Thai Political Crisis Derailing Growth, Surapong Says

By Bernard Lo and Suttinee Yuvejwattana

Sept. 15 (Bloomberg) -- Thai Finance Minister Surapong Suebwonglee, a contender to become the nation's next prime minister, said economic growth may be derailed this year and next as political turmoil paralyses government spending.

``If we cannot solve the political conflict in the very short term, GDP may be below 5 percent'' this year, Surapong, 51, said in an interview in Bangkok today. ``We still hope that we can achieve 5.5 percent.''

Thailand has been without a prime minister since Samak Sundaravej was forced to resign by a Sept. 9 court ruling that he violated the constitution. The central bank has said political instability has overtaken inflation as the biggest threat to Southeast Asia's second-largest economy, which slowed for the first time in two years in the second quarter.

``Most of the political observers think the new government may not last longer than a couple months,'' Surapong said. ``Political turmoil is a very crucial factor for the economy.''

The government's economic advisory agency on Aug. 25 said expansion may be as much as 5.7 percent this year. That compares with Merrill Lynch & Co.'s 5.1 percent estimate. Gross domestic product expanded 4.8 percent last year.

`Cloudy' Outlook

``For Thailand, there is more downside risk than upside,'' said Song Seng-Wun, an economist at CIMB-GK Securities Pte in Singapore. ``Even a nomination of a prime minister this week may not resolve anything. This kind of risk continues to weigh down on sentiment. Next year may be even more cloudy.''

Surapong, a medical doctor, is secretary-general of the People Power Party, which controls 315 of 480 lower-house parliamentary seats in a six-party coalition. The former spokesman for Thaksin Shinawatra, the premier ousted in a 2006 coup, will be a contender in a party vote today to decide on the next prime minister.

The government had been counting on domestic consumption to buoy the economy this year amid an expected slowdown in exports, which account for 70 percent of GDP. Shipments were buoyed by rubber and rice in the second quarter amid record commodity prices, which have since fallen.

The Bank of Thailand forecasts the nation's economy will grow between 4.3 percent and 5.8 percent next year. Merrill Lynch estimates a 4.7 percent pace.

Slowing Exports

Export growth may slow to 16.5 percent this year from 17.3 percent last year, according to the government's economic adviser. Deepening global financial market turmoil may cool demand from the nation's key markets -- the U.S., Europe and Japan, according to a Sept. 11 Merrill Lynch report.

Goldman Sachs Group Inc. last month estimated that half of the world economy already faces recession, with richer nations faring the worst as emerging markets continue to expand. The global economy faces a 25 percent chance of recession in the next year, according to UBS AG economists.

A state of emergency imposed in Bangkok on Sept. 2 after deadly clashes between pro- and anti-government demonstrators was lifted yesterday. More than 10,000 mostly middle-class Bangkok protesters who have occupied Government House since Aug. 26 say they will stay put. Parliament is due to vote on a new prime minister on Sept. 17 after lawmakers boycotted a Sept. 12 session.

Other People Power Party candidates include acting Prime Minister Somchai Wongsawat, 61, a former judge and Thaksin's brother-in-law, and Justice Minister Sompong Amornvivat.

`Uncertainty'

``I don't think an appointment of any three of them will be seen as a huge improvement,'' said Han Sia Yeo, a currency strategist at Bank of America Corp. in Singapore, adding investors may not get a full picture of economic policies for ``a few months. There's still so much uncertainty.''

Consumer confidence in August fell to the lowest this year. The SET Index of stocks has sunk 26 percent since May 25, when the protesters began calling for Samak's ouster. The baht is close to its weakest level per dollar in more than a year on concern that the political impasse will drag on.

Fitch Ratings last week said politics have affected the nation's economic policies, posing a negative risk for the sovereign rating. The rating agency ranks Thailand's long-term debt as BBB+, the eighth-highest investment grade. Moody's Investors Service earlier this month kept its stable outlook on the nation's Baa1 credit rating, indicating it's disinclined to change it.

``We are getting more concerned about political risk,'' said James McCormack, Hong Kong-based head of Fitch's Asian sovereign ratings. ``There is no evidence so far where the resolution will come from.''

Credit Suisse warned Sept. 3 that Thailand risks becoming ``ungovernable'' as the political situation ``remains far from reaching anything resembling equilibrium.''

Thaksin was ousted in a 2006 military coup that followed street protests led by the same group behind the campaign against Samak. The so-called People's Alliance for Democracy says the government contains too many allies of Thaksin, the People Party's patron, and is calling for a mostly appointed House of Representatives to replace the fully elected body.

To contact the reporters on this story: Suttinee Yuvejwattana in Bangkok at Suttinee1@bloomberg.net; Bernard Lo in Hong Kong at blo2@bloomberg.net