THAILAND: ECONOMY SUFFERS FROM AIRPORT SHUTDOWNS

UNCLAS SECTION 01 OF 03 BANGKOK 003519

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, EAP/RSP AND EEB
STATE PASS TO USTR
TREASURY FOR OASIA
COMMERCE FOR EAP/MAC/OKSA
SINGAPORE FOR FINATT BAKER

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PREL ETRD TH
SUBJECT: THAILAND: ECONOMY SUFFERS FROM AIRPORT SHUTDOWNS

REF: A. BANGKOK 3505 (ARMY WANTS PEACEFUL DEMOCRATIC
SOLUTION)

B. BANGKOK 3504 (STALEMATE LOOKING FOR A WAY OUT)

C. BANGKOK 3492 (MOB SHUTS MAIN AIRPORT)

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1. (SBU) Summary: As the anti-government protesters continue
to blockade Bangkok's airports, tourism and other industries
dependent on air cargo are getting clobbered. Thai Airways
alone reports losses of $14 million a day. Tourism has long
been a mainstay of Thai economic growth, and to the extent
that the airport closure crisis drives away foreign visitors,
the global economic crisis will hit Thailand more than need
have been the case. Most economists and trade observers,
including Thailand's own government officials, had already
predicted a difficult year ahead. The government revised its
projected growth rate for 2009 to two percent, while many
private sector estimates are lower. So far, the financial
sector remains sound, with stocks largely unaffected and the
Thai baht continuing a long-running gradual decline. End
Summary.


2. (SBU) Comment: Ironically, by closing the airports
(initially in an effort to prevent the return of the Prime
Minister from the APEC summit),the anti-government
protesters are attacking the upper-class and business
interests which have been key supporters. Nevertheless,
business associations have yet to criticize the protesters
directly, but have only rather meekly noted the extent of
potential economic losses. One key to crisis resolution will
be whether the pain to the economic elites will dampen their
political support for the protesters. It has not happened
yet. End Comment.

Immediate Blow to the Tourism Sector
--------------


3. (U) The most visible and immediate impact of the airport
closures has been on the tourism industry, which was already
weakened by Thailand's prolonged political stalemate and the
global financial crisis. Thousands of tourists, including
many American citizens, remain stranded in Bangkok, searching
for ways out of the country. Thousands more, including an
estimated 50,000 Thai citizens, remain outside of Thailand
unable to enter the country as they had planned. Hotel room
occupancy, which according to industry contacts has already
been down 15 to 20 percent this year, will decrease even
further once the current stranded foreign occupants gradually
find their way home. This situation comes at the start of
Thailand's peak tourism season, when millions of travelers
were to have arrived over the next 2-3 months.


4. (SBU) Perhaps with even more immediate consequences to
Thailand's economy and image are the cancellations of
business, NGO and governmental events, dealing a devastating,
though hopefully short-term, blow to the convention trade.
As one small snapshot, USG-related cancellations include the
APEC New echnologies in Aviation Workshop (sponsored by the
U.S. Trade and Development Agency and Federal Avation
Authority) and an UN-sponsored International Workshop on
Perfluorinated Chemicals that an Enironmental Protection
Agency official was to char. Embassy Bangkok has cancelled
a U.S. militar conference for 60 attendees. Contacts tell
us hat the prestigious Asian Institute of Technology has now
cancelled five conferences from late Novemer to December.
Future events are being cancelle daily, and the speculation
continues over whethr the RTG will postpone the December
15-18 ASEANSummit, which will include heads of government
from all over the region. The RTG, the event's host,had
already shifted the summit's venue from Bangok to Chiang
Mai, in order to minimize the impac of anti-government
protests.


5. (U) The Bankof Thailand estimates that the tourism sector

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accounts for almost $175 billion in annual revenues and that
the airport shutdowns could cost $5 billion by the end of the
year. More than 750 flights normally are scheduled to arrive
and depart at Bangkok's new Suvarnabhumi Airport each day,
while more than 200 flights take off and land at Bangkok's
Don Muang Airport. Virtually all of these flights have been
cancelled, though a few have been re-routed to smaller cities.


