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.'
