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Thailand May Impose Tightened Regulations on Foreign Investors

By Thomas Fuller
and Wayne Arnold


Thailand warned Tuesday that it might add further restrictions on foreign investors, ignoring warnings that the move was ill-timed and damaging for a fragile economy already struggling to overcome the stigma of a military coup and the instability caused by recent bombings in Bangkok.

News of stricter foreigner ownership laws, which were approved by the Cabinet but still need the agreement of two government bodies, sent the Thai stock index down 2.7 percent, the latest setback for a market that plunged last month after a botched experiment with rules limiting the flow of foreign money into the country.

“Thailand has shot itself in the foot,” said Ping Chew, a regional analyst at Standard & Poor’s in Singapore. “I know there are domestic pressures but they have to be sensible and rational about it.”

The decision by the military-appointed Cabinet, if upheld, would require some foreign investors to sell holdings that exceed 50 percent in companies based in Thailand and give up voting rights in excess of 50 percent, according to the finance minister, Pridiyathorn Devakula.

American companies would be largely exempt from this rule because of a treaty with Thailand that dates to the Vietnam War, said Kitipong Urapeepatanapong, a partner at Baker & McKenzie in Bangkok. “American investors do not have much to worry about,” he said.

European and Japanese companies, however, have complained loudly in recent days that any law should not be retroactive. It remained unclear Tuesday exactly which categories of foreign companies would be forced to reduce their stakes or find Thai partners. Pridiyathorn said the limits would apply to companies operating in telecommunications and other sectors vital to national security.

The Foreign Business Act bans foreigners from owning majority shares in businesses as diverse as the media, rice farming, the production of images of the Buddha, legal services and many types of construction. Foreign businesses have often skirted these laws by appointing Thais to serve as proxies, a gray area that the proposed laws seek to clarify.

Although legal analysts say changes have long been needed, the announcement caused widespread confusion. Affected companies will have two years to comply with the new rules. But retailers, insurers, banks and brokers would be exempt, the commerce minister, Krirkkrai Jirapaet, told Reuters.

It also comes at a time when Thailand’s image around the region is suffering. Last month the government announced capital controls to stem the rise in the baht but partially rescinded them the next day after the market plunged 15 percent.

Confidence in Thailand was further shaken when eight bombs exploded around the Thai capital on New Year’s Eve, killing three people and wounding more than 40. With foreigners already wary of investing in Thailand, the last thing the country needed, say analysts, was a new law perceived as anti-foreign.