continue to fall. However, this presents an opportunity for investors to accumulate large blue-chip stocks that have stable profits, said the brokerage.

Apichart Phubancherdkul, head of strategy research at Tisco Securities, said it could take two months for the government formation questions to resolve, which would allow the market to know the identity of the next prime minister.

Mr Pita greets supporters in Samut Prakan's Bang Sao Thong district on May 26 after holding talks with labour union representatives at Bang Sao Thong municipality office. Somchai Poomlard

POLITICAL STABILITY NEEDED

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, said the delay in the formation of a new government would undoubtedly have negative implications for the economy as it directly affects the country's budget preparations.

If the budget for this year is not implemented in a timely manner, it affects the allocation of funds to various projects and hinders the disbursement of stimulus measures intended for each province, said Mr Sanan. This would decelerate the economy and hurt domestic consumption, he said.

"The economy is still in a fragile state of recovery, except for the tourism sector, which has shown signs of a strong improvement. The majority of small and medium-sized enterprises [SMEs] are still desperate for access to credit with low interest rates," said Mr Sanan.

"A delay in forming a new government is likely to negatively affect the confidence of both domestic and foreign investors interested in Thailand. Political stability is crucial for foreign investors when they are deciding where to allocate funds."

He said the private sector is being walloped by high energy costs. Businesses are hopeful that a new government can issue supportive measures to help them reduce costs and provide access to funding sources to strengthen their financial stability, facilitating operations in the short term, said Mr Sanan.

He said the chamber clearly supports the formation of a new government to ensure a smooth and fast transition.

UNHEALTHY CONSEQUENCES

La-Iad Bungsrithong, board advisor for the Thai Hotels Association (THA), said if the budget for the new fiscal year is delayed because of squabbles in forming a new government, this would cause critical problems as some issues require urgent consideration, such as air pollution, which will take time to curb in a systematic way.

Mrs La-Iad said the government needs to initiate an action plan to combat PM2.5 dust pollution immediately, and it should be considered the top priority for the provinces.

She said air pollution has seriously affected the health of both locals and tourists.

The government should implement preventive measures in the fourth quarter this year before the smog season returns around March and April 2024, said Mrs La-Iad.

In order to deal with such a long-term problem, the authorities must take the first step, explore the root causes, and discuss an initial action plan with local, regional and central government, she said.

A delay in government formation would also affect the country's economy, especially much-needed infrastructure development and tourism promotion initiatives, said Mrs La-Iad.

Some hotels are still dependent on domestic business meetings and incentives around the end of the year. The uncertainty surrounding a new government could cause some private companies and public organisations to delay budget spending for meetings and conventions, she said.

The Bangkok skyline, as seen from the 29th floor of a building on Sukhumvit Road in March of this year, is partially obscured by haze. Somchai Poomlard

VARYING DEGREES

While some businesses may be affected by a holdup in government formation, others could see little or no impact depending on their customers, said SET-listed Energy Absolute (EA), a renewable energy and electric vehicle (EV) developer and operator.

Most of EA's business deals are with other companies, although some involve government projects, meaning the company is unlikely to face much impact if the political coalition is unable to form a government, said Amorn Sapthaweekul, deputy chief executive of EA.

EA is focusing on the expansion of its EV business this year.

Though EA receives purchase orders from state-owned bus operators, it also sells a number of EVs to companies in the public transport sector.

Mr Amorn said the company not only sells commercial EVs in the domestic market, but its products have also attracted interest from transport operators in Malaysia and Indonesia.

Entrepreneurs in Indonesia are currently "window shopping", meaning they are mulling deals with EA, he said, with a result expected soon.

During the transition period leading up to a new government, EA will continue to run its EV businesses, including working on a backlog of EV purchase orders.

Through its wholly-owned subsidiary EA Mobility Holding, EA is scheduled to deliver 4,000 electric buses, trucks and mini-trucks to customers this year.

EA also plans to increase EV battery production capacity at its factory in Chachoengsao to 4 gigawatt-hours a year in 2023, up from 1GWh a year, said Mr Amorn.

The plant, which started commercial operations in 2021, is run by EA subsidiary Amita Technology (Thailand).

EA aims to increase the production capacity to 50GWh a year to help Thailand become a hub of EV and power storage manufacturing.

Mr Pita, centre, gestures as he departs a press conference held at the Move Forward Party's headquarters on May 23. VARUTH HIRUAYATHEB

The National EV Policy Committee announced in 2021 that it wants EVs to account for 50% of locally made vehicles by 2030, part of an ambitious plan to make the country a regional EV hub.

In the power sector, a possible delay in setting up a new government could affect the second-phase 3.66GW renewables scheme, overseen by the Energy Regulatory Commission (ERC), he said.

An auction for new projects under the scheme is being prepared. Energy officials said earlier the bidding is expected to take place after the election.

The ERC encouraged companies that were not selected for the first phase, which had a power generation capacity of 5.2GW, to participate in the second phase.

