Thailand risk: Government effectiveness risk. Check it out:
(RiskWire Via Thomson Dialog NewsEdge) COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentC53C50Government effectiveness riskE82D75Note: E=most risky; 100=most risky.SUMMARY
The outlook for government effectiveness is uncertain, given that the country is under martial law. The military has pledged to install a civilian government very soon, but it remains to be seen whether this appointed administration will have the authority to rule effectively. Vested interests and cronyism historically distorted the decision making process in the public sector in Thailand. The 1997 constitution attempted to limit graft, but during the Thaksin administration (2001-06) the government manoeuvred loyalists in to key roles in the anti-graft institutions. Political connections still played an important role in commercial deals. The Thaksin administration was particularly vulnerable to allegations of cronyism because the cabinet included a high number of former businessmen. There are grounds for some optimism that if, as planned, Thailand has a new stronger constitution then government effectiveness will rise towards the end of the forecast period.
SCENARIOS
The government reverses open, liberal policies that seek to attract foreign investors (Low Risk)
The Thaksin administration promoted Thai self-reliance and appealed to the nationalist sentiment of the electorate. The government did appear to recognise the need for foreign investment, but would then send confusing signals by placing subtle curbs on foreign investors. For example, the Thaksin administration pledged to push ahead with privatisation, but would retain the controlling stake in the companies concerned. In late 2004 the Bank of Thailand (the central bank) announced that no foreign investment would be allowed in the financial services sector for two years, to give the sector the chance to consolidate. However, obligations to the World Trade Organisation will prevent any overtly discriminatory policies. Furthermore signs of a slowing economy are likely to lead to more concerted efforts to attract foreign investment and financing during the forecast period. In the light of the recent political turmoil, Thailand will need to demonstrate a less circumspect welcome to foreign investors, if it is going to remain competitive as an investment location. Also, given the ongoing uncertainty, businesses should be mindful, that current inducements offered to foreign investors may be rescinded, and should ensure that legal contracts are in place guaranteeing them access to these benefits even if the law is changed at a later date.
Corruption and cronyism influence policy decisions regarding business (Moderate Risk)
Vested interests and cronyism still play a significant role in public decision-making despite efforts by the anti-graft agencies to reduce their prevalence. In May 2004 a parliamentary censure motion by the opposition Democrat Party, against key ministers, focused on allegations of government legislation benefiting the commercial interests of the ministers' families. The Thaksin administration is also suspected of attempting to undermine the credibility of the anti-graft agencies and thus indirectly reduce their power. Foreign companies may need to strengthen their political affiliations if they expect to win a public contract. More broadly, for businesses new to Thailand, it is advisable to resist strenuously from the start any requests by the Thai bureaucracy for bribes or improper payments. Once a company develops a reputation for engaging in such practices, it can be very difficult to end. Companies should be particularly wary of the Thai Customs Service, which has a well-deserved reputation for irregularities.
BACKGROUND
(Updated: September 14th, 2006)
Constitution, Institutions and Administration
A new constitution, Thailands 16th since 1932, was approved in September 1997. Its principal aims were to stamp out government corruption and to ensure a corruption-free and transparent electoral process. Under the new constitution, MPs must resign their parliamentary seats to take up cabinet posts, ministers are made to declare their assets before and after taking office, and the prime minister must be an elected MP. Candidates must stand for election to the 200-member Senate (the upper house) instead of being appointed.
The constitution stipulates 500 members of the lower house, of whom 400 are directly elected in single-seat constituencies nationwide and the remaining 100 (called party-list MPs) are apportioned to each political party in direct relation to the proportion of votes they receive. Any party receiving less than 5% of the popular vote loses its right to any party-list MPs. The aim is to ensure that MPs directly elected in constituencies concentrate on constituency and legislative work. Only MPs on the party list may be selected to join the cabinet.
The new constitution created 11 constitutionally independent bodies in a bid to try to limit the scope for graft in politics and to create a democratic system of checks and balances. One of these bodies, the Election Commission (EC), was established to monitor elections to both the upper and lower houses. Although the 2001 election was still subject to fraud and vote-buying, the EC played an active role in attempting to reduce such activities, marking considerable progress in Thailands move towards more transparent democratic processes. However, the EC came under intense criticism for its handling of the April 2006 snap election, most notably for its alleged favouritism towards the ruling TRT.
The ECs reputation has not been the only one to suffer. The fact that Thaksin was acquitted by the Constitutional Court raised questions about its impartiality, particularly as it was acting on a recommendation to prosecute from the National Counter Corruption Commission (NCCC). Thaksin, unsurprisingly, has been heavily critical of the anti-graft agencies, and has attempted to undermine their credibility. Since taking office in 2001, Thaksin has compromised the impartiality of the agencies by appointing a number of his supporters to them. The NCCCs reputation, however, was severely damaged in May 2005, not because of a lack of independence but because all NCCC members were forced to resign after being found guilty of wilful self-serving.
The Constitutional Court regained some of its credibility when ruling in favour of nullifying the results of the controversial April 2006 election. The judiciary is independent of the legislative and executive branches of government, and Supreme Court judges are appointed by the king. The legal system is based on a civil law system, with elements of common law.
The 1997 constitution reduced the size of the cabinet from 48 members to 36 in a bid to increase efficiency. However, the Thaksin governments bureaucratic reform bills, enacted on October 3rd 2002, involved the creation of five new ministries (making a total of 20) and 35 new departments. The new ministries cover natural resources and the environment, tourism and sport, information and communications technology, culture, and social development and human security. The public debt office and the state enterprise department now come under the Ministry of Finance. The reforms appear to run contrary to the decentralisation initiative outlined in the 1997 constitution and are instead increasing the power of the state sector. They were rushed through the legislature, raising questions about adequate preparation and research, and about the governments numerical strength, which allows it to push through controversial legislation without full debate.
Copyright 2006 Economist Intelligence Unit
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