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) BANGKOK 00003519 001.2 OF 003 ¶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 BANGKOK 00003519 002.2 OF 003 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 BANGKOK 00003519 003.2 OF 003 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