Thailand's economy: Crisis? What crisis?

December 5, 2013: 10:55 AM ET

Political unrest is commonplace for Southeast Asia's second-largest economy. The markets haven't been fazed.

By Erika Fry, reporter

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FORTUNE -- For Thailand watchers, the past couple of weeks have surely brought that too-familiar sinking feeling: Here we go again.

Anti-government protestors are back in action -- occupying government compounds, crippling business, hijacking media, and generally wreaking havoc -- in an effort to bring down another government. On Sunday, events escalated so much that police in the capital issued tear gas and rubber bullets. A few hundred were injured, and four were killed.

On Tuesday of this week the country had settled into a tenuous calm, when police defending Government House -- the Prime Minister's compound -- opened the gates to anti-government protestors who spilled in and spent the afternoon, declaring "partial victory" and merry-making on the premier's lawn. But that was a more shrewd than conciliatory strategy on the government's part: Today marks the 86th birthday of the nation's much adored monarch, King Bhumibol, an occasion that calls for sober celebration and peace.

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It's hard to imagine the protestors won't be back on the street soon after the King's special day has passed.

So what does this mean for Southeast Asia's second largest economy?

Not as much as you might think.

Though this bout of unrest is certainly ill-timed -- Thailand's tourism high season is barely underway and will surely take a hit -- analysts like Jefferies' Sean Darby believe the protests are "unlikely to cause major economic disruptions."

This would seem to be the norm in Thailand: Few countries pull off political instability quite so well. Since 1932, the country has experienced 18 coups -- that's a rate that almost matches the American presidential election cycle. The most recent of those was in 2006, when Thaksin Shinawatra, the divisive media tycoon who became Prime Minister in 2001 -- populist to some, corrupt politician to others -- was overthrown. Shinawatra, now in Dubai, has haunted Thai politics ever since.

Both a lot and very little has happened in the intervening years. The government has changed seven times, against a backdrop of chronic, and at times, serious political turmoil. Yellow-shirt protestors shut down Bangkok's airports for days in 2008. In 2010, red shirt protestors shut down Bangkok's central business district for weeks; the government responded with a crackdown that resulted in 92 deaths, and provoked the torching of Bangkok's biggest megamall and the nation's stock exchange. Shinawatra's sister, Yingluck, became Prime Minister, in 2011 -- a democratic development that nonetheless promised only more trouble, like that of recent weeks, when her government proposed an amnesty bill that would forgive all -- most notably Thaksin Shinawatra -- accused of crimes committed in political conflict dating back to 2004.

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You'd expect developments like these to spook investors and tourists, if not create outright catastrophe for a country, but research by Santitarn Sathirathai, an analyst with Credit Suisse shows Thailand's political instability has had remarkably little negative impact on its GDP growth or other economic measures over the years. Journalists dub the country "Teflon Thailand" for this very reason: Despite the bloody crackdown, the Thai economy grew 7.8% in 2010. The stock market was up 40.6%, and tourism numbers hit record highs. Bangkok ranks as 2013's top global destination according to MasterCard.

That's not to say the economy wouldn't be in better shape if Thailand had its political house in order. Darby notes that tourism -- which accounts for 6.5% of the Thai economy -- has been dampened at times; he chalks much of the economy's resilience up to continued foreign direct investment, conditions that have favored Thailand in global trade, and strong credit growth.

But he also warns the conditions that kept the Thai economy relatively healthy in recent years are changing. The global economy is weak, credit growth is at its limit, and "the major fear is foreign direct investment will be diverted to other countries."

But rather than politics, Darby, in a Dec. 3 report, wrote it's the country's monetary policy -- the Bank of Thailand surprised analysts with an interest rate cut last month to boost growth -- that "ought to be setting the alarm bells ringing in investors ears."

Sathirathai, the analyst with Credit Suisse, also cautions that political turbulence may have a more potent effect on the economy now than in the past. "GDP growth is now much more reliant on tourism and the government's infrastructure spending," he wrote in a Nov. 28 report. Though tourism numbers were (again) at record highs, up 23% for the first nine months of 2013, further violence would certainly jeopardize bookings for the rest of the year and in 2014. And continued political tension will delay and complicate government action on big infrastructure projects, among them work on Bangkok's mass transit system.

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He adds the political unrest may tempt the government to adopt populist policies that would boost short-term growth, but that could hurt in the long-run.

Still, Credit Suisse forecasts Thailand's GDP to grow 4.5% in 2014; Jeffries has it at 5.2%.

For now, with the leader of the opposition, a longtime politician and establishment figure, calling to install a council of "good people" to govern, the Thai market seems a safer bet than Thai democracy.

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About This Author
Erika Fry
Erika Fry
Fortune

Erika Fry joined Fortune in October 2012 and writes on a variety of topics for the web and magazine. Previously, she wrote for Columbia Journalism Review and The Bangkok Post. She graduated from Dartmouth and holds an M.A. in Journalism from Columbia University. She lives in New York City.

Email Erika Fry | @erikafry
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