Asia Times: Thai Military Bank's Capital Problems

ASIA HAND

Thai Military Bank in the line of fire

By Shawn W Crispin

BANGKOK - Soon after Thailand's military seized power last year in a bloodless coup, the Thai Military Bank (TMB) started to bleed cash. Now, the military-affiliated bank's dubious plan to raise US$1 billion in new capital threatens to set off new bouts of political and financial chaos.

TMB - Thailand's fifth-largest bank by assets, which maintains the personal bank accounts of many senior military officials - saw its overall retained losses jump from 44 billion baht (US$1.3 billion) at the end of last September to about 55 billion baht by year's end. The bank announced a 12.3 billion baht financial loss for 2006, a negative-257% swing from the 7.8 billion baht profit turned the previous year. Over the past calendar year, TMB's shares have fallen from about 5 baht to 1.8 baht per share at present.

To cover those losses and expand new lending, TMB unveiled plans this week to raise $1 billion in new capital through a rights issuance and debentures, which if fully subscribed would nearly double the bank's current capitalization. However, the question circulating in Thai banking circles is what foreign investor would possibly subscribe to the offerings in light of the bank's continued poor profitability, weak asset quality and new non-performing-loan risk.

A billion dollars is not chump change.

Last year, many foreign investors were peeved that TMB's management waited to announce the multibillion-baht loss until after it raised 10 billion baht in new capital through a rights issue. That track record will raise red flags with potential overseas investors for the new offering, and if, as many Bangkok-based banking analysts expect, it goes highly undersubscribed, the Ministry of Finance will likely - and because of its current military affiliation, controversially - be called on to use public funds to mop up the excess shares.

Of course the taxpayer will have to pick up the tab for the TMB's poor management and the military's greed and stupidity.

"It's the talk of the town in Thai banking circles," said one managing director of a big foreign bank, who requested anonymity. "And not only because it's the military's bank that is at risk of failing at a time it's in [political] control." It's still unclear whether investor realizations about the true scale of TMB's financial problems could have the same contagion effect that the collapse of a little-known finance company, Finance One, eventually had on the entire banking sector in 1997.

I don't know if I agree with this apocalypse scenario. The possibility exists, however. The thing is that there hasn't been a world-wide correction in a long-time. People seem to forget that the 1997 crisis brought about an overall reevaluation of financial sheets in emerging markets across the board.

At the height of the Asian financial crisis, Thailand's top three privately held commercial banks - Bangkok Bank, Siam Commercial Bank and Thai Farmers Bank (now known as Kasikornbank) - all raised enough capital to clean up their balance sheets substantially and boost their capital-adequacy ratios. The big three also by and large restructured their management and operations, specifically to guard against the profligacy and misjudgment that brought on the banking sector's collective 1997 collapse.

TMB, in comparison, has been a laggard on both fronts. After the crisis, TMB executives had trouble raising new capital in London and New York because of the bank's titular association with the armed forces, a foreign perception it has tried to change through its recent English-language rebranding to "TMB". When TMB finally did raise foreign capital belatedly 2000, it didn't raise nearly enough to deal with the scale of its underlying non-performing-loans problems.

Hopes ran high that TMB's strategic tie-up with Singapore's DBS Bank in 2004 would lead to substantial managerial and operational overhauls, including through a downsizing of staff levels and of its 374 branch network. However, Singapore's top bank only has a 16% minority stake, allowing it just two seats on TMB's board and only marginal managerial control. United Kingdom-based ratings agency Fitch Ratings released a report in January that said the TMB-DBS tie-up "has yet to yield any material improvement in the bank's financial performance, operations or franchise, which remain poor".

TMB looks like it is in big trouble. Why should it reform when the military has it covered?

The military government in effect nationalized Shin Corp subsidiary iTV by revoking its operating concession after the television station refused to pay more than $2 billion in court-ordered fines. Meanwhile, coup leader and TMB board member Sonthi has hinted at possible further asset seizures through public accusations that the Singaporean government has eavesdropped on coup leaders' private conversations through the communications satellites it now controls through its investment in Shin Satellite. And in Thailand's current nationalistic environment, it's highly unlikely that any major Western bank or private-equity outfit would take the chance on a military-affiliated bank.

These generals didn't see that getting revenge against Thaksin and Temsaek would actually have consequences in the real world. Seriously, who trusts the Thai military? Who would give their money to the Thai military?

At the same time, Thailand's central bank has been lenient toward TMB since the coup, allowing it in December to make a controversial coupon payment to shareholders of its so-called hybrid Tier 1 securities despite last year's extraordinary annual losses. Sovereign analysts, on the other hand, are not as forgiving. Fitch Ratings recently downgraded its ratings on TMB's foreign currency Tier 1 capital from "B+" to "B", in expectation that the bank will fail to make interest payments that come due in June. That lack of foreign confidence augurs ill for TMB and, by association, Thailand's military-run government.

This last paragraph is bad news. Basically, TMB will be issuing junk bonds and will hope people will buy them because the Thai generals look cute in their uniforms.

I may be wrong about this, but I thought the Shinawatras and Temasek owned a sizable chunk of Thai Military Bank.

The Nation: Deconstrucing Thanong, Stimulus that Doesn't Please, and Industrial Slowdown

OVERDRIVE

Is the govt shirking its economic responsibility?

