Unfriendly to foreign investors? look around a bit
But timing of business law changes could have been better
If you think that Thai foreign business law is unfriendly to foreign investors, try Venezuela - or Japan.
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This week, while the Cabinet was approving draft amendments to the Foreign Business Act, Venezuelan President Hugo Chavez was proposing to nationalise his country's energy and telecommunications sectors.
And in Japan, Citigroup has moved to sharply downsize its consumer-finance operations in response to stricter laws. The move was announced this week after Japan's parliament passed laws to place limits on rates and cap loans. Foreign companies will have to adjust to comply with the rules.
Amid the forces of globalisation, countries face a dilemma: how to open up their markets to foreigners without hurting locals.
While emerging countries such as Vietnam and India are revising their laws to welcome foreign companies, countries such as Venezuela recently decided to walk in the opposite direction. Chavez vows to nationalise the telecommunications and electricity industries, both controlled by US firms.
Propelled by nationalistic sentiment, Chavez began his new six-year term as president by planning to speed up socialism.
Although his statement was criticised by Washington, which has had strained relations with Chavez in recent years, his plan somehow connects with voters. He has managed to turn anti-capitalism into political kudos at home.
In Japan, meanwhile, Citigroup, one of the world's largest financial-services firms, said it would close all but 50 of its 320 branches and shut down 100 of its 800 automated loan machines because of the toughening environment for consumer lenders.
Citigroup's announcement came less than a month after Japan's parliament passed new legislation that would slash the maximum loan rate to 20 per cent from 29 per cent and set a limit on loans to individual customers, in a move lawmakers say would protect consumers from borrowing beyond their means.
The legislation directly affects foreign firms operating in the consumer-finance industry, which grew rapidly during the country's economic slump in the 1990s. At that time, Japan's troubled banks scaled back lending. Citigroup, however, said it was not planning to withdraw completely from the sector.
In spite of the timing, the rationale behind each country's decision is different. The Venezuelan motive is purely political and aims to guard two strategic sectors against foreign domination.
Tokyo does not mean to drive away foreign business, rather, its decision aims to protect local consumers from over-exposure to easy foreign money.
In Thailand, Commerce Minister Krirk-krai Jirapaet said foreign business law amendments were to promote good governance in business following the scandalous Shin Corp takeover by Temasek Holdings of Singapore.
While details of the law have barely changed from the old one last revised in 1999, the government has tightened the definitions to address the question of nominees in order to prevent some investors exploiting legal loopholes in the future.
Despite the Cabinet's - we assume - good intentions, the timing for amending the law looks far from perfect.
Chavez managed to score domestic support for his nationalisation plan because of strong votes he had just received and the country's oil resources, that enable his government to buy oil companies.
Japan's business sentiment is at its most upbeat in two years, according to the latest survey of consumer confidence late last year.
The backdrop of the Thai political and economic situation is different. The draft law was passed while foreigners are starting to turn away from Thailand after a series of discouraging incidents.
The Bank of Thailand's draconian capital-control measures introduced on December 19 have raised fears that Thailand is turning its back on globalisation. This has hurt sentiment in the financial markets and might potentially harm foreign direct investment in the long term.
A series of bombs on New Year's Eve has also alarmed investors over political stability.
The new foreign business law has, in fact, barely changed from the old one, revised the last time in 1999. It simply makes the definition clearer and tries to plug loopholes on nominees used to circumvent the ownership law. Foreign investors are still free to invest in Thailand in most business sectors, just like most other countries in the world.
However, no matter how good the intention of the law, if the timing is wrong, it can create an impression that Thailand is shooting itself in the foot, again.
Jeerawat Na Thalang