May 25, 2011 11:47 am

Thailand: a binary view

Greece is to Europe what Thailand once was to Asia: a peripheral economy that took on huge debts without the corresponding income, or the currency flexibility, to pay them back. Fourteen years after the Bangkok-born crisis spread across the region, foreign investors still tend to take a binary view. South-east Asia’s second-largest economy is either in favour, or it isn’t.

Recently, there has been little doubt which. As Morgan Stanley notes, foreign institutions’ exposures to “the land of smiles” have risen to a 10-year high, relative to the rest of Asia (excluding Japan). The big bet seems to have been based on a conviction that Thailand’s current strengths – robust growth and milder inflation than many emerging-market peers – outweigh its enduring weakness: the propensity to dispose of governments every few years.

The belief is questionable. Even if prime minister Abhisit Vejjajiva’s Democrats hold off the challenge of the Pheu Thai party in elections in a little over a month – and the latest polls suggest a very close-run thing – stability is by no means assured. The country has witnessed one putsch every five years, on average, since the revolution of 1932; just two of 27 prime ministers have started a second term, having completed a first. Meanwhile, fiscal discipline has slipped. Seven consecutive months of budget deficits to March – the longest run since the depths of the 2008/2009 crisis – suggest that Mr Abhisit is going all out to woo voters.

Perhaps as a result, non-Thais have begun to turn tail. Net sales by foreign investors so far in May amount to 90 per cent of their net purchases over the first four months. That is a sobering lesson for the eurozone’s current laggards: the “risk on/risk off” mentality can linger for decades after a crisis.

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