Thanong Khanthong

Are we going to witness an economic recovery in the fourth quarter of this year?

Earlier, on April 26, Macquarie Research dashed any hopes of a four-quarter rebound because its economic staff could not get assurances from anybody that the path toward Thai democracy would be smooth. Political uncertainties remained very high. It downgraded Thai growth to 3.5 per cent this year and predicted another one full percentage point cut of the official rate to 3 per cent


Continued



Lukewarm business response to package


Finance Reporters


The business sector is by no means as enthusiastic as the government about the Bt44-billion economic stimulus package launched by the Finance Ministry, saying that economic rejuvenation would be possible only through public and private investment.

Banthoon Lamsam, chief executive officer of Kasikornbank, said the latest stimulus package from the interim government was only part of the measures needed to support economy. Other measures were also needed to repair the gloomy economy right now, turning it into a complete package.

"The one key to encouraging Thailand's economy is real investment from both the government and the private sector," he said.

Though some perceive the Bt44-billion stimulus package as another form of populist policy as championed by the former government, Banthoon said it depended on one's point of view. However, he believes that if the private sector decided to undertake more investment, it would give a boost to the economy.

The Finance Ministry on Wednesday launched the first economic stimulus package in its term to help low-income groups and people with small businesses get access to loans.

Continued


Jobs to get scarce as industrial activity dips

Petchanet Pratruangkrai

About 700,000 new graduates face bleak prospects in finding jobs as the worst economic conditions in 10 years force many manufacturers to reduce output.

A survey by the University of the Thai Chamber of Commerce (UTCC) released yesterday shows that the industrial sector's revenue is projected to slump by 34 per cent in the second quarter this year, due to negative factors including rising oil prices, political instability and an economic downwards trend expected to trigger an unemployment problem.

The Foreign Trade Department also reported yesterday that imports of capital goods dropped by 9.2 per cent in the first quarter. This could indicate an extremely low appetite among manufacturers to increase their capacity, though Thailand's capacity utilisation is over 70 per cent - the level that requires new investment.

The situation would be hard for about 700,000 students who are expected to complete bachelor's degrees and vocational degrees and enter the labour market this year, the UTCC said. About 300,000 are completing bachelor's degrees and who are considered unskilled labour.

Continued


By the way the Thai media covers the economy, I know it can't be trusted to tell the truth. All the information is contradictory.

On one hand, you have some crying about the unemployment crisis, yet on the other hand the unemployment rate has fallen and the country is basically at full employment. Compare the numbers to Indonesia or the Philippines. I think we should be grateful rather than hysterical.

Also, the economy isn't contracting; it is just growing at a slower rate. Why should this be a shocker with all the political problems? We should be lucky that the economy isn't heading into a full-blown recession because of the clowns who are running the country now.

If I had the money to blow on stimulus, I would take the money and invest it in schools, training, and infrastructure, which are the three areas Thailand needs the most help. I'd start with replacing the 166 schools that were burned down by terrorists and spend money on new schools in Bangkok. I'd reduce class sizes across the board.

If I were to loan money out for small businesses, I would require that anybody who borrows money take an accounting and small business class first.

As you can see, I think long-term and for the best interests of the country. I could care less about lining my own pockets or blowing money on bureaucratic schemes that don't work.

Bangkok Post/TNA: Unemployment 1.5%

700,000 more Thais employed in Feb

More than 35 million Thais were officially employed in February, 700,000 more than compared with the same period last year, according to the National Statistical Office (NSO).

NSO Secretary-General Thananuch Tritipphayabutr said that data regarding to the employed labour force in Thailand in February showed that of the 35.53 million Thais employed, 12.42 million worked in agriculture while 23.11 million worked in other sectors.

Compared with the same period of last year, she said, an added 700,000 people were employed, of which 310,000 people were employed in the agricultural sector and 390,000 were in other job categories.

Thailand's labour force outside of the agricultural sector increased in the hotel and restaurant, manufacturing, and wholesale and retail sectors by 210,000, 100,000 and 50,000 workers respectively, he said.

Meanwhile, employment in the construction sector contracted to 180,000 workers, while the transport sector was reduced by 70,000.

As for the numbers of the unemployed, the secretary general said in February, 540,000 workers were listed as unemployed, or 1.5 per cent.

The highest rate of unemployment was in the northeastern region with 1.8 per cent, followed by the north at 1.5, while Bangkok, the central region and southern region shared the same rate at 1.3 per cent

The NSO secretary general revealed that overall unemployment was reduced compared with the same period of last year. (TNA)


Obviously, these figures are good news. I haven't taken a university course in macroeconomics in a long time. But if unemployment is at 1.5% (full employment), inflation is at low, and GDP is growing at a respectable 3.5% - 4.5% rate, then one would think that the Bank of Thailand would no longer need to lower interest rates to keep inflation in check. Also, it seems the stimulus package is unnecessary. Also, I think wage inflation has been kept in check, not because Thais are more productive, but because of the massive influx of laborers from neighboring countries who are doing the crappy work for 40-80 baht a day.

Okun's Law of Unemployment: When output grows less than its potential growth rate, unemployment should increase.

There is no unemployment increase, so it seems there is no economic slowdown.