6. (U) Deputy Prime Minister Olarn Chaiprawat predicted that
the tourism industry could decline by as much as 50 percent
because of the political crisis, resulting in the potential
losses of one million jobs in hotels, restaurants, and tour
operators. (Comment: These government estimates may be
exaggerated in order to sway public opinion against the PAD
protesters. End Comment.) According to DPM Olarn, the
government expects foreign tourist arrivals for 2008 to come
in at 13.5 million in 2008, about one million less than 2007,
and decline even further to six or seven million for 2009.
Analysts at the Bank of Thailand separately predicted foreign
tourist arrivals to fall by 3.5 million, if the airport
shutdowns drag on through the year-end. The press reports
that Thai Airways, the country's national carrier, has
estimated its immediate losses at more than $14 million each
day the airports remain closed, according to the airline's
Acting President Narongsak Sangapong.

Longer the Crisis Lasts, Greater the Economic Impact
-------------- --------------


7. (U) The current airport crisis comes just as the overall
economy has turned south. Finance Minister Suchart
Thada-Thamrongvech had already revised the government's
economic growth projections for 2009, cutting the estimate
from 4.5 percent to 2 percent, a decline that the airport
closures can only exacerbate. Suchart added that the current
political turmoil could cause losses of about $2.8 billion in
this final quarter of 2008 alone. Prior to the airport
closures, the Thailand Development Research Institute, the
premier Thai economic think thank, projected that economic
growth for 2009 could fall below 1.9 percent. TDRI President
Nipon Poapongsakorn said on November 28 that these
projections could fall even further should the airport
closures be prolonged. In its most recent reports (published
prior to the airport closures),TDRI forecasted that the
export and services sector would likely retract by 12.1
percent in 2009, because of reduced global demand in light of
the financial crisis.


8. (SBU) In the medium- to long-term, the deepening political
crisis will amplify the impact of the global financial crisis
on Thailand. It is too soon to predict overall losses to
businesses and investors, but most estimates stretch into the
tens of millions of dollars for each day the airports remain
shutdown. The Thai Chamber of Commerce estimates total daily
losses for the export-driven economy at $85 million.


9. (SBU) Many business groups are predicting gloomy days
ahead for the Thailand's export and import sectors. The
Federation of Thai Industries, one of the leading business
associations, estimated that the airport takeover is
resulting in losses of up to $85 million per day. According
to our business contacts, the bulk of Thailand's exports are
still leaving the country, with more than 90 percent of
export cargo transported by shipping lines. Some specific
sectors, however, are hit with significant losses in the
short-term, particularly agricultural exports -- perishable
vegetables, fruits, and fresh cut flowers that depend on air
cargo delivery.


10. (SBU) Exporters are reviewing all of their options in
order to move their products out of the country, including
re-routing cargo through Penang, Chiang Mai, and Phuket. The
Thai Freight Forwarders Association reports that more than

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1,000 tons of cargo is being re-routed through Penang each
day, significantly increasing the logistics costs to Thai
exporters. Western Digital, the largest American employer in
Thailand with more than 45,000 employees, told us that the
company is shipping its computer hard drives overland to
Malaysia as a short-term solution, but the additional
logistics costs cannot be absorbed much longer without
risking their price competitiveness.

Financial Sector Weathering the Crisis
--------------


11. (SBU) The airport closure has not yet affected the
financial sector, according to several of our banking
contacts. The Stock Exchange of Thailand's (SET) index was
up the week of November 24 and only on December 1 dipped into
the red. The head of trading at a large foreign bank
explained that many foreign investors have already divested
of Thai equities over the past year due to the ongoing
political crisis, as seen by the decrease of the SET's value
by over 50 percent this year. The SET indexes could still
decrease, especially if the stand-off at the airport is
prolonged, but thus far Thailand has not had market panics or
runs on the Thai baht.


12. (SBU) Financial industry executives continue to point to
the RTG's high level of foreign reserves (approximately $110
billion) and the limited foreign exposure of private banks,
explaining the overall strength of the financial sector.
Like their colleagues in other business sectors, financial
executives are most concerned about Thailand's long-term
export and tourism competitiveness.

JOHN