Thai junta hopes to save an economy in trouble

The flag of Thailand blows in the wind.
Brent Lewin | Bloomberg | Getty Images

Thailand's military government has made a start on fixing an economy battered by political turmoil. So far so good, if the reaction in Thai markets this week is anything to go by.

A list of emergency measures drawn up since the military junta took control in Bangkok on May 22 include price caps on fuel, loan guarantees to small firms and some form of insurance scheme for rice farmers.

The measures appear to have received a positive response from investors, with Thai stocks this week hitting their highest level in over seven months and the Thai baht recovering almost 0.7 percent from a four-month low hit Monday.

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"I am encouraged by how the NCPO has moved quickly to get Thailand's economic house in order," said Su Sian Lim, ASEAN economist at HSBC, referring to the National Council for Peace and Order, the formal name for Thailand's military junta.

"They [the junta] are not moving mountains on the economy, but they are turning on taps that had been turned off because of the political crisis," she said.

The military took over power last month, removing the remnants of former Prime Minister Yingluck Shinawatra's government after months of protests that resulted in the closure of administrative offices and hit business confidence.

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The impact of the country's economy, once resilient to political strife, has become evident. Thailand's economy shrank 2.1 percent in the first quarter of this year from the previous one.

The country's state planning agency has slashed its full-year growth forecasts for 2014 to 1.5 to 2.5 percent from 3 to 4 percent.

"2014 is going to be something of a lost year growth wise for Thailand, but I think people are getting more comfortable with the idea that the worst-case scenario has been averted," said Tim Condon, head of research for Asia at ING Financial Markets.

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"The demonstration of concern from the military junta for the economy is investor friendly," he added.

In the past five days, Thai stocks have risen about 4.4 percent, outperforming a rise of just 0.7 percent in MSCI's index of Asia-Pacific shares outside Japan.

In a sign of support to the tourism sector, the military authorities on Tuesday said they were lifting a curfew in some tourist areas, including the popular beach resorts of Pattaya and Phuket.

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Following that decision on curfew, Thai hotel chain operator Central Plaza Hotel said online bookings had tripled, Reuters reported.

Analysts at Mizuho Corporate Bank said in a note that the emergency economic measures and news of an improvement in consumer confidence have provided some support to the baht.

"That said, growth will remain sluggish in the near term and we maintain our growth forecast of 1.7 percent year-on-year in 2014 for now," they said in a note.