Ford May Scrap Up to $1 Billion of New Thailand Investments

Bloomberg

By Margo Towie

Jan. 31 (Bloomberg) — Ford Motor Co., the world’s third-

largest carmaker, may scrap as much as $1 billion of planned
investment in Thai factories after the nation’s military-backed
government imposed currency and foreign-investment curbs.

“These things make it extremely difficult to do business
in a globally competitive environment,” Steve Biegun, Ford’s
Washington-based vice president for international government
affairs, said yesterday in an interview in Bangkok, where he met
leaders including the Prime Minister. “What we need in our
business is predictability.”

Thailand’s military seized control in September and
installed a government that imposed currency controls and new
foreign-ownership laws, shaking investor confidence. A group
representing Pfizer Inc. and other drug companies last week said
members may cut spending after the Thai government pledged to
force them to surrender patents so it can make cheaper medicines.

“Thailand’s potential for economic growth and investment
liberalization has definitely taken a knocking,” said Kim Eng
Tan, an analyst at Standard & Poor’s in Singapore. “We are
seeing an increase in policy risk that may deter investors.”

S&P last week kept the outlook on Thailand’s BBB+ rating
stable, which means it’s inclined to leave the ranking unchanged.
The rating is the third-lowest investment grade.

Top 20 Investors

Ford, among Thailand’s top 20 foreign companies with about
$1 billion already invested, is reviewing plans to build a new
plant in the nation with capacity for 150,000 cars and extend
existing output by an additional 24,000 vehicles at a 176,000-
unit factory it operates with Mazda Motor Corp.

The coup and the measures taken by the government “have
generated a sense of turmoil,” Biegun said. “We came to
discuss with government very specifically the policies
surrounding the auto industry and what should be the
expectations of a potential investor.”

Ford will decide where to invest the earmarked $1 billion
in “the first half of this year,” Biegun said, citing China
and India as alternative investment destinations. Ford wants to
make sure that Thailand will remain “a stable place to do
business.”

“So far the government is moving in a direction that could
keep things together, but they have a monumental task ahead of
them,” said Biegun. Dearborn, Michigan-based Ford, which ranks
No. 5 in Thailand in sales, last week reported a record $12.75
billion full-year loss.

Generic Drugs

The Pharmaceutical Research and Manufacturers’ Association,
which has representatives of Pfizer, GlaxoSmithKline Plc and
Novartis AG on the board, said it will assess proposed laws
after the Thai health ministry said it planned to force
companies to relinquish patents for heart and HIV drugs to cut
drug costs because of Thailand’s “limited budget.”

“Forcefully taking property rights simply because of a
ministry’s budget shortfalls is internationally unprecedented,”
Teera Chakajnarodom, president of the trade group said yesterday.
“We have no objections to generics — but don’t take patented
products and allow other companies to copy them.”

“There is a misunderstanding that this government is
protectionist and doesn’t want foreign investment,” Thailand’s
Finance Minister Pridiyathorn Devakula said today. “I want to
repeat again that all the measures are to help domestic
businesses be able to compete.”

Thailand’s central bank triggered a slump in stocks, bonds
and the currency in December when it required local banks to
withhold 30 percent of new foreign funds and penalized
investments of less than a year. The controls aimed to slow
gains in the baht after the currency’s 16 percent increase last
year undermined exports.

Foreign Loans

The rule was abandoned for equity funds a day later, after
the stock market sank the most in 16 years. It remains in place
for bonds and real-estate mutual funds. The bank yesterday wound
the rules back further, exempting some hedged foreign loans and
fund transfers.

“The measures that they’ve taken are going to result in
foreign direct investment outflows, not inflows, in 2007,” said
Tim Condon, an economist at ING Bank NV in Singapore. “The
government seems to be trying to sort out the regulatory
framework and the outcome is one that looks investor
unfriendly.”

Total foreign investment in Thailand last year dropped 18
percent from 2005, according to Board of Investment data.
Investment fell amid a political standoff that ended in the coup
ousting the government of Prime Minister Thaksin Shinawatra.

Ford’s vehicle sales rose by more than 80 percent in both
China and India last year. Ford has invested more than $1.5
billion in China since 2001 and more than $500 million in India
since 2005. In Thailand sales fell 18 percent last year.

Consumer confidence in Southeast Asia’s second-largest
economy fell to a five-month low after Dec. 31 bomb blasts
killed three. Prime Minister Surayud Chulanont, a retired army
chief installed by coup leaders, blamed them on “people who
lost their political power” following the military coup.

“One government can give you what you need to develop a
successful business plan,” said Biegun. “Another coup, another
government and you could lose it all.”

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