Thailand’s Political Crisis Makes Indonesia and the Philippines More Attractive for Foreign Investors

March 5, 2014 Posted by ASEAN Briefing Reading Time: 3 minutes

The protracted political crisis in Thailand has understandably unnerved foreign investors, who see no end in sight for the political stalemate. Meanwhile, Indonesia and the Philippines have become very attractive alternatives for investors considering pulling their investments out of Thailand.

Three key factors make the economic outlooks of Indonesia and the Philippines more favorable than Thailand’s: stable politics, lower levels of debt, and large labor forces, according to Chua Hak Bin, head of economics research for emerging Asia at Merrill Lynch (Singapore), in an interview with The Nation, a Bangkok-based newspaper.

The Bank of Thailand reported that tourism, consumption, private investment, business confidence and exports in Thailand have all been negatively impacted by the ongoing political turmoil, which has already lasted four months to date. Chua noted that the Indonesian and the Philippines’ stock markets have risen by about 7 percent this year, while Thailand’s has remained flat.

Last week, Bank Indonesia Deputy Governor Perry Warjiyo stated that several companies in the automotive and fabric industries in Thailand are planning to relocate to, or expand their operations in, Indonesia, though he declined to name the companies.

Chua expects that the Bank of Thailand will cut the benchmark interest rate by 25 basis points to 2 percent next month, in an attempt to boost the economy. The Bank of Thailand has expressed a worry that if a new government could not be formed by the third quarter of this year, the country’s economic growth for 2014 would almost certainly be worse than its 2013 growth, which was a mere 2.9 percent.

The second factor making Indonesia and the Philippines more attractive than Thailand is Thailand’s high level of household debt. Thailand’s household debt currently stands at 80.1 percent of GDP. Of the ASEAN members, Thailand’s household debt is second only to Malaysia, which has debt of around 86.1 percent of its GDP. In contrast, the levels in Indonesia and the Philippines are much lower, at only 17 and 6.2 percent respectively. High levels of household debt tend to cause lower levels of consumption, and is for this reason likely to contribute to an economic slowdown.

The last factor raised by Chua is the demographic changes that each country will undergo within the next decade. Thailand’s working age population is projected to shrink in the years between 2013 to 2023, while both the Philippines and Indonesia are expected to enjoy strong demographic dividends. Bank of America Merrill Lynch Global Research predicts the working population will grow by more than 20 percent in the Philippines and around 15 percent in Indonesia in that 10-year period.

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