For investors in Thailand, it’s clearly unclear

Reuters
Sun Jan 28, 2007 2:18am ET31

By Ed Cropley – Analysis

BANGKOK (Reuters) – Thailand’s
army-appointed Prime Minister made it quite clear: his year in office
would be one of reform, a unique opportunity to build a more
transparent, consistent government that observes the rule of law.

“We
know businesses welcome predictability. We know businesses like to see
fairness and transparency, without selectivity,” Surayud Chulanont said
in a luncheon speech last week that could have come from any textbook
on sound governance.

But many among the 700 diplomats and foreign
businessmen at the shindig said such noble words from the general asked
to fill the shoes of Thaksin Shinawatra after his removal in a
September 19 coup were ringing increasingly hollow.

Within 10 minutes of Surayud sitting down, Commerce Minister
Krikkrai Jirapaet appeared to contradict his boss, admitting that a
drive to tighten up rules for overseas firms in the country was due to
“political problems” — a shorthand reference to Thaksin — rather than
the desire for better laws.

It then emerged that on the same day,
Health Minister Mongkol na Songkhla was busy signing edicts to allow
Thailand to break international patents on HIV/AIDS and heart disease
drugs, a move that stunned the pharmaceutical industry.

Compounding
the sense of outrage in an increasingly insecure foreign investment
community, Mongkol declined to tell the drug companies what he was up
to, diplomats and industry representatives said.

“We all know
business likes certainty, but what you have here is increasing
uncertainty, because there’s just no policy,” said one diplomat.
 

“Is this the government’s effort to be populist: ‘We’ve got to keep
Thaksin’s support base on-side but don’t want to actually spend any
money, so let’s give them cheaper drugs and just screw the
foreigners’?” the diplomat said.

IT’S CLEARLY NOT CLEAR

Initial
reaction to the removal of Thaksin was muted, with many investors
hoping the end of months of street protests against the billionaire
telecoms tycoon would actually create less, not more, uncertainty and
benefit the wider economy.

The optimism proved shortlived.

In December, the central bank imposed tough capital controls to rein
in the baht <THB=>, causing the stock market to plunge 15
percent, the biggest one-day fall in its 30-year history. Foreign
investors called the move draconian and the central bank then hastily
announced a partial U-turn.

A month later, cabinet suddenly
announced it was tightening up the Foreign Business Act to close legal
gray areas that have underpinned three decades of outside investment.

Again,
foreign businesses were not consulted on the changes, which they read
about in newspapers that got many of the details wrong because top
government officials — including Krikkrai and Finance Minister
Pridiyathorn Devakula — had got them wrong.

Last week’s lunch,
attended by no fewer than seven cabinet heavyweights, was meant to mend
fences, straighten out the mess and convince investors Thailand was
still a safe place to do business. 

But Krikkrai only managed to sow more confusion, flying in the face
of his boss and revealing the government would continue to allow
informal ways to skirt laws that bar non-Thais from owning more than 49
percent of companies in protected sectors.

“If you would like to
hold more than 49.99, you still can do,” he said. “The provision of the
law says the Minister of Commerce, with the permission of the cabinet,
can allow even up to 70 percent of foreign equity participation.”

Quite what he was talking about, nobody knew.

“It
was a good opportunity to clarify the government’s position but
everybody left the room just as confused,” said one Western diplomat.

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