When an economist meets a psychic
I enjoy reading prophecies. There is one thing fortune tellers and economists have in common: they make predictions. As an economist, I use my knowledge, theories and actual data, to check whether these prophecies make economic sense.
In this article, I take the predictions of a fortune teller named Wasu and apply economic reality checks and make an interpretation of his readings of Thailand's future this year.
This Mr Wasu is like no other fortune teller. Back in Jan 2020, when the term Covid-19 did not exist, he foresaw the pandemic (which he referred to as "flu-like disease") and made a few accurate predictions for the remainder of the year. He mentioned the alignment of the stars would cause the month of February to July to be the worst time of the year. Unemployment would rise sharply, workers would be forced to leave cities for villages, and there would be daily suicide cases induced by severe debt problems. Well, the pandemic did break out in February which led to a nationwide lockdown. According to a Bank of Thailand report, 0.75 million workers lost their jobs in that quarter while 5.4 million more became underemployed. Furthermore, business closures caused more than 1 million workers to return to their domiciles permanently. Wow. Pinpoint accuracy.
For this year, Mr Wasu divides the predictions into three periods -- first quarter, second and third quarters, and the fourth quarter. Part I, subtitled, "The calm before the storm", covers the first quarter which he describes as quiet on both political and economic scenes. I argue that the economy might look calm on the surface but a crisis is brewing underneath. The breakpoint is about to come.
According to Thai astrology, mid-April, or the Thai New Year, is the time when major stars move and cause major changes to everyone's fortunes, including the country. The calm environment will become sizzling hot starting from the second quarter. Mr Wasu predicts that parliament will become dysfunctional. There will be rifts among government coalition parties and among opposition parties. The political discord will give people no hope for the future and will have to take matters into their own hands. How? To the streets.
There will be mass protests across the country but this time it won't be about politics, like the amendment of Section 112 or constitutional reform, but the economy or, rather, economic hardship of protesters. People and business owners who have suffered from the economic downturn since 2020 will reach the point where they cannot bear the economic pain any more and demand the government take meaningful action. If these individual groups of protesters from various areas of the country decide to descend on Bangkok to form a mega anti-government rally, a bloody crackdown might occur.
Amid these tense situations, there is a ray of good news. The vaccination for Covid-19, which he predicts to start in April, will work, not only for Thailand but also the world, resulting in a resumption of tourism activities and a perk in exports. By the way, I think his prediction is probably more reliable than the Health Ministry's vaccination plan.
However, good times will be short. September will be the worst month for the economy. He says the country would face liquidity shortages, fluctuation of the baht, unserviceable government debts, and, of course, a Thai stock market crash.
Here is my economic interpretation of Mr Wasu's reading. If the political situation is to be that bad where demonstrations turn bloody, all his economic predictions will come true. In a fragile political environment, foreign investors will not sit still. The experience of Myanmar is still fresh on their minds. Everyone who can take money out of Thailand, foreigners and Thai citizens alike, will do just that causing a massive capital flight like during the 1997 crisis. According to my own estimation, there is about 400 billion baht of hot money ready to leave the country in an instant. The hot money is in the form of savings accounts which can be withdrawn with one stroke of a computer key. Moreover, foreigners will unload their 800 billion baht government bond holding at any price. These two factors alone are more than enough to trigger a liquidity crisis.
Before moving on to the fourth quarter, I must commend Mr Wasu in mentioning the government debt financing problem in the third quarter. He must either be a very good fortune teller or a very good economist. Instead of issuing long-term bonds to finance its deficit, the Thai government will opt to issue short-term debt instruments, called Treasury Bills, in the amount of 572 billion baht to finance its deficit in the 2020 fiscal year. Under the tight liquidity situation, as Mr Wasu has predicted, these short-term bills will not be able to roll-over forcing the Thai government to default on their debts. In reality, before defaulting on their debts, the government will try to do two things. Borrowing from the Bank of Thailand, and borrowing from state banks. The latter will result in liquidity shortages at state banks.
If one survives the third quarter, one might not survive the last quarter.
The followings are his predictions of the events in the final quarter of 2021, not mine. A dysfunctional parliament and a failed government will see mobs back on the streets, applying more pressure for changes. Biased independent organisations will further complicate the already fragile situation. Political situations will be most tense from October to November. Without a solution in sight, a coup d'etat, citing sharp division between the government and the people, might take place. This could thrust Thailand back into a dictatorship like that of field marshal Sarit Thanarat who controlled the country with an iron grip.
Mr Wasu, you are talking about Thailand not Myanmar. Right? By the way, he predicted this early last month -- long before the coup in our neighbouring country.
On the economy, the political turmoil will cause investors, businesses, and consumers to shy away from consuming and investing. The Thai economy, despite the improved Covid-19 situation, will once again be at a stand-still, causing a deep economic contraction like during the first Covid outbreak. Businesses, particularly in retail and tourism sectors, who are strong enough to survive the pandemic, might not survive this round of economic crisis triggered by political uprising. The seriousness of the economic situation might result in bankruptcy of state financial institutions.
Well, I, as an economist, have nothing much to add to Mr Wasu's reading of the last quarter. His description of economic calamity is clear enough and is not in contrast with economic possibilities.
This is a typical vicious cycle of economics and politics seen in many countries. A troubled economy leads to troubled politics. Troubled politics worsens the economy. In the end, the country ends up in military hands. We have seen this vicious cycle many times throughout human history.
Despite Mr Wasu's accuracy in the 2020 predictions, I hope he is wrong regarding his predictions for this year. I wish this government will be strong and smart enough to pull us out of an outbreak-induced economic slump. By April, the vaccine will be available for the eradication of the disease and economic activities can return to normal. All that the country needs is a good push on the economy front and a right economic plan for life after Covid.
Too much to ask for, I guess.
Chartchai Parasuk, PhD, is a freelance economist.