Cablegate: Thailand Businesses to Wait Out Political Crisis but Worry

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PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHBK #2782/01 2582355
ZNR UUUUU ZZH
P 142355Z SEP 08
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC PRIORITY 4340
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHCHI/AMCONSUL CHIANG MAI 5627
RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 02 BANGKOK 002782

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ELAB PGOV TH
SUBJECT: THAILAND BUSINESSES TO WAIT OUT POLITICAL CRISIS BUT WORRY
ABOUT LONG-TERM IMPACT

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Sensitive But Unclassified. For Official Use Only.

Ref: Bangkok 002720

1. (SBU) Summary: Thailand's political stalemate has had a somewhat
expected immediate impact on certain segments of the Thai economy.
Of greater concern to the entire business community, however, is the
stalemate's potential long-term economic implications. Prominent
business leaders in Thailand concur that, unless a resolution to the
political crisis is reached soon, Thailand may lose its good name in
the eyes of investors, creating economic difficulty for the future.
They point out that business sentiment today is more negative than
after the 2006 coup. Since the coup brought a definitive, albeit
temporary, conclusion to the political turmoil at the time. In
comparison, the uncertainty and unending twists in the current
political battle have caused Thai (and foreign) investors and local
business leaders to adopt a "wait and see" attitude toward
investment. End Summary.

2. (SBU) Comment: Thai business leaders long for certainty and
stability. As one leader put it, "the coup in 2006 brought calm."
Unfortunately for them, the current crisis has no end in sight.
Until a lasting political resolution is reached, Thailand appears
destined to suffer the opportunity cost of lost investments and
continue to use up existing capital. While the immediate impact may
be manageable, persistent turmoil would affect Thailand's future
growth and outlook. End Comment.

Immediate Impact
----------------
3. (SBU) Post has surveyed a broad array of leaders in the local
business community, both Thai and foreign, to gauge their level of
concern over the on-going political crisis. Many report
experiencing some immediate losses (still being counted) from the
crisis as anti-government protests paralyzed Thai infrastructure for
several days the first week of September, with protestors shutting
down regional airports, railroads, and ports causing losses for
industry. Most notably, ships bound for Bangkok Port had to be
diverted to Laem Chabang Port, resulting in delays. Thai news
agencies report that Thongyu Khongkant, Secretary of the Land
Transport Federation of Thailand, an organization representing
transportation companies, may file an 8 million dollar lawsuit
against the Port Authority of Thailand Labor Union for losses.
Contacts in the tourism sector also claim inbound tourism has
dropped off as images of stranded tourists at Phuket airport made
the news and scared away potential visitors. Occupation rates at
some five-star hotels are reported to be less than 20% (reftel).
The Federation of Thai Industries (FTI), a prominent organization
representing industrial companies, states that all the key industry
groups have been affected by the political turmoil, with importers
and traders considering shifting new projects and trade to other
countries.

4. (SBU) Nevertheless, many Thai companies seem able to weather
these short term losses. Various prominent Thai business leaders,
including from the retail and medical equipment sectors, indicate
their firms are only experiencing minor slowdowns in business. Many
companies claim they have not altered their established business
plans as a result of the political situation. One company
representative in the auto supply sector indicated that certain
production could easily be relocated to neighboring countries should
the unrest continue or escalate, though for the moment, capital
plans are not being altered. Pridiyathorn Devakula, former Governor
of the Bank of Thailand, noted that despite the turmoil since the
PAD protests began several months ago, second quarter GDP growth,
although down 0.6% from quarter one, was still at 5.3 percent.

Long-term Impact
-----------------
5. (SBU) The long-term implications of the political crisis on
Thailand's economy may eventually outweigh its immediate impact.
Mr. Arin Jira, director of the ASEAN Business Advisory Council,
claims that while Thailand does not appear to have experienced much
capital flight as a result of the political crisis, new investments
have tapered off as companies wait out the crisis. Those who have
committed to Thailand are staying, but potential additional business
ventures have been put on hold.

6. (SBU) An indication of this phenomenon is reflected in Thailand's
capacity utilization rate. Dr. Deunden Nikomborirak, a researcher
at the private think tank Thailand Development Research Institute,
confirmed to Econoff that Thailand's industrial capacity utilization
rate is over 70 percent, a sign that Thailand is using up its excess
capacity while not generating new investment. General economic
theory posits that 80 percent capacity utilization rate signals full
capacity and anything over 70 percent is a cause for concern. A
leader of the Thai Bankers' Association echoed this point with

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concern. Similarly, the Thai Chamber of Commerce released a public
statement calling for a peaceful resolution to the political crisis
and claiming that while established businesses are continuing their
operations, new investors are avoiding Thailand.

7. (SBU) Mr. Pornsil Patchintanakul, the Deputy Secretary General of
the Thai Chamber of Commerce, echoed the sentiments of many Thai
business people when he expressed concern that the drawn out
political upheaval will irrevocably damage Thailand's reputation as
a stable business environment. He explained that while the
political crisis is "business as usual" for companies accustomed to
operating in Thailand, for those not familiar with Thailand's
history of coups and political reshuffling, the scene appears
increasingly confusing and dangerous.

What Do Businesses Want?
------------------------
8. (SBU) Whereas many analysts viewed the business elite as being
anti-Thaksin during the 2006 coup, this time around most business
and industry leaders profess no political affiliations. They just
want a speedy resolution and claim a lifting of the state of
emergency would be the first step towards restoring calm. Mr. Jira,
for example, stated that while the state of emergency has little
impact on the daily life of Thais, potential foreign investors hear
the phrase "state of emergency" and imagine a "war zone."

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