Economic nationalism grips Thailand

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By Amy Kazmin in Bangkok

Published: February 27 2007 00:07
Last updated: February 27 2007 00:07

In good times, the Niwat materials shop
in north-east Thailand bustles with villagers buying tools, cement,
paint and other home improvement materials.

But these days, the family-owned shop is virtually deserted as rural Thais restrict home repairs to essential maintenance.

“If the economy is good, a lot of villagers come to buy materials to fix up
their houses,” says Somchai Limprasit, the 44-year-old owner.

“But now it’s very quiet. We worry that the economy will be the same as in 1997 [when the economic bubble burst].”

Many Thai and foreign investors were optimistic last September when the army
ousted Thaksin Shinawatra as prime minister in a bloodless coup after a
year of upheaval.

With the polarising Mr Thaksin in exile, Thai
business people, foreign executives and many local consumers thought
the country would return to business as usual under the stewardship of
a capable, technocratic cabinet.

But almost six months on, the military-installed government has proved a disappointment to those who
expected a quick return to political stability and business-friendly
policies aimed at revving up faltering growth.

The consumer index has slumped for five consecutive months. Shopping malls are eerily
quiet, and vehicle sales in January were at a four-year low. Thai and
foreign companies are putting new projects on hold.

Pridiyathorn Devakula, the military-installed government’s economic policy tsar,
insists Thailand still welcomes foreign investment.

But analysts say government policy since the coup has begun to reflect a
determination to reassert Thai control over multinational companies,
currency speculators and others perceived to be “exploiting” Thailand’s
open door.

“They have a deep distrust of influences they can’t control,” said Supavud Saicheua, managing director of Phatra Securities.

“For them, if at the margins they assert control and lose some growth, it’s
an OK trade-off. But they may be miscalculating the trade-off.”

Mr Pridiyathorn and his team jolted investors by botching the imposition –
and subsequent partial reversal – of capital controls in December.

They have also introduced plans for stricter investment laws that would
force many foreign direct investors to reduce their Thai holdings.

In another stroke of economic nationalism, Sonthi Boonyaratkalin, the army
chief and coup leader, has apparently resolved – as a matter of
national interest – forcibly to reverse the $3.8bn takeover by
Singapore’s Temasek Holdings of Shin Corp, the telecoms empire Mr
founded before entering politics.

Thailand’s political stability remains fragile.

Mr Thaksin continues to cast a shadow from exile, rattling the military
with interviews and speeches that suggest he is far from resigned to a
future of golf and shopping.

With the military committed to a referendum on a new constitution in the coming months and fresh
elections by the end of the year, many expect turbulence and believe Mr
could use his fortune and popularity in rural areas to engineer
a comeback.

“If Thaksin is still going round making noise, people
think ‘Oh, what if Thaksin comes back,’” said Vikrom Kromadit, chief
executive of Amata, an industrial estate developer. “Thaksin says No,
but nobody believes him.”

Security has emerged as another worry.

A series of bombs in Bangkok on New Year’s Eve were initially blamed on
Thaksin supporters, but have been more recently linked to the Muslim
separatist insurgency previously confined to the south.

Foreign portfolio investors have been flowing back into the Thai stock market to snap up equities.

But private investment, which until recently was expected to drive growth
this year, remains slack. Many large foreign direct investors have
opted to put new factories in Vietnam or Malaysia instead of Thailand.

“Investors seeing a situation like this just have to step back, and look and listen for a while,” said Mr Vikrom.

“Our internal conflicts are turning investors away from Thailand.”

Additional reporting by Panvadee Uraisin in Bangkok

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