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19 Mar 2008

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Malaysia’s Elections May Affect Thailand’s Tourism and Border Trade (Business Brief No.2122)

Although the results of Malaysia's elections held on March 8, 2008, enabled the National Front coalition led by the UMNO party to form a new government, it was the first time in almost 40 years that the National Front lost its traditional two-thirds majority, gaining around 62 percent of parliamentary seats. This election results may impede the government's attempts to amend the constitution, which need a two-thirds majority to be enacted; this situation also heightens domestic political uncertainty.
Those results will be a negative factor toward the Malaysian economy apart from the impact of a global economic slowdown. KASIKORN RESEARCH CENTER (KResearch) projects that Malaysia's election results, amid the current economic slowdown, may have some impacts on Thailand as follows:
Border Trade: Border trade between Thailand and Malaysiaaccount for around 30-40 percent of the two countries' international trade. Thailand has posted trade surpluses with Malaysia and it is Thailand's largest frontier trade partner. More than 95 percent of the border trade is transacted in Songkhla which borders the Malaysian State of Perlis. Trade policies between the two nations are likely to remain unchanged. However, the shift in administrative power in other states bordering Thailand, i.e., Kedah, Perak and Kelantan, from the former ruling government to the opposition-led parties might affect our border trade. Therefore, the policies delivered by these states are quite worth watching.
Tourism: Malaysians are Thailand's largest tourist arrivals by nationality, particularly to the southern border provinces. Malaysia's election results will likely affect Malaysian tourism somewhat as the short-term political uncertainty might decrease Malaysia's consumer spending. Nonetheless, their policy of spending on social services and deferred subsidies to domestic energy prices would bode well for the Malaysian economy, enabling its consumption to return to normalcy.
Employment: Political uncertainties in Malaysia which has undermined investors' confidence may affect the employment of Thai laborers, particularly unskilled workers that are in shortage in Malaysia. At present, a large number of Thai laborers are still employed in Malaysia. The abandonment of ;Bumiputra” (Son of the Soil) policies by local government entities near the Thai border will level the platform for a more favorable atmosphere. This will therefore help cushion the impact on demand for Thai workers.

In conclusion, the result of the Malaysian elections will increase domestic political uncertainty and affect their economic situation, which will have consequences to Malaysian tourist arrivals to Thailand and border trade. KResearch is of the opinion that although the impact of this situation is not severe, the Thai private sector should keep up with the Malaysian political situation closely.

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