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.

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.

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.

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.

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.

"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.

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. 

Thanong Khanthong

The Nation