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Last Updated: Monday, 15 January 2007, 08:31 GMT
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 decisions.

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 administration.

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 day.

The plan was partially rescinded, but Thailand's credibility did not recover as quickly as its markets did.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

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 agenda.

"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.

Thai stocks fall after bombings
03 Jan 07 |  Business
Bangkok blasts leave three dead
01 Jan 07 |  Asia-Pacific
Thai markets remaining volatile
21 Dec 06 |  Business
Thai shares rebound after crash
20 Dec 06 |  Business
Thais ease measures on currency
19 Dec 06 |  Business
Country profile: Thailand
02 Oct 06 |  Country profiles

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