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2 ASIA
HAND Thailand hoists a protectionist
flag By Shawn W Crispin
BANGKOK - Thailand's military-appointed
interim government is heading down a drastically
more protectionist path, one that breaks sharply
with the country's prior embrace of foreign
investment and free-market orthodoxy, and one that
perhaps significantly adheres more closely to King
Bhumibol Adulyadej's "sufficiency economy"
concept.
On Tuesday, the Thai cabinet
moved to amend the Foreign Business Act,
decades-old legislation that limits foreign majority
control across various sectors
of the Thai economy, including telecommunications,
media and property. The legal tweaks in effect
close loopholes in the act that allowed foreign
investors to use Thai nominees in structuring
their Thai investments to comply with
foreign-ownership limits but also maintain
management control of their operations through
majority voting rights.
That well-worn
practice was brought under political scrutiny last
January when embattled prime minister Thaksin
Shinawatra's family sold its majority stake in the
Shin Corp to Singaporean-government-run Temasek
Holdings, which used the nominee loophole to
sidestep foreign-ownership limits for the
telecommunications and media sectors. It was later
revealed that at least 16 other multinational
companies had similarly structured their Thai
investments using local nominees.
The move
has predictably miffed sections of Thailand's
foreign investment community, of which "many
thousands" of foreign-invested companies are
expected to be "adversely affected" by the
amendments, according to Bangkok-based Phatra
Securities. Most of those to-be-affected
businesses are significantly geared toward
competition for Thailand's domestic markets;
exported-oriented Japanese investments will be
largely immune to the amendments, however, because
of their special treatment by the Board of
Investment.
The controversial move comes
hot on the heels of the Bank of Thailand's
December 18 decision to impose capital controls on
currency, bond and stock-market transactions,
including the draconian requirement that
foreigners must set aside for one year 30% of
their investment in a non-interest-bearing
account. The controls were allegedly implemented
to curb appreciation of the local currency, the
baht, which over 2006 had strengthened 15% against
the US dollar, and thus shore up the
competitiveness of Thai exporters, which
contribute 60-65% of Thailand's gross domestic
product (GDP).
In retrospect, despite the
baht's strong appreciation, Thai exporters
exceeded market projections with 17% year-on-year
growth, driving up GDP by more than 5% in 2006.
That strong performance hints that the official
justification for imposing capital controls may
have deliberately obscured more overt
protectionist motivations behind the move. Finance
Minister Pridiyathorn Devakula, once highly
respected among foreign investors for his strong
independent streak while serving as central-bank
governor, is better known in Thai banking and
business circles as a staunch economic
nationalist. A minor royal, Pridiyathorn
unswervingly took the Thai side when helping to
negotiate a local-versus-foreign
debt-restructuring deal for the bankrupt sugar
industry.
Pridiyathorn insisted during
last month's imposition of capital controls and
during this week's amendment to the Foreign
Business Act that the new government is dedicated
to maintaining an open economy and recognizes the
importance of foreign capital in maintaining
economic growth. Yet the government's policies are
plainly at odds with the minister's public
statements, and so far the interim government has
expressed little to no remorse for enacting
policies specifically designed to alienate foreign
investors.
Watershed moment The
Temasek-Shin Corp deal was apparently a watershed
moment for Thailand's future attitude toward
foreign investment. Bangkok's aristocratic elite,
now strongly aligned with the country's new
military rulers, feared that the upstart Thaksin
and his close business associates had formed a
strategic alliance with deep-pocketed foreign
capital groups toward the aim of undermining their
entrenched but financially wobbly business
interests and property holdings.
That
analysis also goes a long way in explaining why
Bangkok's elite so strongly supported the
September 19 coup that ousted Thaksin, despite the
damage the intervention would do to the country's
democratic credentials and international standing.
Predictably, there has been little outcry among
Thailand's business class against the new
government's policies - even as
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