I'm not an economist, so please help me out it I don't know what the hell I am talking about.

The Nation: Finance Ministry starts first economic stimulus package

The Finance Ministry launched on Wednesday its first economic stimulus package worth Bt44.04 billion, aimed at helping small businesses and low income groups to access loans.

Measures to boost private investment and job creation are expected to follow soon.

Prime Minister Surayud Chulanont's interim government is facing growing public discontent over the economic slowdown as a result of sagging investors' and consumers' confidence.

The stimulus money will be distributed through staterun banks.

Directorgeneral Goanpot Asvinvichit said it would offer lowincome borrowers Bt5,000 each in order to prevent them using loan sharks, targeting 300,000 clients nationwide.

It will also provide loans for community enterprises worth about Bt1 billion.

Premium clients will also be offered more loans, while the bank will expand loans under its People's Bank scheme and for civil servants.

The GSB package will be launched at Money Expo 2007 in Bangkok from May 1013. The loans will be available at its branches from May 14.

GHB president Khan Prachuabmoh said it would offer mortgage loans of less than Bt1 million with a threeyear fixed rate of 4.99 per cent, down from 6 per cent.

Khan said the bank would coordinate with local authorities to provide housing loans for people upcountry on properties worth between Bt250,000 and Bt350,000. Buyers can also borrow about Bt300,000 if they want to build a house.

The GHB will increase its loans target to Bt95.5 billion this year from the previous figure of Bt90 billion, he added. New lending will start on May 8.

BAAC president Thirapong Tangthirasunan said it would increase new lending by Bt18.84 billion from its previous target. The new loans will target farmers who participate in biodiesel projects, small entrepreneurs, community enterprises and environment conservation.

Continued

These policies sounds exactly like the policies that Thaksin introduced. Wasn't he accused of spoiling the masses with these types of goodies?


Notice the change in tune in the use of propaganda:

Military government: Economic Stimulus

Thaksin government: Spoiling the masses with tax payer money.

Military government: Priming the pump and preventing an economic downturn.

Thaksin government: Acting fiscally irresponsible and bankrupting the country.

I have no problem with the government using Keynsian mechanisms to boost the economy, but the current government shouldn't condemn Thaksin for policies that they are now implementing.

Deconstructing Thanong: Worries about Thailand's Economic Competition

OVERDRIVE


Thailand's growth worsening as competitors reap the benefits


Thanong Khanthong


The Nation


Thailand is now trailing all other countries in the region in terms of economic growth.


This is a worrying trend and it has been occurring over the past two to three years. If this continues, emerging nations will soon catch up with Thailand, with higher living standards.


I think the trend started recently. Overall, Thaksin's economic record was fairly good. Surayud's economic polices have been a failure.

To make matters worse, Thailand is now grappling with political turmoil. It will take another year before things return to normal. It will be another lost year. In the meantime, Thailand is getting bad press. Business and investor sentiment concerning Thailand is very poor. They are saying that if Thailand does not put its house in order soon, investment capital will go elsewhere.

Everything is true and the bad press Thailand is receiving is well-deserved. But I don't think we are at a crisis point yet. Thailand is not in a recession and it has an enviable employment rate.

Let's take a look at the Asian Development Bank's latest report. The report shows Thailand has the slowest projected growth rate in the region. The Kingdom is expected to register economic growth of 4 per cent this year and 5 per cent in 2008. In Malaysia, however, those numbers are 5.4 per cent and 5.7 per cent respectively. Indonesia is also doing better with 6 per cent and 6.3 per cent respectively. The Philippines is expecting growth of 5.4 per cent and 5.7 per cent respectively, compared with 6 per cent and 5.5 per cent for Singapore, 5.4 per cent and 5.2 per cent for Hong Kong. But keep an eye on Vietnam. This star of the region is expected to grow by 8.3 per cent in 2007 and 8.5 per cent in 2008. It is taking in a lot of investments - investments that used to pour into Thailand in the late 1980s and early 1990s. India is also on the rise, expecting growth of 8 per cent this year and 8.3 per cent next year. The report says that China will continue to defy the economic bubble theory with projected growth rates of 10 per cent in 2007 and 9.8 per cent next year.

Of all the these economies, Thailand had the biggest head start in the 1850's. Yet it is still a 3rd world country instead of being a powerhouse like Korea or Japan. And now all the neighboring countries that were held back because of war and socialism are taking off. What lesson can Thailand learn from this? Liberalization and rule of law are good; socialism, crony capitalism and corruption are bad. Thailand's problem is not economic. It is political, because so many conglomerates, bureaucrats and banks only work for themselves and their allies rather than for the greater good.

In order to re-emerge, Thailand will need to attract a huge amount of foreign investment or undergo massive restructuring. But there are no signs that we have a game plan on how to position ourselves in the next 10 years. At the moment, the export sector and revenues from tourism are the only engines helping to prop up Thailand. Domestic consumption, investment and government spending are sluggish.

There is a vision problem. There is an incompetence problem. There is a horrible bureaucracy problem. There is a corporate finance problem. There is a tax problem. There is a service problem. It is not difficult to reform these problems, but those with political power don't want to give up their feudal privileges nor do they want to empower people to take over their own economic destinies.

