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06BANGKOK2978 THAILAND: INVESTMENT SLOWDOWN

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“64316”,”5/17/2006 7:56″,”06BANGKOK2978″,

 

“Embassy Bangkok”,”UNCLASSIFIED//FOR OFFICIAL USE ONLY”,

“”,”This record is a partial extract of the original cable. The full text of the original cable is not available.

 

170756Z May 06

“,”UNCLAS SECTION 01 OF 02 BANGKOK 002978

 

SIPDIS

 

SENSITIVE

 

STATE FOR EAP/MLS AND EB

COMMERCE FOR 4430/EAP/MAC/OKSA

TREASURY FOR OASIA

STATE PASS TO USTR FOR WEISEL

STATE PASS TO FEDERAL RESERVE FOR MATT HILDEBRANDT

 

E.O. 12958: N/A

TAGS: ECON, EFIN, TH

SUBJECT: THAILAND: INVESTMENT SLOWDOWN

 

REF: A. BANGKOK 2360 (THAI ECONOMY REACTS TO POLITICAL

 

UNCERTAINTY)

B. BANGKOK 1665 (POLITICAL PROBLEMS EFFECT ON THAI

ECONOMY)

C. BANGKOK 551 (MEGAPROJECTS CONFERENCE PRODUCES

MORE SMOKE THAN LIGHT)

D. BANGKOK 492 (WITH TEMPORARY PATCH

E. THAILAND RESUMES APPROVING US SERVICES

INVESTMENT UNDER AMITY TREATY)

 

1. (SBU) On May 16, Econoff met with Mr. Vittaya Praisuwan,

Senior Executive Advisor at the Thai Board of Investment

(BOI). Most foreign investment in Thailand comes in under BOI

auspices due to the various tax advantages and other benefits

BOI-approved status confers. Vittaya confirmed that

applications for investment through the first four months of

2006 are down almost 47 percent from the same period last

year (from Bt137.7 billion -US$3.6 billion- to Bt74 billion-

US$1.9 billion). The BOI does not track actual investments

completed or when these investments are executed so final

investment amounts are not available.

 

2. (SBU) Vittaya attributed the FDI decline to high oil

prices and the political uncertainty in Thailand that has

prevailed since late last year. When asked how his

organization will try and overcome these difficulties,

Vittaya responded \”we will work harder.\” He also noted that

historically 60-65 percent of BOI approvals are associated

with existing investment, so the reduction in investment can

be interpreted as \”simply a delay while the political

situation works itself out.\” Bangkok lawyers who work with

foreign investors have also noted the decline in FDI this

year. One lawyer who works for the local branch of a major

international law firm said several of his clients, including

a large Japanese automotive company, are taking a \”wait and

see\” approach to additional Thai investment pending a

resolution of the political situation.

 

3. (SBU) From a U.S. aspect, the situation has been

exacerbated to some degree by confusion at the Ministry of

Commerce regarding the status of our bilateral Treaty of

Amity and Economic Relations (AER) which covers US-Thai

investment (see reftel D). Working level MoC personnel are

advising callers that they should complete their AER

applications before June 5 \”when it must be renewed.\” This is

contrary to what we were told by MoC permanent secretary

Karun i.e. that the terms of the treaty would remain in

effect unless the RTG made a proactive decision to terminate.

We have not been advised of any anticipated action and are

seeking clarification from Karun regarding the AER\’s status.

In the interim, however, lawyers are advising clients that

unless an application can be completed by June 5, they should

consider alternative means of investing in Thailand. Such

confusion has contributed to declining inward investment.

 

4. (U) Recent data highlight the importance of FDI to the

Thai economy. The Business Sentiment Index compiled by Bank

of Thailand has been below 50 for 20 consecutive months

through March 2006. An index below 50 indicates worsening

business sentiment. Since December 2005 the index has

steadily declined, from 45.9 to 44.8 in March 2006. Consumer

confidence has also declined steadily since December, from

88.7 to 82.5 in April. A level below 100 means more consumers

are pessimistic about their future economic prospects than

optimistic. These data are reflected in the slowdown in

consumer spending and capital investment so far this year.

 

5. (SBU) Comment. Thailand has always been a country where

business is typically conducted through personal

relationships and in which the government plays a significant

role in the economy both directly through its spending and

investment (15 percent of GDP) and indirectly through

economic policies, SOEs and government-controlled specialized

financial institutions. With the government in caretaker

status, any issues that are not strictly routine are not

being addressed. Pending decisions range from proceeding with

\”megaproject\” infrastructure developments to approval for FDI

that does not fit the strict criteria laid out for BOI.

Thailand has always operated via someone at the top making

decisions – the bureaucracy is not empowered and would be

ill-at-ease if faced with the responsibility. Since the

February dissolution of government, there has been no one

with the ability to make many of the decisions that are

needed to keep \”Thailand Inc\” running normally, so corporate

investment gets delayed or is diverte

d to other nations. No one expected government to be in

caretaker mode for more than two months. We are now going on

four months with no certainty on when it will end.

BOYCE

Written by thaicables

July 11, 2011 at 8:17 am

Posted in Economy, Unclassified

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