BANGKOK BOMBS AND THE THAI ECONOMY

UNCLAS BANGKOK 000014

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS AND EB
COMMERCE FOR EAP/MAC/OKSA
TREASURY FOR OASIA
STATE PASS TO USTR FOR WEISEL
STATE PASS TO FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN
STATE PASS FEDERAL RESERVE NEW YORK FOR MATT HILDEBRANDT

E.O. 12958: N/A
TAGS: ECON EFIN TH
SUBJECT: BANGKOK BOMBS AND THE THAI ECONOMY



1. (SBU) The series of bomb explosions in Bangkok on New
Year's Eve occurred at the height of Thailand's tourism
season. Tourism is an important component of the Thai
economy, contributing more than 6 percent to GDP. Since
2001, Thailand's tourism industry has faced the effects of
9/11, SARS, avian influenza, terrorism in the south and
especially the tsunami and has bounced back strongly each
time. Major travel agencies here tell us that cancellations
have increased to about 10 percent of bookings from a normal
rate of 2 percent with most of the cancellations coming from
the US and Europe. This includes visitors who were not
scheduled to stay in Bangkok. Some bookings have been
adjusted to cancel stays in Bangkok while maintaining the
remainder of a Thai trip. US and other foreign air carriers
report no increase in cancelled bookings at this point
although they (like the Thai Tourism Association) expect
typically skittish Japanese tourism to fall off quickly. They
have also seen some increase in travelers already in Thailand
moving up their departure dates. Almost every observer with
whom we spoke indicated that with the holiday season just
ending, the next few days will be their real indication of
global traveler reaction.


2. (SBU) Some analysts are concerned that by attacking
crowded areas, including a shopping mall, the bombs could
further reduce domestic consumption and consumer confidence
in general. With most private investment over the past year
focused on new retail buildings and tourism infrastructure,
there could also be a further slowing of private investment.
The Stock Exchange of Thailand index declined 3.3 percent on
January 3, its first day of trading since the explosions. The
baht, on the other hand, was slightly stronger against the
US$ than before the bombing, going from about 35.85/$ on
December 29 to 35.8/$ on January 3. This was on very light
volume and with exporter dollar selling the primary activity.
Most believe that the baht will weaken again as foreign
portfolio investors begin to repatriate the proceeds from
equity sales made in the wake of the December 19 capital
control regulations.


3. (SBU) RSO and ACS Chief held a briefing for American
Chamber of Commerce members. Despite the meeting not be
announced until mid-morning, the 3:00 meeting was
exceptionally well-attended. The mood was one of
disappointment more than concern with one executive saying
privately that it is getting ever more difficult to explain
to his head office why any additional investment should be
directed towards Thailand.


4. (SBU) Comment: Since 1997, the Thai economy has weathered
previous disasters without much distress. The difference this
time is that with the recent capital control regulations and
expected changes to laws regulating foreign investment,
international investors may be more reluctant to devote
capital to Thailand than at any time since the crisis. While
we expect tourism to quickly recover from any short-term
decline from the bombings, this sector too would be in
jeopardy if additional attacks occur over the next few
months.
BOYCE