[Asia Report] Is Thailand, With Its Political Turmoil, Worth Investing In?

Subordinate to the Japanese Economy: The "Middle-Income Trap"
22 Military Coups Lead to Political Turmoil
Royalty and Military at the Center of Power
Last Month, Thaksin's Daughter Became Prime Minister, Adding Uncertainty
Maintaining an Open Stance Toward Foreign Investment
The Value of Thailand's Economic Environment Remains Significant

A large-scale Thailand investment briefing session, organized by the Thailand Board of Investment and the Royal Thai Embassy in Korea, was held on August 26 at the Shilla Hotel in Seoul. As the event was led by the Thai government, dozens of high-ranking officials who traveled all the way from Bangkok and hundreds of domestic businesspeople gathered, creating a great turnout. At the event, Thailand promised special foreign investment incentives in the next-generation growth industries they envision: ▲digital economy ▲medical ▲biotechnology ▲automobile & robotics ▲aerospace engineering. The recent news that Hyundai Motor announced plans to build an electric vehicle assembly plant and a battery module factory in Thailand worth 1 billion baht (approximately 39 billion KRW) also heightened the atmosphere at the venue.

However, the media’s interest in the event was lukewarm. It was not easy to find related articles. From the perspective of domestic media, Thailand was not seen as a suitable country for Korean companies to enter and succeed. Although Thailand is a world-leading tourism powerhouse ranked first or second globally, its actual economic trade with Korea is lukewarm. Its trade volume ranks 14th, which is only about 20% compared to Vietnam (3rd), another ASEAN (Association of Southeast Asian Nations) country, indicating significantly lower importance.

However, since it is similar to the Philippines (13th) and Indonesia (15th), it is certainly a level that cannot be overlooked. Thailand’s strategic importance as a central ASEAN country is well known. It plays a central role in transportation and logistics in the heart of ASEAN, and its abundant and inexpensive labor force and domestic market are also attractive. Its industrial infrastructure is at a level incomparable to neighboring countries.

◆Thailand’s Middle-Income Trap=So why is Thailand, a traditional economic advanced country in ASEAN, not actively engaged in economic trade with Korea? Above all, Thailand has maintained close ties with Japan throughout the last century. Japan’s automotive and electronics industries, once world-leading, made Thailand a partner in their supply chain by relocating many parts and materials industries locally since the 1970s. Thailand leveraged this to become the economic powerhouse of the ASEAN region, but naturally, this led to a distancing from Korean companies.

Dependence on the Japanese economy has been both a blessing and a clear limitation for Thailand. Many Japanese automotive-related companies have built numerous parts suppliers and assembly plants in Thailand but have been extremely reluctant to establish research and development (R&D) centers. Consequently, Thailand still lacks a global domestic brand and has a per capita GDP below $8,000, remaining trapped in the "middle-income trap." Efforts to change the Japan-biased economic structure have also begun in earnest.

[Asia Report] Is Thailand, With Its Political Turmoil, Worth Investing In?

Photo by Reuters and Yonhap News Agency

Chaotic Thai politics is also considered a factor contributing to the middle-income trap. The military’s influence has been strong, with as many as 22 military coups since 1932, leading to 13 regime changes by force. Thailand, which was the starting point of the 1997 Asian financial crisis, pursued major political reforms afterward. During this process, conflicts reached an extreme over the reformist yet populist politician "Thaksin Shinawatra." Every time the pro-Thaksin party won elections, the military and the Constitutional Court repeatedly rejected the results.

◆Thaksin’s Daughter Becomes Prime Minister=The recent volatility in Thai politics is difficult to keep up with, especially from Korea, which has little connection. The latest news is that on August 16, Paetongtarn Shinawatra, Thaksin’s daughter and leader of the Pheu Thai Party (Party for Thailand) at age 38, was elected as the 31st Prime Minister of Thailand, becoming the youngest ever. The prime minister for the past year was Srettha Thavisin (62), from the same party. In the general election held last May, the Progress Party, led by Pita Limjaroenrat, which openly advocated the long-tabooed "royal reform," became the first party, and the Pheu Thai Party, known as Thaksin’s party, rose to second place, signaling the end of the nine-year military regime that had continued since the 2014 coup.

Additionally, Thaksin’s return to Thailand after more than 15 years of exile and his imprisonment has attracted global attention. Thaksin has long been a controversial figure. Now that his daughter has become prime minister, it is confusing for those outside Thailand to understand how to interpret this. There are high concerns about how long the new Prime Minister Paetongtarn’s administration can last and the possibility of another coup.

Thai politics is so complex and ambiguous that it is almost impossible to fully understand or explain. Scholars who have studied Thailand deeply ask that this phenomenon be understood as a "peculiarity" rather than backwardness in Thai politics. Kim Hong-gu, Professor Emeritus at Busan University of Foreign Studies, explains, “Without revolutionary situations, the current royal and military-centered political structure is likely to continue,” adding, “In the broader context, it is not different from global conflict structures and trends.” In other words, the conflict arises because the young and middle class seek clear and firm changes, but the walls of the wealthy elite and the military are so strong.

◆Peculiarity, Not Backwardness=We cannot omit the story of Pita Limjaroenrat of the Progress Party, which swept the constituencies in the metropolitan Bangkok area and emerged as the first party in last year’s general election. Amid this political upheaval, the Constitutional Court dissolved the party and imposed a 10-year political ban on him. The political life of this highly popular politician, who was a leading prime minister candidate as the leader of the first party, ended abruptly.

In other words, before 2017, Thaksin was in an antagonistic relationship with Thailand’s long-standing vested interests, but now the Thaksin family has been fully incorporated into the establishment, while the Progress Party forces, including Pita Limjaroenrat, have become targets. The decisive cause was the public discussion of the highly tabooed "royal reform" during the general election.

Despite these extreme confrontations, one fortunate point is that historically, Thai politics has never self-destructed to the extent of collapsing the economy. Especially, its open attitude toward foreign investment is considered among the best in all of Asia. The country most tense about Vietnam’s recent rapid economic growth is undoubtedly neighboring Thailand. Cooperation is more urgent than conflict.

Behind the glamorous department stores on the streets of Bangkok, several shadows lurk: low educational enthusiasm, serious wealth disparity, political conflicts and distrust, and low productivity. The fact that Thailand’s appearance has not changed much in 10 or even 30 years is also a problem. However, Thailand’s level of press freedom, the highest in Southeast Asia, and its social overhead capital (SOC) such as roads and electricity are also strengths. Although Thailand’s political situation is complex and chaotic, the value of its economic environment with many advantages does not fade.