The Federation of Thai Industries (FTI) is urging the government to clear the political air to keep foreign direct investment (FDI) from further evaporating and damaging the economy.

Santi Vilassakdanont, FTI's president, said at a seminar yesterday that the manufacturing sector needed assurance that an election would take place this year. The political turmoil will force foreign companies that have never invested in Thailand to take pause about investing in the Kingdom, he said.

"FDI has dropped sharply and the FTI has received queries from foreign investors about the political situation. We have explained that this is a normal situation for a country with a pro-government movement and an opposition and we're certain that the troubles will dissolve," he said.

He also urged the Industry Ministry, Commerce Ministry and the Board of Investment to explain the problems to foreign investors. The government also must clear up political problems as soon as possible in order to reassure foreign investors of Thailand's political stability.

Veerathai Saniprabhob, executive vice president of Siam Commercial Bank, said at the seminar that a lack of new investment was damaging the economy.

"The absence of a permanent government also means a delay in mega-projects and free-trade agreements as well as economic restructuring to increase the country's competitiveness in the next three to five years," he said.

The political impasse has already affected foreign companies' decisions to locate in Thailand. Tetsuji Bunno, president of the Japan Chamber of Commerce Bangkok, said that 25 per cent of Japanese investors looking at Thailand had opted to build new plants in other countries as a result of the ongoing crisis.

Caretaker Deputy Prime Minister Somkid Jatusripitak said on Tuesday that Japanese investors had grown more concerned with the chronic political conflicts and the extraordinarily long life of the caretaker government.

Despite the Japan Chamber of Commerce president's assertions, Suriya Jungrungreangkit, caretaker industry minister, rebutted reports of lowered confidence among Japanese investors, saying that large investors from Japan still had a positive view of Thailand.

He said he'd met with representatives of the Japan Chamber of Commerce Bangkok who told him that large Japanese companies with investments in Thailand were still confident in Thailand's investment and economic picture.

"They also believe that once the political conflicts is resolved, investment and the economic situation will improve," Suriya told reporters after a Board of Investment (BoI) meeting yesterday.

His comment runs counter to BoI figures that show Japanese companies invested Bt52 billion in Thailand in the first half of the year, compared to Bt115 billion in the same period last year.

Suriya, however, insisted that last year's investments were extraordinarily high due to a large-scale spending by Toyota Motor Thailand Co Ltd and Nissan Motor Co Ltd worth a combined Bt72 billion.

Nissan wants its Thai facility to be its largest parts export base outside of Japan. It is expected to ship parts worth US$300 million (Bt11.42 billion) annually to Nissan production plants worldwide.

"Excluding the investment by Toyota and Nissan, the general investment atmosphere among Japanese investors is still positive, particularly among small and medium-sized enterprises which want to establish plants here to tap the domestic market and to enjoy lower operating costs," Suriya said.

Suriya said he would fly to Japan August 8-9 to meet with representatives from Honda, Sharp, and Fujikura. The occasion will provide him a chance to clarify to foreign investors what is happening in Thailand.

"Bank of Tokyo-Mitsubishi also wants to build a headquarters in Bangkok, but there is still a complication in money transactions. I have already assigned the BoI to coordinate with the Bank of Thailand," he said.

He also asserted that Thailand had a competitive edge over Vietnam as a manufacturing base due to better infrastructure and its pool of skilled labour.

Standard & Poor's Ratings Services also issued a warning on Monday, citing continuing political troubles that have weakened support for Thailand's credit standing. Standard & Poor stated that if the problem was not resolved by the end of the year, the country's credit ratings could be threatened.

If political uncertainty persists into 2007, then the damage to the investment climate could become long lasting, ultimately affecting consumer spending.

Watcharapong Thongrung

Anoma Srisukkasem

The Nation