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At the end of June, the Bank of Thailand (BOT) forecast an 8.1 percent GDP contraction for 2020, following the central bank’s earlier prediction of a 5.3 percent drop. COVID-19 has hit the country hard, with the World Bank expecting the Thai economy to take “more than two years to return to pre-COVID-19 GDP output levels”.

With a high reliance on two badly-hit sectors – tourism and the automobile industry – which account for roughly 30 percent of the economy, Thailand’s recovery will likely be more of a Nike swoosh rather than a V-shaped one, says Chartsiri Sophonpanich, President of Bangkok Bank.

Having assumed the helm of Bangkok Bank less than three years before the collapse of the Thai Baht which triggered the Asian Financial Crisis, Chartsiri notes some differences between 1997 and now.

“The 1997 crisis hit the corporate and financial sectors [but] this time, almost every industry is affected,” he observes, pointing to the loss of livelihoods in the absence of foreign tourists. “Following the 1997 crisis, the private sector became more prudent in its borrowing, and Thai banks have become more conservative, with capital levels that are well above target as well as more robust credit risk management systems.”

He adds: “To mitigate the worst effects of the crisis, Thai banks have been working with the central bank to provide liquidity and debt relief. This has taken the form of soft loans for qualifying small businesses, interest rate deductions and measures such as debt payment holidays for both business and individual customers.”

SAVING THE ECONOMY

Chartsiri made those remarks at a recent SMU Industry Leaders Virtual Dialogue where he listed the efforts to soften the economic fallout.

“For individuals relief measures were provided for three months, and for SMEs measures including soft loans were issued over a period of six months,” he explains. “For individuals, that arrangement was to end in June but the central bank extended it further. For SMEs, that arrangement will end in October, and there are likely to be further programmes to support them subsequently.

 “We need to support SMEs with working capital requirements. Once the economy reopens, this will help restart the economy with trading and other business activities.”

In the space of six weeks from March 4th to April 23rd, the government committed over 2.4 trillion baht (approximately US$80 billion) to alleviate such a devastating economic impact. That amounts to about 14 percent of 2019 GDP.  With a modest level of public debt, Thailand still has fiscal space to help stimulate the economy.

“The COVID crisis has led to many government-led programmes which pushed up our debt-to-GDP ratio from the lower 40s [percent] to possibly the 50s at some point,” he explains, adding that the government has a 60 percent debt-to-GDP ratio limit. “The programme thus far has been to support the needy, especially those that have been affected by the lockdown and loss of jobs. Also, there’s distribution of funds to the rural areas that might be affected by the economic slowdown in the export sectors.”

When asked if he believed Thailand’s economy will undergo a fundamental shift post-COVID, Chartsiri believes there will be a general mood of caution in line with the country’s general growth prospects. In the medium term, the MIT graduate points out that Thailand should upgrade our existing transport network: “Building more efficient infrastructure, making connections with different parts of Thailand and with neighbouring countries”.

“We also think that globalisation might be an issue at the moment with many disputes ongoing in different parts of the world. This is why regionalisation and working together among our ASEAN economies will become even more important.”

THE EEC

The Eastern Economic Corridor, or EEC, was established to boost the economic growth in three provinces in Eastern Thailand by attracting foreign investments in advanced technology. Some industries, Chartsiri elaborates, are those that Thailand are currently involved in, such as automotives (“moving into electric vehicles”) and food production (“moving into biotechnology”). Other industries the EEC is looking to attract investment for are hospitality, healthcare, and aviation.

Within the bigger picture of ASEAN regional integration and supply chain diversification, Vietnam is a competitor for foreign investments that the EEC had been set up for.

Chartsiri concedes to the fact, but adds that “if you choose the right type of industry, for example, and get investments in areas such as electric vehicles, biotechnology or aviation components, the related businesses would also come.

“Vietnam is a strong competitor but a lot of the foreign direct investments are [in the] more labour-intensive [industries] which Thailand can no longer focus upon. We have to go for more value-added and innovation-led types of industries.”

TRICKLE-DOWN TO CLAMBER UP

As Thailand battles to pull its economy out of the doldrums, Chartsiri is keeping an eye on how the biggest Thai companies will recover and, hopefully, drag the rest of country out of recession.

“What is most important is seeing the larger companies move forward,” he says. “When that happens it will provide a trickle-down effect to SMEs and individuals. But as mentioned earlier, it will be a Nike swoosh recovery – it will take quite some time, and it has to be well-coordinated with support from all parties involved.”

He concludes: “We probably won’t see things start to move until the second half of next year. As 60 percent of Thailand’s economy comes from the export sector, we rely on a strong external demand to see a sustained recovery.”

Chartsiri Sophonpanich was the Leadership Perspectives speaker at the SMU Industry Leaders Virtual Dialogue held on 16 July 2020. He is the President of Bangkok Bank & Chair of SMU IAC Thailand.

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Originally published at https://cmp.smu.edu.sg/article/keeping-thailand-going-amid-covid-19-storm

Last updated on 01 Sep 2020.