Looking back, Thailand and other Southeast Asian countries benefited from a global currency realignment following the Plaza Accord agreement in 1985. That set the stage for an appreciation of the yen. This forced Japanese companies to relocate their operations overseas to remain competitive. Japanese manufacturers chose Thailand and other Southeast Asian nations for their manufacturing bases.

At that time, countries like Russia, China and India had not yet opened up their countries for investment, so the capital flooded into Thailand and other Southeast Asian nations, helping to create an Asian miracle story. Thailand has been an export-led nation ever since, following the East Asian Economic Model. Economic and financial liberalisation followed suit. Investments and exports held the key to driving growth.

But matters took a sharp turn in 1991 and 1992 when Russia, India and China started to embrace an open-door policy to welcome foreign investment. China has been most successful in attracting foreign-direct investment. Foreign companies realised the huge potential of China's gigantic domestic market apart from its cheap labour for export manufacturing.

The problem is easy to diagnosis in Thailand. The government bureaucrats and the capitalist elite don't to open up the economy because they are incapable of competing. The government has been protecting them from real competition for decades. In other words, Thailand doesn't really have an open door policy that says "welcome to Thailand, please do business, and keep your profits." Instead, it has the policy of "welcome to Thailand, please do business until we can screw you out of all your money, snicker, snicker, snicker, then go home."

A recent article by Merrill Lynch, "The Gross Prophet" (April 12, 2007), is interesting. It compares the challenges facing Thailand and Malaysia as they go forward. Both face the challenges of how to maintain their attractiveness as investment destinations while global investors and companies have abundant alternatives.

"Malaysia and Thailand were net beneficiaries during the decade the transitional economies needed to progress up the learning curve, as early investors and trading partners. Then in the last five years, as the transitional economies became emerging markets, they allowed world economic growth to remain resilient at 5 per cent a year, despite lacklustre growth in the developed economies. This was good for Malaysia and Thailand, as they are export-dominated economies, which are also rich in natural resources.

Why is Thanong lumping Malaysia with Thailand? In terms off service, transportation, liberalization, political stability, and government policy towards foreign investors, Malaysia beats Thailand. On the other hand, Thailand beats Indonesia and the Philippines. But Thanong is right. Before Thailand was the king of Southeast Asia, but if the Philippines and Indonesia ever get their acts together, along with the rise of Vietnam, Thailand will be in big trouble,

"But going forward the bad news is, these (transitional and now emerging) countries are now competing against Malaysia and Thailand for trade, commerce and investment. Some of the new players have enormous populations (China and India it goes without saying, but also Pakistan, Bangladesh and Vietnam). Others have small populations but untapped natural resources that they are keen to exploit (Kazakhstan and Mongolia)." Already, Malaysia and Thailand have been overshadowed by the excitement of these new places. Their stock markets have received less weighting as a percentage in the Morgan Stanley Capital International Index (MSCI). Malaysia enjoyed a peak in May 1995, with a weighting in the MSCI of 16.2. Now its weighting is 4.5 per cent. Thailand has faced a similar situation, with an MSCI weighting of 10.1 per cent in June 1995 and now 2.2 per cent. This implies that other emerging markets have been taking away the investment that would have otherwise gone to Malaysia and Thailand.

Compete or die.

The two neighbours need to do something to improve their attractiveness, as global changes unfold before their eyes. Unfortunately, Thailand has not yet started to rethink its future or how it plans to compete in the years ahead. Singapore laid down its economic plan for the global economy four or five years ago. Malaysia has also taken several steps to improve its attractiveness. Vietnam has done an excellent job in opening up. But Thailand - facing an ongoing political crisis - has to pull itself together quickly and mobilise all its resources in order to make sure it's going in the right direction.

Thailand has all the potential in the world. It is truly the suvarnaphumi. But the bureaucracy, the military and the anti-foreigner capitalist elite want to protect their interests. The last thing they want is Thailand to liberalize its economy and political system. They want to keep the poor disenfranchised, stupid and powerless.

But Thanong will never talk about this, because he is part of the Thai elite that wants to maintain its feudal, social and economic privileges.

The Economist: 1997 Crisis Countries Still Suffering from their own Myopia

Asia's economies

Mar 29th 2007
From The Economist print edition

Countries on the front-line of financial crisis in 1997 are suffering still

THE grimmest forecasts proved mercifully misguided. After a devastating financial whirlwind ripped through Asian economies in 1997, some analysts thought it would take a generation to recover. In fact, it was just a matter of two or three years. The bleak IMF-imposed austerity packages hurt, but seemed to do the trick. The worst-affected economies were soon growing fast again. Last year, developing Asian economies as a whole grew at an astonishing 8.3%.

Recovery, however, is far from total. The annual Outlook published by the Asian Development Bank (ADB) this week looks at the growth record of the five worst-hit countries: Indonesia, Malaysia, the Philippines, South Korea and Thailand. Comparing the period from 1990-96 with 2000-06 (ie, after the crisis had passed), it finds that “growth has settled on a lower trajectory.” It has slipped by an average of 2.5 percentage points a year (see chart).

The ADB finds the slowdown cannot be satisfactorily explained by demographic changes, by worsening “human capital”, ie, educational shortcomings, or by falling productivity. Rather the cause lies in falling investment rates. These plummeted in the wake of the crisis, and have never returned to pre-crisis levels.

