Last week it was Japan trying a modest reflationary package, then on Monday, when South Korea produced a package of its own as the won tumbled and confidence fell.
Monday night Japan lost its Prime Minister of year in Yasu Fukuda and yesterday the Government of Thailand lost its nerve, declared a state of emergency in Bangkok as a way of controlling spiralling demonstrations and the currency and stockmarket tanked.
All are serious, but the most inflammatory news seems to be coming from Thailand.
As a result of at least one death and more than 40 injuries in demonstrations and blockades in the past two days or so, the declaration of the state of emergency in the capital proved to be the last straw for investors’ confidence.
The demonstrations continued overnight.
Thailand’s currency, the baht fell to its lowest level in more than a year and stocks dropped to a 19-month low with a 2.3% in the market yesterday.
As usual investors either sold investments to exit the country, or sold investments and moved into Government bonds for temporary safety while they watch events.
Dealers said the currency extended last month’s 2.1% fall after clashes Monday night in Bangkok between pro- and anti-government protesters left one dead and 43 injured.
The currency fell to its lowest level since August last year when the credit crunch erupted.
Thailand’s army chief reportedly ruled out using troops yesterday to end a siege by anti-government protesters of Bangkok’s Government House, even after the Government declared a state of emergency in the city.
Prime Minister Samak Sundaravej gave the military the power to restore law and order after those violent street battles Monday night between government supporters and opponents.
Reports say the members of the People’s Alliance for Democracy, a group seeking the resignation of Prime Minister Samak, (who is considered to be a proxy for disgraced former PM, Thaksin Shinawatra) have occupied Government House, where the prime minister’s office is located, since early last week.
The protests in and around Bangkok have grown increasingly violent and confrontational in recent days.
They have raised concerns that parliament may be dissolved, paralyzing government.
The country’s finance minister warned last week that growth this year could ease to 5.5% in the second half of the year because of a slowdown in exports. The economy grew 5.7% in the first half.
But the demonstrations, which seem to be affecting the vital tourist industry rather than other parts of the economy, have the capacity to drive foreign and local investors to the sidelines at a time when inflation is slowing and there are signs that the recent strains could be easing.
Tourism accounts for an estimated 6% of the economy and its a big employer, so any problem can have an almost immediate effect.
How many Australian tourists will travel while the unrest is going on after those Jetstar passengers were stranded in Bangkok at the weekend?
The baht fell against the US dollar in Bangkok yesterday and Bloomberg reported that the country’s central bank had intervened to support the currency during the day.
Bloomberg quoted a Deputy Governor as saying the intervention was made to curb the currency’s volatility.
The unrest has now caused a major rating agency to put the country’s sovereign rating on credit watch.
Standard & Poor’s said in report that events of the past two weeks have raised the probability of a negative action on the sovereign credit ratings,” of Thailand.
The debt is rated BBB+, with a stable outlook.
The agency warned that: "Economic growth could fall markedly as domestic demand weakens further. Inbound tourism and foreign direct investment would also decline. Even as revenue is expected to fall in this scenario, pressures for spending will increase.”
Moodys though has the country’s rating on a stable reading with no outlook noted.
There is a continued standoff over claims that Thailand’s ruling People Power Party should be dissolved for vote-buying in December’s elections, according to a reported decision by the country’s Election Commission.
Just how that happens remains to be seen and seems to have added to the pressure for the demonstrations.
A lengthy emergency parliamentary session last Saturday failed to resolve the standoff, with PM Samak dismissing calls from the opposition for a House dissolution.
The irony is that unrest comes as the the recent rise in inflationary pressures from the high oil and food prices of earlier in the year now seem to be easing.
The inflation rate fell to 6.4% last month from 9.2% the previous month, a positive sign also seen last month in other Asian economies.
The one-day bond repurchase rate was raised to to 3.75% last week, but it might have to rise more if the currency weakens any further.
Thailand said its current-account fell into a deficit in July of $US555 million, compared with a $US722 million surplus in June.
