As the impacts of the conflict in the Ukraine have reverberated around the world, Thailand, a country geographically distant from the crisis, faces challenges of systematic nature and accordingly needs a comprehensive policy response.
The crisis in Ukraine has resulted in a sharp increase in commodity price volatility and taken a toll on supply chain chokehold. The economic counter-measures taken by conflicting parties have caused severe damage in doing business and rolled back the tender sprout of post-pandemic recovery.
According to the World Food Programme, Thailand’s important trade partners, Indonesia, Bangladesh, Pakistan, Egypt and Turkey are among top-ten largest wheat importers from Ukraine. Import-reliant countries, therefore, need alternative sources but this involves higher logistics costs. Meanwhile, the conflict’s disruptive impact on energy supply has led to higher costs of production, or a supply shortage and economic standstill in worse case. The current surge in price for food, energy and chemical fertilizer can systematically hamper the growth perspective of Thailand’s emerging high-potential partners in Asia, the Middle East and Africa. Worse, it could spark the fear over developmental setbacks and political consequences of aggravating food and energy insecurity in these regions.
The policy reaction to the inflationary spiral is expected to cause an abrupt, even destabilising changes in financial and capital market. Since the financial crisis in 2008, the global economy has operated in seemingly unlimited capital abundance. The tightening of monetary policy worldwide could lead to considerable turbulences, especially through a massive movement of capital from developing and emerging to advanced economies. The systematic interaction of shortage of food, energy and capital will exacerbate not only stagflation, but also difficulties in maintaining macroeconomic stability and growth dynamic the international community needs for promoting peace, security and sustainable development.
Looking ahead, in view of existing challenges of global scale, a stable environment and political trust among key players are necessary more than ever. It is, however, deplorable that confidence in multilateralism is missing amidst the expected increase in political instability in many regions.
How can Thailand face these strong headwinds? The adverse impacts of the crisis in Ukraine required a comprehensive attention, particularly in the following three areas.
First, risk diversification in doing business. Higher macroeconomic risks and unpredictable political situation mean higher costs. It is essential to build a foundation for interoperability of diverse transaction systems, including digital ones and those based on local currencies, with partner countries in order to lay the groundwork for smooth and safe transactions during any political disruptions. Moreover, Thailand’s international development cooperation should be instrumentalised as business facilitator and ramped up to support partner countries’ macroeconomic stability more effectively.
Second, Bio, Circular and Green (BCG) model as comprehensive solution to food, energy and climate challenges. The EU has demonstrated its determination to advance the energy transition and reduce its dependence on imported oil and gas. Even oil-rich Indonesia has also planned to promote renewable energy to assure the energy security in a volatile global dynamic. Thailand, a food-abundant but energy-poor biodiversity hotspot must choose its own way to deal with the challenges. As APEC host economy, Thailand will promote the BCG economy as post-crisis strategy for quality growth and sustainability. And as chair of BIMSTEC, we will actively forge collaboration also to countries in similar situation to help overcome the difficulties.
Last but not least, Thailand will remain open to any new, constructive dynamic in international economic cooperation frameworks, despite the lack of collaborative spirit currently prevalent in numerous fora. The crisis in Ukraine shows us that in long-term, the global economic and political stability may be at stake, and that it could be overcome only with multilateral and prudent collaboration.
Cherdchai Chaivaivid, Director-General of Department of International Economic Affairs, Ministry of Foreign Affairs