This of course invites another question: why are businesses not investing? It seems odd, since one supposed consequence of the crisis in almost every country was radical reform of policies and institutions whose failures were blamed for the trouble. It should be safer to invest than it was. Yet studies of standards of “governance”—measuring, eg, the rule of law, corruption, the quality of regulation and political stability—actually show a worsening since the crisis. That seems unlikely. But it suggests that the crisis had a lasting impact on investors' perceptions. As the ADB puts it, the crisis taught them “hard lessons about the consequences of discounting risk”.


Asian Development Bank Link

Reuters: Foreign Investors Tired of Thai Government's Bungling of Economic Policy

Foreign investors fed up with Thai fumbles

By Jeffrey Hodgson and Umesh Desai

HONG KONG (Reuters) - Foreign investors are fed up with repeated policy fumbles and flip flops by Thailand's financial authorities to the point that many shun Thai markets and consider selling existing holdings.

International money managers said on Thursday the latest confusion about whether Thailand's central bank would put a ceiling on the baht currency pushed what little faith they may have had in policymakers to new lows.

Thai authorities, worried about the baht's strength and the impact it could have on the export-dependent economy, have sought to curb the currency for months with the imposition of capital controls in December and sporadic intervention.

But both domestic and foreign investors have been scathing in their criticism of the handling of these matters by the government appointed by the military leaders who ousted Prime Minister Thaksin Shinawatra in a September 19 coup.

"There doesn't appear to be a coherent policy being articulated ... it's a state of confusion and it's eroding confidence," said Anthony Muh, executive director at AT Asset Management, which manages about $1 billion (510 million pounds) in Asian equities.

"We are still continuously re-evaluating the situation to see at what point do we say, 'This is all getting too hard'. We're not quite there yet, but certainly the recent developments haven't helped."

The Hong Kong-based fund manager said the firm was definitely not looking to increase holdings of Thai stocks, which make up about 2.5 percent of its Asian portfolio.

Thai shares have lagged their regional peers and the benchmark Bangkok index <.SETI> is Asia's worst performer so far this year with a 1.36 percent loss.

CONFUSION

Thailand's central bank said on Tuesday it would not put a ceiling on the baht, but called on commercial banks to refrain from pushing the currency higher.

It was forced to clarify its position after a newspaper report sparked market speculation the central bank planned to fix the baht's exchange rate. Continued ...

Asian Times: Clouds on Thailand's Horizon

RISKY BUSINESS

By Jephraim P Gundzik

Mounting political and social instability greatly weakened domestic demand in Thailand during 2006, and a series of policy miscues ensures that stocks, bonds and the Thai currency, the baht, are likely to fall as flight of domestic and foreign capital accelerates in the months ahead.

Continued

What is disturbing is the Bank of Thailand's intervention in the baht. Every time BoT has screwed around with the baht, it has come back to haunt them. Why would the BoT play with the baht when it is obvious that dollar has weakened considerably against all currencies for the few years. Also, the strong baht obviously hasn't affected exports since they grew by almost 20% last year. Why fix something that isn't broken? A strong baht is not necessarily a bad thing. It makes some imports cheaper. Also, it reduces the costs of any US dollar dominated loans.

The offshore baht/dollar trading doesn't look good. The arbitrageurs are waiting to pounce.

If there is an attack on the currency, BoT has nobody to blame but itself, again.

The author of this article is a risk analyst and not a journalist. He is predicting gloom. Hopefully, he is wrong.

Thai Economics 101: Strong Baht, Strong Export Surge Equals Panic

FOREIGN TRADE

Surplus swells as exports rise

The Bangkok Post

PHUSADEE ARUNMAS

Thailand enjoyed a trade surplus of US$880 million in January thanks to year-on-year export growth of 17.7%.

According to Commerce Minister Krirk-krai Jirapaet, export revenue for January was US$10.48 billion, while imports rose 2.4% from a year earlier to $9.6 billion.

However, Mr Krirk-krai expressed concern that the country was relying too heavily on exports at a time when the baht was continuing to edge up.

The baht strengthened by 2.07% against the US dollar from Feb 15 to March 15 _ more than the currencies of Singapore (2.05%), China (1.86%), and India (1.75%).

Export items hurt by the baht's rise include farm goods such as rice, tapioca, rubber, shrimp, vegetables and fruit. Items that use imported content _ including electrical and electronic goods, textiles and construction materials _ performed better as raw material costs are lower.

However, Mr Krirk-krai was confident the country's exports this year would expand by 12.5% to $145.9 billion, up from $129.7 billion earned in 2006.

To benefit from the strong baht, the minister advised Thai investors to invest more overseas to enjoy lower costs and follow the government's plan to boost capital outflows to help weaken the baht.

This was also a chance for entrepreneurs to establish new factories, farms and raw material suppliers from overseas, he said.


Why all the panic over the strength of the Baht when exports are up almost 20% in a year?

Thai Economics 101: I Don't Get This

REPATRIATED EARNINGS

BoI mulls tax breaks for firms


Move would boost Thai companies operating overseas amid domestic slowdown

Why would you move Thai companies overseas if there was a domestic slowdown? This makes absolutely no sense to me at all. In Western countries, it is a big deal to send operations abroad. You know, the whole outsourcing controversy, sending jobs overseas, and all the jazz?