Mr Amorn said the auction would depend on whether the new government decides to continue with the scheme, which promotes the use of on-ground solar power, wind power, biogas and industrial waste-to-energy projects.

Though these projects promote clean energy development, they increase the country's power generation capacity in reserve. The huge surplus in reserve has partly been blamed for increasing the price of electricity bills.

EA was awarded a licence to develop a 90-megawatt wind farm by the ERC in the first phase of its renewables scheme. The company expects to sign a power purchase agreement with the state grid within the third quarter of this year.

HSBC Thailand has been monitoring the country's political factors following the election and is not overly concerned given the history of political and economic cycles here, said chief executive Giorgio Gamba.

The bank is still committed to long-term investment in Thailand and continues to grow its business in line with the country's economic roadmap.

Mr Gamba said foreign investor confidence should improve following the election.

Given the growth of the Asean and Thai economies, as well as Thailand being a regional hub for trade and investment, the country will continue to be a key destination for foreign direct investment, he said.

HSBC's 2022 survey of 1,500 international companies in China, India, the US, the UK, France and Germany found Thailand remains a key investment destination.

Thailand was the most popular choice among companies planning to expand their business into new Southeast Asian markets, with 23% planning to enter Thailand within two years.

Moreover, Thailand was the No.2 choice in Southeast Asia after Singapore for international firms seeking to expand that already have operations in the region, according to the survey.

Mr Gamba said the large size of the Thai economy within the region, a growing middle class over the past two decades, and development of the country's digital economy have strengthened its fundamentals.

HSBC Thailand forecasts Thai GDP growth of 4.1% in 2023, with Asean economies growing in a range of 2-5.8%.

WAIT AND SEE

During a transition of political power, many foreign executives, particularly those who have never invested in Thailand, tend to delay their investment plans, said the Federation of Thai Industries (FTI).

Foreign investors that already having a footing here may either adopt a wait-and-see approach, or continue with their investment plans, said the federation.

"Those that wait want to see a clearer direction for the new government's policies before deciding on investment in the country," said Kriengkrai Thiennukul, chairman of the FTI.

Somchai Sittichaisrichart, managing director of SiS Distribution (Thailand), a leading IT distributor, said the government sector suspended new IT projects from before the election, pending the policies of a new government.

Projects already approved based on winning bids urged IT vendors to proceed as planned to avoid possible problems, he said.

The consumer market still has demand for high-quality gadgets, said Mr Somchai.

SiS Distribution receives 10% of its commercial revenue from the public sector. It is expanding into the energy sector by distributing solar cells to factories that want to reduce their power bills.

Piti Disyatat, secretary of the Bank of Thailand's Monetary Policy Committee (MPC), said the MPC's meeting on Wednesday discussed political factors following the election. However, the committee did not speculate on whether the formation of the new government would be delayed.

"Discussions about political factors are normal practice after an election. Much of it concerned the existing timeline for the formation of a new government," Mr Piti said after the MPC meeting.

He said several campaign proposals made by the coalition parties seeking to form a government could affect both the demand and supply sides as well as the country's economy.

The committee will wait for a new government to announce its policies before conducting an assessment on the possible impact on the economy, said Mr Piti.

The central bank suggested economic and domestic political factors would affect the country's economy more than external factors this year.

Tourism and domestic consumption are the key drivers supporting the country's economic expansion this year.

If a new government can be formed, it would build people's confidence and benefit private investment next year, he said.

BUSINESS AS USUAL

The FTI is confident the MFP, which won the most parliamentary seats in the election, can form a new coalition government, believing the obstacles in its way are "normal" and temporary.

It is not surprising establishing a new government is taking a while, even weeks after the election, said Mr Kriengkrai. This should not be considered a serious issue, he said.

"The cooperation among eight political parties to set up a government is similar to businesses joining hands to form a partnership," said Mr Kriengkrai.

"The process involves negotiations. We believe the political parties will get through them and successfully establish a new government."

He said he believes the disagreement between the MFP and Pheu Thai Party over whom will be the House speaker should not be viewed as a conflict. Rather, it is a form of negotiation in which both parties have to find a joint solution, he said.

These two parties won the majority of people's votes, said Mr Kriengkrai, which shows a large number of people want to see them run the country under new policies.

The two parties worked as opposition parties during the Prayut Chan-o-cha administration.

The FTI chairman met Mr Pita on May 23 to discuss various business issues, including a proposed wage hike the MFP proposed during the campaign, raising the minimum wage to 450 baht a day.

Mr Kriengkrai said after the talk his concerns over the impact of a proposed wage hike eased after Mr Pita assured him an increase would not be immediate and would be reasonable, without harming industry or the economy.

The daily minimum wage in Bangkok is 353 baht, while workers in Chon Buri receive 354 baht a day. Workers in other provinces receive less.

Do you like the content of this article?
COMMENT (44)