OVERDRIVE : Good intentions have paved the way to economic uncertainty.
Is Thailand closing its doors to foreign business? The sentiment concerning Thailand is very bad, with a stock market correction of 15 per cent in less than a month. This follows a series of mishaps, from the September 19 coup, the December 19 capital controls, the New Year's Eve bombings in Bangkok, and now the revisions made to the Foreign Business Act, which have shocked investors.
The whole world is now watching Thailand in dismay. What is going on in this small Kingdom? Is it going to start looking inward as its sufficiency policy suggests? Thai politics are becoming riskier by the day. There are bomb threats. The economic policy has no direction. The ousted prime minister still commands newspaper headlines. The path towards democracy looks uncertain.
Indeed, the series of shocking events has exposed the government's weaknesses and raised questions about its competency in managing the country during this critical juncture.
General Sonthi Boonyaratglin was a reluctant coup leader in the first place. He staged the coup to defend the institution of the monarchy and to put an end to the bitter political divide. Thaksin Shinawatra has been living in exile ever since.
Thailand then was faced with a dilemma - if Thaksin were to stay on, he would certainly win the election and further put himself above all laws to become a dictator, who would answer to nobody, governing only according to his own interests. However, the coup would destroy democracy, even though Thaksin did not represent democracy in the first place. There was no way out.
Guy de Jonquires, in his column in Wednesday's edition of the Financial Times, showed a true understanding of the Thai dilemma, concluding that the presence of a military junta, even though it is dreadful, is still a better option than having a demagogue like Thaksin in power.
"A greater potential threat to regional stability is, rather, the combination of remote political elites and tensions created by rapid but uneven growth. When rising income inequality is unmatched by economic opportunity and rich-poor divides widen in cities, as well as between them and the countryside, resentment and envy can fester," he wrote.
"Those conditions are evident in many parts of Asia. They are fertile soil for demagogues who pose as champions of the poor, who skilfully manipulate mass opinion, and who claim that their popular mandate and political mission put them above the law. Mr Thaksin did all those things. Whether or not he returns to power, the risk that his brand of politics could catch on is almost certainly bigger than the threat of takeovers by men in uniform."
When General Sonthi brought out the tanks to stage the coup, foreign investors showed that they did not care much about Thai democracy - the stock market jumped, while the baht moved up. The financial markets welcomed the coup because it removed political uncertainty. General Surayud Chulanont was then invited to take the helm as prime minister.
The coup might have removed Thaksin from office, but it left the remnants of his regime mostly untouched. The sources of funding for the old regime have not been interrupted and corruption investigations are at a standstill.
The generals are now paying the price for this complacency as allies of the former regime are looking for any opportunity to strike back. Their ousted leader is waiting for the turmoil in the country to peak before returning home to reclaim power.
General Surayud has turned out to be a big disappointment. His government is no match for the underground and above-ground remnants of the old regime. Many feel that if he can't handle the war that is going on now, he should go. He seems to be more interested in maintaining a positive image than in jumping into the dirt to get things done. The Bangkok bombings amounted to a declaration of war, but who could replace him to undertake this thankless job?
Even with the political uncertainty, foreign funds kept surging into Thailand, driving up the baht like crazy. The baht surged by 14 per cent last year, threatening to bankrupt the export sector as China and other competitors had been fixing their currencies. Because of this, the Bank of Thailand came up with a desperate measure to curtail the baht surge by introducing Chilean-style capital controls involving a reserve requirement.
Finance Minister MR Pridiyathorn Devakula went along with the central bank's recommendations. The result was disastrous: confidence was destroyed and the stock market has been plunging ever since. Investors have been badly turned off by the capital controls, which could have been avoided by either cutting interest rates to ease the currency surge or to slap a tax on short-term capital, or both. The 30 per cent reserve requirement on capital inflows is clumsy.
So far the baht has depreciated by less than 1 per cent, raising questions about the effectiveness of the capital controls.
As Thais were about to celebrate New Year's Eve, a series of nine bombs exploded in Bangkok, killing three and injuring scores of innocent people. It is clear by now that the bombings were the work of men in police or military uniforms. The bombs have greatly undermined the public's faith in the Surayud government's ability to maintain law and order, prompting the generals to completely revise their strategy in dealing with the remnants of the old regime.
The bomb blasts would not have happened if the Surayud government had been more decisive against the old regime from the outset. If the bombings cannot be stopped, the Surayud government and the military regime could be brought down and the country thrown into a civil war.
With the political dust still yet to settle, the Cabinet on Tuesday approved draft amendments to the Foreign Business Act. Again, the government badly handled this sensitive issue, heightening fears that Thailand is turning its back on foreign investment.
However, the amendments to the act were carried with the good intention to put an end to all of the uncertainties surrounding the use of nominees and what business foreigners can and cannot do in this country.
The Shin Corp deal provided the impetus for the revisions because Temasek Holdings of Singapore had allegedly used nominees to circumvent ownership regulations in its Shin Corp buyout.
Since the government was tasked with handling this political hot potato, which triggered Thaksin's downfall, it had to revise the law to create a level playing field for all foreign investors. But with a poor explanation of the draft amendments, bad publicity and the lingering hangover from the capital controls debacle, the news travelled around the world that Thailand had toughened its regulations to make it more difficult for foreigners to invest in Thailand.
That's the way it is for Thailand. There are no other mysteries beyond what I have tried to chronicle. We have good intentions, but we happen to be equally good at shooting ourselves in the foot at the same time.
Thanong Khanthong
The Nation
Friday January 12, 2007
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