To help Thai enterprises operating abroad, the Board of Investment (BoI) is considering granting tax incentives, particularly tax breaks, on repatriated earnings, says executive investment adviser Vittaya Praisuwan.

Again, this makes no sense. Why would you give a company tax breaks to move overseas, but only if they send their money home? Why not just give tax cuts to companies in Thailand or if you need foreign reserves, encourage foreign business to invest in Thailand with incentives instead of bullshit capital controls and FBA that take their rights away?

"To help local businesses expand abroad is one of the BoI's aims this year, so they can gain a bigger slice of foreign markets and counter any economic slowdown at home," he said last week.

What the fuck? Why would you push domestic companies out of the local market? That would be like the US giving tax breaks to GM for moving its operations overseas. And how does sending your domestic companies abroad help the local economy? Shouldn't they be creating jobs at home? Shouldn't they be developing the economy at home? Why do they need to be given government incentives to go abroad? Is this madness or what? Why not give Thai companies tax incentives to develop the poor parts of Thailand? Isaan, for example, hello?

If I was a poor farmer, this is an issue I would hit the streets over. Can you imagine not having enough money for uniforms for your kids or not enough to send them to university, but the Thai government is giving Thai multi-national companies tax breaks to invest abroad? And for what, exactly? So that Thai companies can act like big shots? Act like the mighty multinationals do? What is the purpose?

Investors should explore business opportunities abroad, because there are advantages like lower production costs in terms of raw materials and labour, as well as export privileges to third-party countries.

Again, more stupidity. Why would the Thai government condone an exodus of Thai capital when it uses those incentives above to lure foreign capital?

So far, some firms have set up foreign operations mainly in Laos, Cambodia, Burma and Vietnam. The government wants local investors to widen their horizons.

The Thai government goes hat in hand all over the world begging for foreign investment, then cheating foreign companies out of their investment by changing the FBA laws, yet it applauds its domestic companies for going abroad. Why have international capital come to Thailand if the Thai government is encouraging its own companies to leave? And why shouldn't foreign countries treat Thai capital to the same hostility that Thais treat foreign capital? After the FBA changes, capital controls, and the right-wing nationalism fomented by the Thai government over Temasek, why would any country be hospitable to Thai companies, especially when the Thai government is giving that company subsidies to compete with the local producers? Is this insanity, hypocrisy or what?

The BoI said statistics for foreign direct investment (FDI) showed only 40 per cent was by investors from developing countries, while the remainder was from developed nations.

However, foreign investment from Thailand accounted for less than 1 per cent of total FDI.

Please note the horrible English in the two paragraphs above.

As a consequence, the government is considering tax privileges to encourage Thai investors to set up offshore operations, Vittaya said.

"Incentives like tax breaks on repatriated earnings should encourage more entrepreneurs to invest abroad," he said.

Currently, repatriated earnings are taxed at 30 per cent.

Does this mean Thai companies are taxed twice, here and abroad?

The BoI will put the plan to its committee, which will then submit it for Cabinet approval.

A decision should be announced within three months.

Previously, the government's focus was on neighbouring countries for investment promotion. But this year, it is looking farther afield to other developing countries, in Asia, Africa and Eastern Europe, he said.

The board will conduct a road show to promote the establishment of offshore companies this year. So far, targeted markets include Bangladesh, Pakistan, Sudan, Kazakhstan, Russia, Kenya and South Africa.

That is lovely. Give tax breaks to invest in 3rd World countries when your own country is 3rd World. And I'm sure that those countries will love the fact that Thai companies will repatriate all their earnings and get a tax cut for it.

Businesses of great potential include processed agriculture, automobiles, electronics and electronic appliances, construction, garments, furniture and value-added services like consultancy, design and management services.

With a few exceptions, aren't those all businesses that have BOI privileges in Thailand? Thai Consultancy and management? Kidding right?

Vittaya said the BoI was focusing more on promoting foreign operations to help boost foreign-currency reserves.

Boost foreign reserves? What was the list of 3rd world countries with worthless currencies that it wants to do with business again? And if Thailand wants to boost foreign reserves it is easier that the capital comes to Thailand rather than Thai capital going out and being repatriated. And if Thailand needs foreign capital, why the stupid capital controls and foreign business restrictions that scares capital from coming into Thailand?

Recent Bank of Thailand data show Thailand has foreign reserves of US$66.5 billion (Bt2.38 trillion).

Asked about problems Thai firms face when going international, Vittaya suggested they should first gather all of the information available on their target markets.

He advised businessmen to screen prospective partners carefully and establish good relations with local operators.

Petchanet Pratruangkrai

The Nation

Seriously, I'll be probably the only one who pays attention to this, but if I were a foreign investor and a foreign government doing business in Thailand, I'd be going "What the hell?"

I'm not an economist, but if you were a 3rd World country like Thailand with a serious poverty problem in many parts of the country, why would you be giving tax incentives for your best companies to relocate outside the country because it is cheaper? Wouldn't you be giving tax incentives for them to develop Thailand? Wouldn't you be telling them to develop Isaan or the deep South?

Just in yesterday's paper, Surayud was begging Malaysian companies to invest in the South.

