Likely impact of Thai king's death on economy unclear

Posted October 13

— Thailand's stock market and currency were shaken as long-ailing King Bhumibol Adulyadej's health worsened this week.

After his death Thursday at age 88, the outlook remains murky. Here are a few of the key factors and indicators to watch for:

SHARE PRICES: Thai stocks slid after the Royal Palace announced that Bhumibol's condition was unstable, the first time it had used that phrase regarding the king's health. On Wednesday the benchmark fell nearly 7 percent but ended down 4.1 percent. The market could be roiled by a sell-off of assets by palace officials or other members of the political elite.

THAI BAHT: Thailand's currency was trading at 35.23 baht to the U.S. dollar on Friday, down 1.3 percent from a day earlier. It fell 1.1 percent on Wednesday and 0.2 percent on Thursday. But such gyrations do not compare with the baht's meltdown under speculative attacks that triggered a region-wide financial crisis in 1997. Analysts say they expect the Bank of Thailand is prepared to intervene, if need be, to support the baht.

ECONOMY ON EDGE: Bhumibol was a constitutional monarch with no formal political role, but was seen as a unifying figure amid Thailand's perennial political turmoil. Many analysts expect the country to remain calm, as Thais focus on mourning and avoid trouble with the military junta. But there is concern over the succession, since the king's son, Crown Prince Vajiralongkorn, has not earned the same respect as his father.

POLITICS: Concern over the royal succession has been entwined with political upheavals in the past decade, as royalists maneuvered to control the process, instead of certain politicians whose fealty to the monarchy they doubt. In a report, the Eurasia Group said a general election scheduled for 2017 would likely be pushed back to 2018. The overall impact on the business environment, it said, would likely be limited to a 100-day period of mourning that would follow his death.

RECENT TRENDS: Thailand's economy is heavily dependent on exports, and thus vulnerable to weaker demand in major markets like China and the U.S. The country has been lauded for its progress in reducing poverty, from about two-thirds of the population to just over 10 percent, according to the World Bank. Growth could fall short of forecasts of about 3 percent if decision making slows and consumption falls while Thais mourn the king's passing. But contrary to some expectations, bars did not close after the king's death was announced Thursday and financial markets were open Friday, suggesting the country's leaders are keen to avoid economic disruptions.

UNCERTAINTIES: While most analysts expect Thailand's transition to be smooth, the divide between its affluent urban centers and poorer rural areas is a constant source of instability. The military has overthrown civilian, democratically elected governments twice in the past decade, though the situation has been relatively calm since the last coup in 2014. Fresh protests could hurt the tourism sector, which accounts for a tenth of the GDP. Past unrest already has damaged the country's competitiveness, as infrastructure projects stalled and investors held back, wary of uncertainty. "The lack of investment is undermining the economy's future productive capacity," Krystal Tan and Gareth Leather of Capital Economics wrote in a recent report. "The bottom line is that it is difficult to be upbeat about Thailand's medium-term outlook until the political picture becomes clearer."


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