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Political Risk in Bangkok

Jennifer Schmelter – Political Risk in Bangkok

On June 25th our cohort arrived in Bangkok, Thailand.  After a group lunch at the hotel, we headed to our afternoon meeting with the American Chamber of Commerce.  This meeting was one of the most interesting to me as it displayed the close link between a country’s politics and its business.

As many are already aware, on May 20th the Thai government initiated martial law in order to restore order and stability within Bangkok.  This occurred after protests trying to remove Prime Minister Yingluck Shinawatra, and her government, turned violent and resulted in the deaths of at least 11 people.  The protests were in response to accusations of corruption within the government and that Shinawatra was abusing her power.Riot1 riot2

The intriguing part of this story is the disabling impact that politics, media, and public perception can have on a local economy.  After May 20th articles abound about the destruction of Democracy within the country and images depict martial law with tanks driving through streets and armed guards seemingly on street corner.

 

Fortunately for the Thai people, these images are not an accurate depiction of what is happening in their country; martial law has helped restore order to the city.  And even when protests were active, they were restricted to specific areas of the city, which many travel blogs helped communicate to travelers.

Unfortunately for the Thai people, most tourists are willing to accept the media images they see without question and choose to avoid Thailand all together.  I had several family members and friends ask before our trip, “Are you really going to Thailand? Have you seen the news?”  I assured them that the media coverage was blown out of proportion in attempts to earn higher ratings.  When some media sources opted to report based on an agenda instead of unbiased facts, the impact was real in Thailand.

According to the Wall Street Journal, Travel & Tourism comprises 9% of Thailand’s GDP, or $35 billion in 2013.  According to our speaker at the Chamber of Commerce, direct tourism comprises around 10% of Thailand’s economy, which rises to 14% when indirect spending is also taken into account.  During Q2, tourism dropped 5.85% year-over-year within the country and declines were expected to reach $2.6 billion within the first 6 months of 2014  Hotels within Bangkok have been hardest hit, with some hotel owners reporting losses of $90,000 per week.  CEOs are not the only people impacted, however.  Our speaker added that standard service charges are not being recouped, which can often add up to 30% of a hospitality worker’s salary, and hours are being reduced.  Given the high revenues Thailand normally earns from tourism, thousands of Thais are being impacted either directly or indirectly by the lack of tourists heading to the area.

Another economic challenge Thailand is facing is the lack of available political risk insurance.  Which, given the present circumstances, does not help potential investors generate confidence and enthusiasm for the country when making their investment decisions.  Whomever the Thai people choose as their next Prime Minister, it will be interesting to watch how his/her political decisions impact the Thai economy by influencing the faith international travelers and investors have in the country’s safety and stability.

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