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Thai junta's economic legacy-building at crossroads

Nascent export recovery threatened by Trump protectionism

Exports, which account for roughly 60% of Thailand's GDP, are gaining steam.

BANGKOK -- Thailand's languishing economy is finally seeing some rays of light, but its military government must battle the clock to lay a foundation for sustained growth before handing over power to a civilian government in about a year.

The second-largest Southeast Asian economy has relied on aggressive government spending and solid tourism momentum to navigate through a period of stagnation. Now, exports, which account for about 60% of the country's gross domestic product, have started regaining traction.

Brighter tone

The Bank of Thailand said in a post-policy meeting statement on Feb. 8 that the country's economy looks to be picking up faster than its earlier assessments, while noting uncertainty in the external environment. The central bank's tone has brightened considerably since last year, when it occasionally described the economy as "tilted more to the downside than previously assessed" or "at a pace close to the previous assesment." 

Two days after the policy meeting, Bank of Thailand Gov. Veerathai Santiprabhob told the Nikkei Asian Review that its 2017 growth forecast released in December may have been too conservative and will be reexamined in March, suggesting the 3.2% estimate will be upgraded.

A recovery in exports has turned the tide. Exports rose on the year for two straight months through December and climbed 0.5% for all of 2016. This modest gain marks the first annual increase in four years.

Veerathai noted that exports are increasing from more industries and to more destinations. The broadness of the recovery seems to have fueled confidence among policymakers.

Exports totaled about $215.3 billion in 2016. Mainstays automobiles and autoparts, as well as jewelry, continued to rise, while plastic product and air conditioners and their components returned to growth. Shipments of some products like electronics parts are still falling. Even so, the trade data shows a clear improvement from the virtually across-the-board declines of previous years.

The military government continues to spur economic activity through substantial spending. Central to the effort is infrastructure development.

The 2017 transportation infrastructure investment action plan includes 36 projects totaling around 900 billion baht ($25.7 billion), 73% of which is earmarked for railway projects.

By 2018, Chinese-supported plans for a high-speed railway between Bangkok and the northern province of Nong Khai could advance to the bidding and ground-breaking stages. So could another high-speed line to connect the capital with the city of Chiang Mai in the north -- a project slated to employ Japanese shinkansen bullet-train technology.

The National Economic and Social Development Board on Monday will report 2016 GDP and its forecast for 2017. The latest forecast, issued in November, sees growth at 3-4%. If the board upgrades the outlook this early in the year, that would signal the government's confidence in the economic recovery.

US risks lurk

But U.S. trade policy under President Donald Trump is a source of concern, as America is Thailand's biggest export destination. Shipments to No. 2 importer China may also take a hit if Chinese exports to the U.S. slow down. This is because Chinese manufacturers' supply chains for electronics, appliances and other goods stretch into to Thailand.

The military government must not only provide short-term stimulus, but also advance the structural reforms needed to escape the middle-income trap. Steady efforts are needed to move Thai industry up the value chain to more sophisticated fields.

At a government-organized investment seminar here Wednesday, Prime Minister Prayuth Chan-ocha and other officials touted incentives to attract capital and develop a new industrial hub, under a plan known as the Eastern Economic Corridor Development Project.

With birth rates falling, Thailand's population is projected to start shrinking in a few years. Meanwhile, neighboring economies like Vietnam are quickly catching up. The recent signs of economic recovery do not give the government the luxury to be complacent in its drive for growth.

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