Xuniing the tables in Thailand country profile When the Asian Flu hit in 1997, Thailand was the first to go, setting off the domino effect that would reverse the economies of many regional players. A country that enjoyed 25 years of growth at 7-8% before it got 'sick', Thailand was hit hard - the economy contracted by 10%, the Thai baht devalued by more than 10' poverty struck. While Thailand continues to work to regain lost ground, recovery comes in small doses. Work in progress Critical reforms Local challenges Hard at work Increasirig opportunity 6 What'sNewS Issue 6 October 2 No stranger to economie crisis and the challenge of emerging markets, Paul Beiboer joins RI's Bangkok team as gen- eral manager after seeing Indonesia through its toughest times. 'The reinedy for recovery has been unique in Thailand,' he explains. 'In Indonesia, the government was forced to guarantee the outstanding liabilities of the domestic banking sector, resulting in nationalization of that sector - with a total price tag expected to reach nearly USD 90 billion. However, the Thai government managed to limit the damage induced by the crisis to a decent extent, minimizing costs to the taxpayer.' The 'Thai remedy' has been largely a market- led, decentralized approach to financial sector reform and has had positive effects in reducing national debt. 'Due to this ap proach, it will take longer for economie stability to really take hold in Thailand. But in the end, we expect to see positive long-term effects.' The numbers in Thailand are improving, hut still fall short of pre-crisis levels. The baht, pegged to the US dollar or a basket of currencies for more than 50 years, was left to free float in 1997. It reached its lowest point early in 1998, dropping from 25 to 57 to the dollar. After having ini- tially recovered to around 37, today the exchange rate hovers around 42. Interest rates and inflation remain largely under control - at 4% (borrowing rate for top corporates) and 2%, respectively. And un- employment is falling as economie stabil ity strengthens. 'While Thailand is cer- tainly better off than two years ago,' Beiboer says, 'there's still a long way to go. Many issues on the reform agenda re main unfinished - financial sector reform, corporate restructuring, increased transparency, and educational improve- ments. Until these are addressed, the re covery in Thailand continues to remain fragile.' Lack of higher education is a critical fac tor limiting growth in today's largely tech- nology-driven market. While the Thai market does offer investors low costs of labour and production and an internal market of 60 million people, it cannot of fer the large pool of skilled labour that neighbours like China or India can. And many companies, particularly in F&A, still function as small-scale producers. The result, Beiboer explains, is a largely un- tapped market. 'The potential here is great. Thailand is a world leader in pro- ducing rice, tapioca products, aquacul- tural products, rubber, sugar, and poultry. But many of these sectors are limited by the supply of raw materials and lack of large-scale producers. More focus is also needed on value-added products.' The result is a market that must keep the wheels turning to re-attract lost investors. Foreign investment hasn't recovered yet, confounded by a weakened local credit system. Three years after the crisis, non- performing loans constitute as much as 30% of total bank assets. A closer look at these loans reveals a particularly deep local problem - foreign-owned banks constitute only 6% of non-performing loans, while as much as 60% of Thai- owned banks' total assets may be non-per forming. 'These loans are working against economie growth,' says Beiboer, 'and no new credit will be available until this problem is addressed. Of course investment is constrained by this weak bank credit growth.' Amidst these challenges, the Bangkok team has had its fair share of work. In the past two years, RI's corporate portfolio in Thailand was successfully restructured, and a considerable corporate finance prac- tice built up. Progress has been made in strategie advisory, particularly in F&A. Rabo Bangkok recently landed interesting mandates in the sugar and poultry sectors, advised by specialists Cordon Butland and Roger Bradshaw (see 'Milking knowhow', page 7). Currently, Bangkok is pitching a mandate for RIAS to provide advice to the Bank of Agriculture and Agricultural Co- operatives (BAAC), a Thai bank, sup- ported by the Asian Development Bank. In corporate banking, most facilities have been paid or prepaid and there is ample country limit. Low baht interest rates and an increasing dollar exchange risk have caused many corporates to refinance debt in baht - another area of focus. The Bangkok team also works closely with Singapore's office, leveraging regional and diversified expertise. 2000 remains a challenging year in Thai land, particularly with the upcoming par- liamentary elections in November. 'It's a huge challenge to turn what has been three difficult years into a confident out look for the future,' Beiboer explains. 'To increase our market presence, one of my major tasks is to obtain further licenses and upgrade the office from its rep status. We're all determined and motivated to turn the tables in Thailand and work toward a stronger role in the region.'

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