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Dr Anthony Diller
Thailand's latest official recovery plans have been submitted to the International Monetary Fund (IMF) and the nation is set for some changes. The Fifth Quarterly Letter of Intent promises reforms designed to encourage foreign investment, especially by restoring confidence in the battered banking and finance sector. Two years is a common prediction for recovery time, but Wall Street is not waiting. JP Morgan has been selected as chief consultant in designing banking recovery strategy and is in line for more lucrative Government consultancies. On the investment front, Australian companies such as Pacific Dunlop have recently been seen in Thailand doing serious shopping, PacDun having acquired the Thai rubber products Suretex Group for A$50 million. Taiwanese and European investors are looking for bargains too. Although interest in the Thai stock market is currently at an 8-month low, given that last year's Thai-USA taxation treaty is now in full force firms like Merrill Lynch are in the bargain basement also. With controlling interest in Merrill Lynch Phatra Securities, the firm is now firmly linked up with Thai Farmers Bank, run by one of the more conservative and resilient of the Sino-Thai banking families. On the balance sheet, Farmers has survived the crisis much better than other large Thai commercial banks and has superb surveillance: even the Thai Prime Minister's brother, a former Farmers director, was caught with his hand in the till-to the unending glee of opposition politicians and sections of the Thai press they command. With projections of a 7% contraction in the Thai economy over the coming year, part of the IMF plan is predictably to use fiscal and monetary policy to stimulate the economy, while achieving broad exchange rate stability. Interest rates are apt to move downwards some from the current 15% prime rate. A 10-year bond issue worth A$12 billion and foreign credit arranged through the Industrial Finance Corporation of Thailand (IFCT) will provide some relief to ailing sectors, such as the automotive industry, whose 1998 job losses stand at 85,000. These funds will also support innovative export-oriented diversification. Representative example: a leading but under-producing cement company is planning to set up a subsidiary to produce colour TV picture tubes. Loans equivalent to A$50 million are in place for this. In this case, credit is being arranged by IFCT through Japan's Export-Import Bank, illustrating a continuing critical role for Japan in the Thai economy. Tokyo's troubles are sure to mean more bankruptcies in Bangkok, just as Bangkok's woes are passed down the pipeline to Myanmar, through lessened Thai demand for offshore Burmese gas, for example. Foreign business should welcome IMF interest in the Customs Department. With tariffs currently accounting for about a third of taxation-derived budget revenues, IMF would like to see a shift away from this form of taxation, improvement in Customs procedures and the publication, long overdue, of the Customs tariff. Also good news to foreign business is a projected relaxation of real estate ownership rules. If all goes according to Government plan, non-citizens will soon be able to own up to a "rai" (=0.4 acres) of land and certain kinds of condos and apartment buildings. But many of these measures will need the Thai Parliament's support to be implemented. With the last Prime Minister reported by the Thai press to be threatening the current one with the firing squad if the economy doesn't improve quickly, we can expect some raucous debates in coming weeks.
WATCHPOINT: Will opposition politicians, the bureaucracy and the military weakly assist, or vigorously resist, this round of IMF reforms?
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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