For investors in Thailand, it’s clearly unclear

Filed on January 28, 2007

BANGKOK - Thailand’s army-appointed Prime Minister made it quite clear: his year in office would be one of reform, a unique opportunity to build a more transparent, consistent government that observes the rule of law.

‘We know businesses welcome predictability. We know businesses like to see fairness and transparency, without selectivity,’ Surayud Chulanont said in a luncheon speech last week that could have come from any textbook on sound governance.

But many among the 700 diplomats and foreign businessmen at the shindig said such noble words from the general asked to fill the shoes of Thaksin Shinawatra after his removal in a Sept. 19 coup were ringing increasingly hollow.

Within 10 minutes of Surayud sitting down, Commerce Minister Krikkrai Jirapaet appeared to contradict his boss, admitting that a drive to tighten up rules for overseas firms in the country was due to ‘political problems’ -- a shorthand reference to Thaksin -- rather than the desire for better laws.

It then emerged that on the same day, Health Minister Mongkol na Songkhla was busy signing edicts to allow Thailand to break international patents on HIV/AIDS and heart disease drugs, a move that stunned the pharmaceutical industry.

Compounding the sense of outrage in an increasingly insecure foreign investment community, Mongkol declined to tell the drug companies what he was up to, diplomats and industry representatives said.

‘We all know business likes certainty, but what you have here is increasing uncertainty, because there’s just no policy,’ said one diplomat.

‘Is this the government’s effort to be populist: ‘We’ve got to keep Thaksin’s support base on-side but don’t want to actually spend any money, so let’s give them cheaper drugs and just screw the foreigners’?’ the diplomat said.

It’s clearly not clear

Initial reaction to the removal of Thaksin was muted, with many investors hoping the end of months of street protests against the billionaire telecoms tycoon would actually create less, not more, uncertainty and benefit the wider economy.

The optimism proved shortlived.

In December, the central bank imposed tough capital controls to rein in the baht THB, causing the stock market to plunge 15 percent, the biggest one-day fall in its 30-year history. Foreign investors called the move draconian and the central bank then hastily announced a partial U-turn.

A month later, cabinet suddenly announced it was tightening up the Foreign Business Act to close legal grey areas that have underpinned three decades of outside investment.

Again, foreign businesses were not consulted on the changes, which they read about in newspapers that got many of the details wrong because top government officials -- including Krikkrai and Finance Minister Pridiyathorn Devakula -- had got them wrong.

Last week’s lunch, attended by no fewer than seven cabinet heavyweights, was meant to mend fences, straighten out the mess and convince investors Thailand was still a safe place to do business.

But Krikkrai only managed to sow more confusion, flying in the face of his boss and revealing the government would continue to allow informal ways to skirt laws that bar non-Thais from owning more than 49 percent of companies in protected sectors.

‘If you would like to hold more than 49.99, you still can do,’ he said. ‘The provision of the law says the Minister of Commerce, with the permission of the cabinet, can allow even up to 70 percent of foreign equity participation.’

Quite what he was talking about, nobody knew.

‘It was a good opportunity to clarify the government’s position but everybody left the room just as confused,’ said one Western diplomat.

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