Investors look to overcome Thailand fears

By Kate McGeown

BBC News, Bangkok

Board showing Thai stock market movements

Many investors are mulling the impact of Thailand’s economic rules

Thailand is traditionally seen as having one of the
most open and attractive economies in Asia – embracing the idea of a
free market and welcoming foreign companies and investment.

But since the military took over the country in a coup
last September, a series of incidents have begun to make business
owners and shareholders uneasy.

Not only has Bangkok suffered a wave of bomb attacks,
underlining the unstable political situation, but the newly installed
interim government has also made several questionable economic

The latest proposal, which tightens up the Foreign
Business Act that regulates ownership of Thai companies, has caused
considerable concern among the business community.

“From the standpoint of international investors, the
news has been negative ever since the coup,” said Christopher Wong, an
investment manager at Aberdeen Asset Management.

“I would say that foreign investors and companies here
should be very concerned, especially in certain sectors,” added Piyanuj
Ratprasatporn, a partner at the Thai law firm Tilleke and Gibbins.

Stock market crash

The first incident to hit investor confidence was the coup itself.

When tanks rolled onto the streets of Bangkok on 19
September, they not only ousted the controversial Prime Minister
Thaksin Shinawatra, they also got rid of his democratically elected

The military tried to play down international concern by
installing a Cabinet full of retired technocrats. Army veteran Surayud
Chulanont was chosen as prime minister, and former central bank
governor Pridiyathorn Devakula was made foreign minister.

The government looked like it hadn’t done its homework properly

Thitinan Pongsudhirak, Chulalongkorn University

But just as investors were beginning to get used to the
new status quo, the government took the unexpected decision to impose
strict capital controls on transactions made by foreign investors.

These rules were meant to prevent the already strong
Thai Baht from appreciating even further, but the government seemed
ill-prepared for the stock market’s reaction – a plunge of 15% in one

The plan was partially rescinded, but Thailand’s credibility did not recover as quickly as its markets did.

“The government looked like it hadn’t done its homework
properly,” said Thitinan Pongsudhirak, a professor of political science
at Chulalongkorn University.

Controversial plan

Then came a series of bombs on New Year’s Eve.

There have been few concrete leads as to who carried out
the attacks, and both the people of Thailand and those who invest in
the country are jittery that the events of that night might not be a
one-off incident.

Despite this backdrop, the government decided on Tuesday to press ahead with controversial changes to the Foreign Business Act.

Thai legislation has long prevented foreigners from
owning more than 50% of companies in most business sectors, but in
practice non-Thais have often been able to circumvent these rules by
using local nominees to act on their behalf, while keeping voting
rights for themselves.

Site of blast in Bangkok

Blasts in Bangkok on New Year’s Eve have added to the uncertainty

The practice was highlighted last year, when there was a
public outcry at the Thaksin family’s decision to sell its controlling
stake in the telecoms giant Shin Corp to the Singapore-owned investment
firm Temasek – effectively selling the company abroad, albeit through
Thai subsidiaries.

The changes mean that voting rights will now be seen as
one of the main criteria for foreign ownership, forcing many firms to
divest shares to stay within the law.

There has been considerable disquiet about the proposals
within the foreign business community, although some analysts, such as
Prof Thitinan, see the step as painful but necessary, bringing Thailand
in line with many other countries.

But everyone seems agreed on one thing: the proposals, as they stand, are very unclear.

Carmakers exempt

A day after the government announced the plan, finance
minister Mr Pridiyathorn said he had mistakenly included telecom
companies among the affected companies.

Experts are also uncertain as to whether wholesale
businesses – including such firms as Tesco and Carrefour – will be
affected, and Ms Piyanuj said that just a day after the changes were
announced, she personally spoke to 10 companies unsure about the

In actual fact, these new changes may not be as draconian as some companies first feared.

Major international manufacturers, such as the carmakers
Ford and Toyota, will definitely be exempt because of rules promoting
export-orientated businesses.

Investors dislike uncertainty, and the message that Thailand’s leaders are sending right now is that don’t know what they want

Christopher Wong, Aberdeen Asset Management

Lawyers admit that even those companies that are
affected could well find other loopholes to replace those that have
just been closed.

Investment managers such as Christopher Wong say they
remain optimistic about Thailand’s long-term future, and have no plans
to move their Thai investments.

Perhaps the most worrying aspect of the proposals is not
the changes themselves, but the fact they reveal a lack of clarity on
the part of the government.

“They’re flip-flopping, like they did last month [with
the stock market crash], and they’ve now lost significant credibility,”
said Professor Thitinan.

“Investors dislike uncertainty, and the message that
Thailand’s leaders are sending right now is that don’t know what they
want,” added Mr Wong.

Unclear agenda

The next issue the government needs to address is its
theory of a “sufficiency economy”, which it has been increasingly
advocating in recent weeks.

This is an obvious nod towards the beloved Thai king’s
philosophy of self-sufficiency and moderation, while at the same time
being a reaction to the relentless drive for growth that was a hallmark
of Mr Thaksin’s administration.

Thai baht notes

Measures were brought in to protect the Thai economy and currency

It seems evident that Thailand’s new rulers intend to
move away from Mr Thaksin’s aggressive economic policies, preferring a
more nationalist, protectionist approach.

But just how far they intend to go is still a matter of
debate, because so far there is little evidence of a definite policy

“The government again needs to spell out what this sufficiency platform stands for,” said Professor Thitinan.

At the moment many other Asian countries – such as
Indonesia, the Philippines, Vietnam and China – are choosing to open up
their doors and their economies as never before.

Until it makes its economic agenda clear, foreign
businesses and investors can only fear the worst, and assume that
Thailand is going in completely the opposite direction.

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