I don't get this at all. Am I wrong in my analysis? What am I missing?

Thai Conglomerate CP Group Prefers "Communist" Vietnam to "Sufficiency Theory" Run Thailand

VIETNAM'S WTO ACCESSION

Benefits and challenges exist for Thai firms


Country will be attractive investment magnet; CP to up presence

The Charoen Pokphand Group plans to set up its second manufacturing base for livestock and aquaculture in Vietnam within 10 years, thanks to the country's generous trade and investment sweeteners.

"The company will develop a manufacturing base integrated from farm to finished product in Vietnam, because its government provides many privileges to foreign investors," Sooksunt Jiumjaiswanglerg, president of Charoen Pokphand Vietnam, said yesterday.

Vietnam's recent accessionto the World Trade Organisation (WTO) will also make it one of the world's most attractive investment magnets for foreign investors, he said.

While Vietnam looks forward to the future by embracing capitalism and globalization, Thailand looks to its glorious past by embracing feudal economics and sakdina politics.

Thaksin Balanced the Budget, Junta Running Budget Deficits: Who is "Bankrupting" Thailand Now?

ECONOMY / PUBLIC FINANCE

Deficit to continue into fiscal 2008

Wichit Chantanusornsiri

The fiscal 2008 budget is expected to show a deficit for the second straight year, according to Deputy Finance Minister Sommai Phasee.

"We expect that the economy next year will not be fully recovered, and that state revenues will fall short of expenditures," he said yesterday. "But any deficit will be manageable, and not over that of the current fiscal year."

The fiscal 2007 budget ending in September currently calls for expenditures of 1.566 trillion baht and a projected deficit of 142.6 billion, equal to around 2% of gross domestic product.

This year's deficit follows two years of balanced budgets under the ousted Thaksin Shinawatra government.

Just a few weeks ago the the junta, the Thai media, and the Surayud government were screaming about how Thaksin was bankrupting the country.

Here are the facts:

1. Thaksin balanced the budget

2. The Junta runs Budget Deficits.

3. Even though the Thai Juntacracy says it believes in Sufficiency Theory, it doesn't believe in spending within its means. How come nobody is pointing this out?

4. The Juntacracy attacked Thaksin for Thaksinomics bankrupting the country, yet hires Somkid, the brains behind Thaksinomics, to sell Sufficiency Theory to the masses.

Any questions?

Sonthi Vows to Take Back Shin Group Assets from Singapore

Junta leader vows to take back national assets from Singapore

Bangkok Post Version

Bloomberg Version

Gen Sonthi Boonyaratglin, chairman of the Council for National Security, vowed Friday to take back national assets from Singapore.

He said Thailand' assets worth Bt140 billion had been bought by Singapore and he wanted the assets to be returned to the kingdom.

"I want these assets to be returned to the country, especially satellite [concession]," Sonthi said.

He was giving a speech while chairing a ceremony to kick off the Year of Patriotism of the Army at the Army Club.

The Nation

Seriously, after the last five months, why would any foreigner want to invest in Thailand again?

Do business with Thailand and this what will happen to you:

1. The government will capriciously re-write the rules governing foreign investment, so that those rules will benefit those with political power at the expense of foreigners.

2. The government will make it so difficult for foreigners to do business that they will sell their businesses at a loss to Thais on the cheap.

3. The government will institute fines so large that the business will have no choice but to sell to a Thai, as in the case of iTV.

4. There is no security in owning any assets in Thailand, because of inconsistent government policies.

5. The government can't be trusted to keep its word.

6. The government has no regard for the intellectual property of other countries. Thailand complains about other Thais selling Thai assets to foreigners, yet the Thai government has no problem stealing the intellectual property of Western pharmaceutical companies, and cares nothing about how Thais steal up to $220 million worth of US intellectual property every year.

7. The government is hostile and racist to foreigners concerning investment/work visas.

8. The Thai government won't allow foreigners to own their own property.

9. Thai government officials will try to fleece foreigners through bribery and tea money.

10. Capital controls.

11. The airport is a disaster.

The Thai Economy: Do the Thais Get it?

ANALYSIS

'The China factor' now looms over Thailand

The pace of economic change in Thailand has accelerated as economic and competitive threats from China have become more pervasive, and Thai policy-makers and observers have recently begun voicing their concern about a phenomenon that economists call "the China factor".

"Private investment has not yet recovered, partly because of the China factor," Bank of Thailand Governor Tarisa Watanagase said recently. She said Thailand's capacity utilisation had been 75 per cent for a reasonable period and that this should have led to new investment like it always had before.

Investors now fear an inability to compete with China, so they are reluctant to put fresh investment into Thailand, she explained.

I don't think the Thais get it. To me it is amazing how China, which was a closed Communist state like North Korea just 30 years ago, is now an economic juggernaut that pulls in billions of FDI and exports billions of dollars worth of goods every year, and sitting on a trillion dollars of foreign reserves to boot. Look at what Singapore and Malaysia have accomplished in the last 50 years and Vietnam in the last ten years. Even Korea and Japan, which were totally devastated after World War II, are first world economies.

