Thailand Aims to Reclaim Status as Investment Target

The Wall Street Journal Home Page

By JAMES HOOKWAY
January 20, 2008 6:31 a.m.

BANGKOK — With an election won, a key legal challenge defeated and a coalition government formed, supporters of Thailand’s ousted Prime Minister Thaksin Shinawatra are now preparing a series of economic measures to put the country back on the international investment map.

[Thaksin Shinawatra]

Thailand has struggled to keep its economy growing as fast as some of its neighbors since the military coup that removed telecommunications billionaire Mr. Thaksin from power in September 2006. Local confidence has faded because of a lack of policy direction from a military-appointed interim government, while capital controls introduced by the central bank in late 2006 to halt the appreciation of the Thai currency against the dollar unnerved foreign equity investors.

While Thailand managed to attract additional investments from auto giants Ford Motor Co. and Toyota Motor Corp. last year, fast-growing Vietnam overtook the country as a destination for foreign direct investment last year, picking up $20 billion in fresh commitments, compared with $15 billion for Thailand.

Pro-Thaksin politicians such as Chaturon Chaiseng, who headed Mr. Thaksin’s political party following the 2006 coup, have said the interim government running Thailand for the past 16 months has been so afraid of being seen to act without a democratic mandate that, in effect, it hasn’t been governing at all.

With the pro-Thaksin People Power Party set to form the heart of a new coalition government when the Thai parliament opens Monday, PPP secretary-general Surapong Suebwonglee said party officials and advisors are now working on a “quick-win” economic policy plan.

First up: the removal of the capital controls imposed in December 2006. “We have to abolish the capital controls to send the message that foreigners are welcome to do business in Thailand,” Mr. Surapong said in an interview after the PPP announced Saturday that it would lead a six-party coalition government that will control more than 300 seats in Thailand’s 480-seat parliament.

Many of the more stringent capital controls – for example, one which required that investors deposit a portion of their funds with the central bank for at least a year – have already been rolled back. Those remaining mostly affect only foreign investments destined for the local money market, a rule intended to prevent foreign exchange speculators from betting on the appreciation of the Thai baht.

Mr. Surapong said removing the curbs entirely would send a powerful signal to the international investment community before the new government starts working on a package of economic stimulus measures. That package will include several large infrastructure projects designed to improve Thailand’s economic efficiency and relieve traffic congestion in Bangkok, he said.

Mr. Surapong said the new government will also begin discussing interest rate cuts with the central bank. The central bank has kept its policy interest rate unchanged at 3.25% since last July after a series of earlier cuts to pep up the economy after the 2006 coup.

Global investors are taking a closer look at the prospects of emerging markets such as Thailand, especially as broadening economic problems in the U.S. and elsewhere are crimping growth prospects this year on more established stock markets.

The PPP’s path to power was cleared by Thailand’s Supreme Court, which on Friday said it had no authority to rule on a suit charging that the PPP was an illegal proxy party for Mr. Thaksin.

The decision removed a legal obstacle to the PPP taking power after it won a plurality of seats in December poll to elect a new, democratic government. Mr. Thaksin’s own Thais Love Thais party was dissolved by a military-appointed Constitutional Tribunal last year, which also banned Mr. Thaksin and 110 other supporters from politics for five years.

“The Supreme Court made a logical decision. It would have created an immense crisis of democracy if they had ruled against the PPP,” said Giles Ungpakorn, a political science professor at Bangkok’s Chulalongkorn University. “The PPP had the democratic right to form the next government, whether one likes it or not.”

The PPP’s strong election performance and Friday’s court decision have given Mr. Thaksin a big boost in his political struggle with Thailand’s military, which has accused him of corruption and insulting Thailand’s revered monarch, King Bhumibol Adulyadej, who is 80 years old and ailing.

Since the 2006 coup, Mr. Thaksin has been living in self-imposed exile in England. But support for Mr. Thaksin is still strong in many parts of Thailand, especially in northern rural areas. That is due mainly to his policies designed to reduce the economic gap between the impoverished north and the more prosperous regions surrounding the capital, Bangkok.

Dozens of Mr. Thaksin’s supporters attended the announcement of the new coalition government at a luxury Bangkok hotel on Saturday, frequently shouting down reporters they regarded as asking hostile questions. Some wore T-shirts bearing Mr. Thaksin’s face.

Mr. Thaksin used this rural support base to launch himself into the prime minister’s job in 2001. He won two subsequent general elections before being overthrown by army generals. He has said he intends to return to Thailand in April to face a series of corruption cases.

[Samak Sundaravej]

While Mr. Thaksin works on his political rehabilitation, Thailand’s next prime minister is expected to be the leader of the PPP, 72-year-old veteran politician Samak Sundaravej. A feisty figure with a taste for confrontation, Mr. Samak will likely try to roll back some the powers which the military secured for itself in a new constitution drafted after the 2006 coup, according to PPP aides. That might enable the PPP to expand its mandate in fresh elections if its current coalition proves too fragile to manage effectively.

The new PPP-led coalition is currently comprised of six parties accounting for more than 300 of the 480 seats in Thailand’s lower house. Another two dozen seats have still to be endorsed by Thailand’s election commission.

Parliament is scheduled to elect the new prime minister on Friday, Jan. 25.

The new government’s economic policy initiatives are expected to be crafted by team of PPP officials led by Mingkwan Saengsuwan, people familiar with the situation say.

A marketing expert who used to work in Thailand for Toyota, Mr. Mingkwan took over reins of a state-run television state in 2002 and oversaw its privatization in 2004, listing it on the stock market as MCOT PCL. He resigned in the aftermath of the 2006 coup, after being strongly criticized by the military for briefly broadcasting news of Mr. Thaksin declaring a state of emergency from New York, where he was attending the United Nations’ annual meetings.

Some stock market investors and analysts have high hopes for the new government, believing that more decisive leadership – perhaps guided by Mr. Thaksin behind the scenes – will bolster consumer sentiment in Thailand and offset the threat of slowing exports, especially if the U.S. and other major overseas markets slip into recession.

Macquarie Securities noted in a research report last week that many investors believe the PPP will try to boost the market as means of winning over the people of Bangkok, who largely supported the rival Democrat Party in last month’s election. The pledge to remove capital controls curbing foreign investment is one such policy which could drive up the market in the short term.

Write to James Hookway at james.hookway@awsj.com

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  1. get back to its economic track, mr. prime minister!

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