By Noelan Arbis

Protest movements, like this one, leading to Bangkok’s shutdown coupled with general unrest in Thailand have seriously impacted the Thai economy. Source: Bangkokcalling’s flickr photostream, used under a creative commons license.

Thailand’s political unrest is now entering its fifth month, but a solution remains out of sight. Since early November, anti-government protesters have occupied government offices, temporarily shut down parts of Bangkok, and blocked people from voting in an election that the administration of Prime Minister Yingluck Shinawatra had hoped would resolve the crisis. The protests have also led to instances of violence, resulting in the deaths of at least 23 people, including 4 children, and wounding over 700.

And beneath the political drama is another undercurrent: the tremendous economic damage the crisis is causing the country. If not toppled, the Thai government is likely to keep its “caretaker” status for the foreseeable future. That means it will be unable to make budgetary decisions, act on planned investment programs, or negotiate international agreements to mitigate the unrests’ adverse economic effects.

Thailand’s tourism industry, which has weathered many previous episodes of political unrest, has been hard hit. Flag carrier Thai Airways reported a net loss of nearly $175 million in the final three months of 2013 and it expects further loses in 2014. The Thai Hotel Association in February said that occupancy rates in Bangkok were hovering at around 50 percent, well below the 80 percent average at this time of year. Tourism affects many facets of Thailand’s economy and accounts for about a tenth of its gross domestic product.

Confidence in the broader Thai economy has also withered. Consumer confidence in Thailand plunged to a 26-month low in January and business sentiment fell to its lowest level in 55 months. Such sentiments have hampered domestic consumption and investment, leading to slower economic growth. More than $15 billion of planned foreign and domestic investments, including about 400 projects, are currently on hold. Somchai Sujjapongse, director-general of the Finance Ministry’s Fiscal Policy Office, said on March 3 that Thailand’s economy will probably grow at less than 2 percent in 2014, down from an initial forecast of 3.5 to 4 percent, in large part due to the political turmoil.

Thailand’s unrest has also caused the value of its currency, the baht, to plunge to its lowest levels in nearly 4 years, affecting the country’s balance of payments. Thailand is heavily reliant on imports and is the second largest oil importer in Southeast Asia after Singapore. A weak baht diminishes the government’s ability to pay for imported commodities at a time when it is also constrained by costly domestic spending programs, such as a controversial rice-pledging scheme.

Thailand’s role as Southeast Asia’s manufacturing hub is also being threatened. Kyoichi Tanada, president of Toyota’s Thai unit, said on January 20 that the company may pull out of a planned $609 million investment in Thailand and warned that it could cut production if political unrest persists. Equivocation from Toyota, the largest car manufacturer in Thailand, could signal future foreign investors to put their money in neighboring countries instead.

Indonesia is perhaps the leading candidate to replace Thailand as the region’s new manufacturing hub. Japanese companies, which account for more than half of Thailand’s foreign direct investment, are increasingly turning to Indonesia due at least in part to Thailand’s continuing unrest, according to the Japan External Trade Organization. Indonesia is also becoming increasingly attractive due to its large market and cheaper labor force.

How long Thailand will remain in political limbo remains to be seen, but it is clear that the international business community is not willing to wait forever. The crisis must be resolved swiftly and peacefully, to prevent further bloodshed and political upheaval, but also to regain the country’s economic stability.

Mr. Noelan Arbis is a researcher with the Sumitro Chair for Southeast Asia Studies at CSIS.