18 September 2006
For a country that has had no effective government since February, Thailand has shown remarkable economic resilience. Although weakened confidence has dampened domestic consumption and investment, growth is still set to exceed 4 per cent this year, thanks to buoyant exports. But the latest twist in Thailand's extended political crisis is putting that precarious stability – and future national prosperity – at risk.
The running battle between Thaksin Shinawatra, the billionaire prime minister, and his political foes has spilled over into an ugly brawl over foreign investment. It was triggered by opposition Democrats' claims that last January's sale to Temasek, Singapore's state investment group, of the Thaksin family's 49 per cent stake in Thailand's biggest telecoms company broke the law. Thailand's commerce ministry has responded by also investigating 16 local affiliates of multinational companies on similar grounds. It is widely believed that the expanded inquiry has been prompted by Mr Thaksin's supporters, who hope to distract attention from his family's affairs.
Both sides in the dispute are playing a dangerous game. By turning inward investment into a political football, they have unnerved foreign companies and threaten Thailand's reputation as a hospitable place in which to do business. With foreign-owned plants generating 60 per cent of its manufactured exports, it has much to lose. The affair has also turned the spotlight on long-standing anomalies in Thailand's foreign investment policies. In law, foreign ownership of property and many service industries is heavily restricted. In practice, inward investors have found ways around that obstacle, with tacit government consent. That is much to the economy's good. Thais have gained from foreign competition in sectors such as retailing and telecoms, while foreign ownership of holiday and retirement homes has boosted tourism revenues.
The witch hunt now under way makes continued fudging of the rules untenable and could permanently poison Thailand's business climate. It must modernise its laws and bring them into line with its practices. Until now, successive governments have ducked the challenge because they were reluctant to confront resistance from powerful local business interests and a public that welcomes the economic contributions made by inward investment but resents the foreign ownership and control that go with it.
But if Thailand is to attract foreign capital in future it must replace pragmatic official ambivalence with clear rules that entrench an open, liberal and predictable investment regime. Swift passage of the necessary legislation should be a priority for its next government, whenever it is formed. That is as important for the country's own interests as for the foreign companies that have become entangled in its messy domestic politics.
Copyright The Financial Times Limited 2006
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