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A Dire Future for Thailand?

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Message Marc Holt
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.

What will happen when the FBA is passed?

First, all companies with foreign directors and Thai nominees will have one or two years, depending on their business, to restructure. The new structure must have real Thai directors holding 51% and the foreigners will be allowed to hold 49%. In theory, all business decisions must be shared 50/50.

Failure to restructure within the time limit will incur severe penalties, or up to 5 million Baht fines, and possible jail time too. Can you imagine the havoc this is going to cause? Already, people, mostly teachers and those staying here on 90 day visas, are fleeing the country. But once the FBA is passed what option will companies have? Are the foreign investors going to give up their control to Thai partners? Where are they going to find reliable Thai partners for a start? And what is to stop the Thai partners forcing out the foreign investor anyway? This act will bring dire consequences for Thailand. It will take time for the Thais to start feeling the effects, but you can be sure that once they see the money fleeing they are going to get very upset.

New Visa Laws

The recent changes to the visa laws are also causing many problems. As one of my associates told me just before he left Thailand with his Thai wife, "Why should I put eight hundred thousand Baht into a bank account here when I can invest it for a much better return back home?" Good question. So he took his money and left. I know many more foreigners are getting ready to leave. And when they go all their money and expertise will leave with them.

The Property Market

Now that the government has effectively stopped foreigners buying property using the Thai nominee structure, the property market is dead. I mean it is moribund, deceased, flatlined. Foreigners can only buy condominiums these days, or lease houses. But who knows if the government may arbitrarily change even these laws to our detriment in the future? After all, they have already changed so many other laws that affect foreigners, why not condo laws too?

As a result, condo developers are reporting severely reduced, or even no sales these days. Foreigners were the biggest condo buyers in the past. comparatively few Thais want them. Unless the government increases the ratio of foreign ownership, many condos are going to be less than half full. This means that the money to maintain them will not be available. We all know that Thais don't believe in maintenance, so as the properties deteriorate they will lose value. What foreigner in his right mind will invest in buildings that are losing value?

A Huge Loss of Confidence

Whether these worries are unfounded or not, the fact is there is a huge loss of confidence in Thailand, the government, the economy, and the future. As a result, Thailand is missing out on the investment money that used to flow in like water. Now the money is flooding into other countries instead, to places like Romania, Belize, Chile, and others. Thailand's loss is their gain.

I have heard from a reliable source that the government has declared some of the big telecommunications companies with foreign directors illegal because they were set up using the Thai nominee structure. Even though the FBA has not yet been passed into law, these companies are already under investigation. As a result, the foreign directors have not been able to renew their visas or work permits. If this is true, you can imagine the havoc this is causing.

As one of these companies has just won a billion dollar deal in China, they may decide it best to move their business over there and avoid any further problems. Look out for the chaos to the phone systems here if these companies decide to leave! That will mean a huge loss for Thailand, not only monetary, but jobs as well. No matter what happens, the future for the telecommunications business here looks bleak while the government continues its witch-hunt.

What's Next?

What are the implications of all this for the future?

The three main money streams that have sustained Thailand over the last 30 years have been agriculture, manufacturing, and tourism. Even though agriculture has been the backbone of the country for centuries, the Thai farmer has remained poor. This has always been a potential source of trouble for successive Bangkok governments. Thaksin was smart. He went out of his way to try and improve their lot. But that has stopped since his ouster. The farmers are back to being poor and ignored again. How long will they accept this after a taste of what was possible under Thaksin?

Manufacturing has been largely driven by foreign investment. Many of the investing companies have BOI privileges, so the new FBA won't affect their company structure. They are exempt from the new provisions in the law forbidding nominee partners. But those that don't have BOI privileges are going to face problems. If they decide to close up shop and leave, this will put untold numbers of Thai workers out of work. What will they do when they realize this new law has deprived them of their jobs?

Tourism has been hit hard in the last few years. First the tsunami, then the bombings down south, followed by the political problems, and recently the bombs in Bangkok. Even though the chance of getting blown up by one of these politically motivated bombs in Bangkok is very small, it's enough to discourage plenty of overseas tourists from coming here.

And now that the runway at the new airport is causing problems, who is going to risk their life flying in here? Even if they move back to the old airport, the damage has been done, thanks to corruption and cronyism.

Read the newspapers. There are constant reports that tourists in Phuket, the biggest tourism draw in the country, say they no longer feel comfortable there any more. Apparently, the famous Thai smile is only skin deep. Recently, it has been notably missing from those in the tourism industry as they feel the economic pinch. Crimes against foreigners have risen with tourists reporting more thefts, and even attacks against them.

All this adds up to a very worrying scenario. How much pressure will the Thai people be able to take before they explode? If you have never seen a Thai really angry, you are in for a shock. Their reactions are especially severe if you take away their money, or their ability to earn it. No government can afford to ride roughshod over the aspirations of the people, not even a government backed by guns.

Some people compare Thailand's current political situation to Burma. But there is no comparison. The Burmese people have never really lived under a true democracy. The majority have little or no education. The educated Burmese are all in prison, or the military has already killed them.

Thailand, on the other hand, has a well educated middle class, many educated overseas. They know what is possible, and they have already tasted real democracy. They are not going to stand by for too long while the government passes bad laws that will affect their income and lifestyle.

Even before the new FBA passes into law, we can already see the effects it will have. Businesses are closing down. Thais can't sell their property to foreigners any more. Exports are down because of the strong Baht, and the weak US dollar. Of course, the foreigners are a convenient scapegoat. But as ordinary Thais see all their jobs and money leave as the foreigners go who will they blame then?

As we saw with Thaksin, it took a while for the Thai people to build up enough anger to move out onto the streets to protest. We are not at that stage yet, but if things keep getting worse who knows where it will lead? I believe it will take two years before the Thai people wake up to what they have lost.

The Police Chief was sacked the other day for being too beholden to Thaksin. As he was due to retire anyway in a few months, you have to ask why the government fired him. It was difficult to believe he was a Thai when he interviewed on TV. It's very rare to see a high ranking public official vent such anger in public.

We are all waiting for the new Constitution so that the country can move forward again. However, no one knows when the drafters will complete the task. My informants tell me that the discussions are deadlocked on several key issues. It will take time to overcome these obstacles. Meanwhile, the economy is plummeting, foreign investment is fleeing, and even long-time resident foreigners are leaving.

Indeed, the military has its own constitution they want to implement, and this is another reason the Constitutional Committee has not been able to table their version. They are keeping theirs ready in case the military version fails to pass. One worrying comment by the PM recently seems to have passed unnoticed. He said that he would like to see a PM appointed by the ruling body (i.e. the military), and all other positions could be elected. This sounds suspiciously like the military are not sincere about handing power back to the people, doesn't it?

All these factors taken together paint a very bleak picture indeed. It's not too bad for us foreigners. If things get too bad we can always leave. But the Thais have to contend with all these blunders and disasters. As things get worse, how desperate will they get? How far can they be pushed before they react? And who will bear the brunt of their anger? I wouldn't take any bets on that question right now.
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I have lived in Thailand for 25 years where I run an IT and a Real Estate company. I write articles for various magazines and blogs on a variety of topics. Nearly 4,000 subscribers around the world currently subscribe to my newsletters on property (more...)
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