STRUCTURAL REFORMS URGENTLY NEEDED

       Despite upbeat global economic indicators, Thailand could be in for hard times without changes in the way business is done By Nina Suebsukcharoen
       "Under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it
       Although there are clear signals that the global financial system is improving, and Thailand's institutions also show potential to grow again, there is work to be done yet to ensure a bright future, said Anusorn Tamajai, dean of Rangsit University's Faculty of Economics.
       He added that belief that the global financial giants will recover is clearly demonstrated by investor confidence lately in their stocks.On top of this, governments are steadily getting the money they pumped into these institutions back.
       This improved outlook of course benefits Thai financial institutions, which have weathered the global economic storm better than some of their counterparts elsewhere because they were not so heavily invested overseas and also had low exposure to collateralised debt obligations (CDOs). These institutions now have the potential to grow due to two key factors - the government's intention to borrow up to 800 billion baht for investment,and the improved performance by some export industries such as cars and electronics.
       But while this is very encouraging, Mr Anusorn warned that unless real structural economic reforms are implemented, Thailand may still be in for hard times ahead.
       "There have to be financial, regulatory and legal reforms," he said."For example,under the Thai system we say we welcome foreign investment, but our laws block it, if in reality we don't actually obstruct it.
       "So this leads to the nominee system, and this sort of system is not straightforward. We say we have opened up, but if that's so we should make it very clear and open up the legal framework.
       "We say we have opened up but our laws say there is a limitation. What then happens is that those who want to invest or do business here use the nominee system, and nominees are an avenue to corruption."
       Aside from this, tax reform is sorely needed,said Mr Anusorn, who is also director of the Research Center for Economic and Business Reform based at Rangsit. He then identified two objectives in implementing tax reform - to increase the country's competitive edge and to straighten out uneven income distribution.
       Although rural people across the world tend to earn less than urbanites, Mr Anusorn noted that in some countries there are better welfare and tax systems in place to alleviate the problem.
       He added that a lack of strategic vision was underlined by the Administrative Court injunction on Sept 29 suspending the operating permits of 76 industrial projects in the Map Ta Phut industrial zone in Rayong province.
       The government has been faulted for not doing enough to ensure that these big industrial projects had passed proper environmental and health impact screening.
       "There are 76 projects worth over 400 billion baht, but definitely for investment and economic growth to be sustainable, development has to be linked to quality of life of local residents and the environment," said Mr Anusorn.
       "However, because we don't have strategic and integrated planning, we give the goahead for projects without looking to see whether they should proceed."
       He said many of the projects should not have been been allowed in the first place,moved elsewhere or else the laws should be amended to make it clear that it is possible to expand existing industrial parks.
       "The court ordered their suspension because there are points which indicate that this cannot be done and people are really affected."
       While Mr Anusorn expects the government to find a way to get the projects started again,he noted that the issue has already affected the economy and undermined investor confidence.
       "This doesn't mean we shouldn't be concerned about the environment and quality of life. The issue is both legal and regulatory - it has to be cleared up so that this sort of a risk doesn't occur."
       He said another example of how good plans can be torpedoed is former prime minister Thaksin Shinawatra's idea to turn Prachuap Khiri Khan into the equivalent of the French Riviera. Today there are plans afoot to locate heavy industries in the province.
       Mr Anusorn is mostly against trying to work out a compromise without changes in the legal structure because that would only stretch the problem out, leading to a breaking point.
       "As long as you have a structural problem you need structural reform to solve the root of the problem. Constantly compromising won't solve it."
       Despite these deep-rooted problems Thailand is expected to post 3-4% economic growth in the fourth quarter of this year, with expansion to continue next year. But Mr Anusorn noted the growth here is the lowest in the region, and said this was because of the chances missed to draw investment when cash was flowing to Asia recently.
       "There is room for growth and growth is not a problem in the next six months if there is political stability and government stimulus measures such as Thai Khem Kaeng move ahead according to the plan," said Mr Anusorn.
       The Thai stock market is also expected to climb to 800 to 850 points from this quarter onward to the first quarter of next year. This is because not only does the whole bourse lag other Asian markets certain key sectors such as energy, petrochemicals, property and banks also trail.
       "But if private investment doesn't revive in the second half of next year when stimulus through government spending starts easing,then the economy will not move ahead,"said Mr Anusorn."The initial assumption is that government spending will occur and will also induce private investment to take place."
       Where bonds and fixed-income markets are concerned, interest rates will rise if the economy starts expanding and there is a revival of private investment. Government spending on its own will not push these rates up, but it would prevent them from falling any further, said Mr Anusorn.