Thailand which way ahead?

The Straits Times, February 22, 2007
By Nirmal Ghosh, THAILAND CORRESPONDENT


Shifting policy directions and parallel administrations are undermining investor confidence, analysts warn

BANGKOK - DR SOMKID Jatusripitak's resignation is but the latest of several abrupt shifts in Thailand's economic policies and management since last year's coup.

And the continuing uncertainty is damaging business and consumer confidence.

'There is a sense of policy drift,' a senior Western diplomat who tracks the economy told The Straits Times.

'Companies which are already here are getting a bit leery,' said the diplomat, who asked not to be named.

'The Japanese and Europeans especially are very concerned. And companies are wondering, 'Do we cut a deal with (this government) now, or should we wait until next year, when a new lot is going to be in place?'

Analysts point to the nature of the government as one of the problems.

In effect, there are two parallel authorities - the Cabinet and the military Council for National Security.

Prime Minister Surayud Chulanont's appointment of Dr Somkid exposed some of the fault lines within the government and in society at large, which remains shaken from the turbulent last months of the Thaksin Shinawatra administration.

Dr Somkid, a former finance minister, was initially tasked to help explain the army-appointed government's 'sufficiency economy' policy to foreign investors.

He said he was quitting in the interest of national unity after a storm of protests by critics of Mr Thaksin.

Significantly, one of the first to react to Dr Somkid's resignation yesterday was Deputy Prime Minister and Finance Minister Pridiyathorn Devakula.

Mr Pridiyathorn, who is said to not see eye to eye with Dr Somkid, told reporters there was no need to find a new spokesman for the sufficiency economy philosophy because he and Industry Minister Kosit Panpiemras could do the job.

'I and Mr Kosit are ready to work on this so there is no need to appoint a new person to the post. We have done it and have succeeded,' he said.

Meanwhile, signals of a sluggish economy with low consumer confidence are emerging.

The diplomat who tracks the economy told The Straits Times there had been no real investments in exports for a year or so. Given that Thailand's economy depends heavily on exports, this was another warning sign.

On policy, he noted: 'The Prime Minister gives his Cabinet ministers a long leash, but some of them are not very impressive and some have their own agendas.''

An investment banker cited two recent issues as having hurt the credibility of the Prime Minister himself - the debacle over Dr Somkid, and mixed signals on the future of Suvarnabhumi International Airport and the reopening of the old airport at Don Muang.

'It's a huge credibility issue, and that's a bigger problem than the markets, which are gloomy anyway,'' said the banker, who requested anonymity.

Critics have cited a list of policy mistakes and flip-flops, starting with the failed liberalisation of the underground lottery and a ban on alcohol advertising.

'This is what happens when ministers pursue their own agendas,'' noted one analyst. 'The lottery and alcohol ads were not huge national issues, and they did not have to pursue them.'

Following these early failures were the drastic capital controls imposed last Dec 18 - which went beyond an immediate stock market collapse to damage confidence in the bond market.

Then, on the evening of the day the new rules triggered the market meltdown, the government scrambled to dilute the curbs on foreign funds to stave off a worse crash the next day.

Then came amendments to the Foreign Business Act which sought to curb the widely condoned practice of foreign companies using nominee companies and voting rights to control their ventures in Thailand - in effect bending the rules limiting foreign ownership of Thai companies.

Foreign chambers of commerce in Bangkok complained that the new rules were issued without any clarifying details and with minimal consultation with investors.

'There is still a risk of seeing overnight (policy) changes because communication within the government appears to be limited,'' a securities analyst told The Straits Times.

'It is likely that investment activity in the first half of this year will remain very, very slow,'' said TISCO Securities' head of research Poramet Thongbua.