Thailand, on the other hand, has had a fairly open economy for the last 150 years, and it hasn't had the same political problems as the rest of Asia, like war and genocide, yet it is considered as something of a back water in many ways. If Thailand had done things the right way instead of the Thai way for the last 50 years or so, it should have become an economic powerhouse on par with Japan and have a higher standard of living than that of Japan and Singapore because there is no land problem in Thailand.

These Thai bureaucrats don't get that it is their myopia that is keeping Thailand in the Third World. Foreigners coming to Thailand have been complaining about the same problems for 200 years: xenophobia, greed and corruption, and the Thais general lackadaisical attitude towards doing business. Further, Thais have a poor education system and bad language skills. If it improved in this area alone, it could probably add a couple more points to their GDP. Currently, many of the educated, competent Thais who have all the qualities that can build the country have emigrated to the West, because they can no longer deal with the "Thai Factor," which is indifference, lack of integrity, and incompetence. I can think of ten middle-class Thai-Chinese families that I know who have emigrated to the US, and they are all even more wildly successful there than they ever were in Thailand, because they don't have to deal with the "Thai Factor."

I think the major problem Thais have is that they never think it is their responsibility for what happens to the country. And that attitude is reflected in this article. It frames the "China Factor" as a threat towards Thailand, as if the Chinese are intentionally being successful so that they can hurt Thailand. How about framing the problems in terms that Thailand should focus on its shortcomings and realize that it needs to get its shit together?

So I would say at the core of Thailand's problems lie two things: Lack of preparation or foresight (Indifference and incompetence) and a no responsibility "I am a victim" attitude (no integrity). If these Thai bureaucrats think that blaming the foreigners for Thailand's problems is going to turn Thailand into a successful country, they should probably reconsider their strategy.

PERC: Thailand a Risky Place to Do Business

Risks Rising Sharply in Thailand


SINGAPORE: Risks are rising sharply in Thailand, says a survey of expatriate business executives which rates Singapore as Asia's least risky economy and Indonesia the worst.

The Political and Economic Risk Consultancy (PERC) said on Tuesday in its latest survey that "risks are rising sharply in Thailand as a result of the continuing domestic political problems and the possibility of social unrest".

It added that "conditions could deteriorate in 2007".

Thailand's military ousted the elected prime minister Thaksin Shinawatra in a bloodless coup last September. The military government has promised to hold elections and a return to democracy by the end of this year.

White Boy in Asia: A Dire Future for Thailand?

White Boy in Asia

Recent events in Thailand have created a deep feeling of resentment, unease, and distrust among people. Not only foreigners, but Thais also are upset. The Thais are generally a happy-go-lucky people. They smile throughout adversity. They don’t worry too much about tomorrow. As long as they are happy now, they say Mai Pen Rai to the future.

But not these days. Many Thais have mentioned to me that they are unhappy. They have no reason to smile any more. They feel insecure. Even though the government has been concentrating their attention on the foreigners, Thais are feeling the effects anyway. The economy has slowed down so badly that it’s hard for them to make money. Many are returning to their homes upcountry as they lose their jobs. I doubt things are going to get better any time soon.

With the new changes to the Foreign Business Act (FBA) currently under consideration, a lot of companies with foreign directors are going to face severe problems when the act passes. Either they will have to restructure and lose their ability to manage their own business. Or they will have to close up shop and leave the country. There doesn’t seem to be any alternative. I can’t see too many foreign owners giving up their companies to Thais. That means a lot of small to medium sized companies will fold, leaving their Thai staff jobless.

Continued

Will Vietnam's economy outpace Thailand?

Vietnam could surpass Thailand and Indonesia

VietNamNet Bridge – LG Economic Research Institute (LGERI) has released a forecast saying that Vietnam’s economy has opportunities to surpass Thailand’s and Indonesia’s economies by 2020.

From what I have seen of Vietnam, the country is on the move. The people are hungry. They have the eye of the tiger. And they want to make money.

I want Vietnam to succeed. In many ways, Thailand has failed to live up to its potential in Southeast Asia. Vietnam may have a shot at being the regional jewel. Maybe it will give Thailand a little healthy competition, which is also good.

Eventually they will be fighting over who has influence in Laos and Cambodia, along with China, which is not good.

The last thing the region needs is a replay of 19th century battles.

Newsweek's Take on "Sufficiency Economics"

Buddhist Economics

Thailand is now charting a 'middle path' set out by its beloved king. But will new measures bolster the shaky junta, or simply kill the economy?


Jan. 22, 2007 issue - Thailand's finance minister, Pridiyathorn Devakula, said the new rules were meant merely to "close loopholes." But that's not how foreign business leaders saw it last week, when he briefed them in Bangkok on plans to revise the country's investment restrictions. They viewed the move as starkly protectionist, according to one participant. In the tense discussion that followed, the visitors peppered the minister with pointed questions, warning that the measures could be challenged at the World Trade Organization. "There's a fundamental philosophical gap," said the source. "It became obvious we were getting nowhere."

Balanced Look at Thailand's Economy

Thailand's new economic logic


By Shawn W Crispin

Asian Times


BANGKOK - Thai Prime Minister Surayud Chulanont says his interim government has launched a "year of great reforms", with changes aimed at putting the economy on a more sustainable long-term track. Many foreign investors, on the other hand, are howling that recent government policies are woefully out of step with market mechanisms and, if not reversed, could eventually cause Thailand's economic demise.