Thailand’s foreign investment rules to be changed?

Business leaders in Thailand have said that the changes to foreign investment rules suggested by the government were politically motivated and have left many foreign firms facing an uncertain future. Earlier this month, the government proposed closing the loophole in the Foreign Business Act to limit foreign investors to holding less than 50 percent of shares and voting rights within a company. Many international companies have been using this loophole to support their Thai operaions and the proposal has caused concern amongst the foreign investors based in Thailand.

Critics of the proposal have claimed that the changes were a political move by the post-coup government and were proprosed because they would hurt the ousted prime minister Thaksin Shinawatra. Shinawatra was ousted from office in September 2006. The military justified the take over saying that he had been using his political position to enrich his business empire – the largest example being his sale of $1.9 billion Shin Corp shares to Singapore’s Temasek Holdings. If the proposed changes went ahead, Temasek would have to restructure the deal or sell some of their shares on.

Foreign investors said the propsed changes to the law are unclear and that any changes would undermine their confidence in Thailand. Predictable regulations are liked because investors can make investment plans. Uncertainty causes unrest and potentially could mean many foreign investors losing interest in investing in the country. The change is also sending confused signals as to whether Thailand is trying to move towards market liberalisation or highly-regulate market conditions.

The government has tried to calm fears by saying that many companies would be exempt from the new rules anyway – in particular exporters and manufacturers, however this could be bad news for foreign property investors as they were not mentioned and may be affected by the proposal.

Even so, foreign investors have refused to be reassured and are beginning to worry about more future, abrupt changes. In mid-December, the Bank of Thailand imposed some draconian capital controls. This created a huge stock market crash and forced a backtrack on some of their changes.

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