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Key dates: Consultancy tenders close: 1 September 1999.
Expected date of publication: Early February 2000

Officer contact details: Mr
Edward Sulikowski

Objectives

The Asian crisis is the most serious macroeconomic shock East Asia has
suffered since the end of the Second World War. With IMF assistance,
governments of three of the worst effected economies of Indonesia, Thailand
and Korea have restructured, reformed and recapitalised financial sectors, led
corporate restructuring, upgraded corporate governance and encouraged greater
government and corporate transparency. Malaysia has undertaken many of these
reforms without an IMF program. However, the speed and thoroughness of reforms
has varied considerably and Thailand, Malaysia and Indonesia are now in
varying stages of recovery. To examine the implications for sustainable growth
and Australia's trade and investment three separate studies (with broadly
similar structures) will investigate these economies recovery prospects.

The first report on Thailand is planned for publication in early 1999. The
report will discuss the country's economic policy responses to the crisis
before surveying current data and analyses to determine Thailand's medium to
long term growth prospects. Reforms in macroeconomic policy management,
financial markets, corporate governance, institutions and state owned
enterprise privatisation will be assessed to draw out the long term
implications for economic growth. The report also will outline recent
developments in Australia's bilateral trade and investment, and assess the
likely long term impact of reforms and recovery on Australian trade and
investment prospects in key sectors. The reports will draw out the competitive
challenges facing Australia in Thailand and conclude with strategic
implications for business and government.

Detailed Report Outline

CHAPTER 1: Economic and Political Overview

This chapter will focus on Thailand's economic developments since 1997,
when growing external imbalances and unsustainable domestic borrowing caused a
collapse in the currency, a rise in bank defaults and insolvency and drop in
exports and domestic demand, plunging Thailand into deep recession. The
chapter will discuss political developments during and after the crisis,
significant reforms promoting sustained economic growth, macroeconomic policy
settings and recovery and remaining impediments. The chapter will conclude
with an assessment of Thailand's medium to long term economic outlook,
highlighting risks to long term economic recovery. In this context at least a
third of the chapter will be forward looking attempting to anticipate
potential medium to long term macroeconomic and structural developments in the
Thai economy.

Brief outline of the causes of the Thai economic crisis, including

• the overvalued pegged exchange rate, overheating and rising domestic
  costs
• Bank of Thailand efforts to hold the peg which resulted in the loss of
  foreign exchange reserves
• weak prudential controls permitting excessive foreign borrowing by
  financial institutions and corporates

Outline of the impact of crisis on:

the exchange rate and reserves	external debt, capital inflows
the stock exchange	consumption
output	employment
trade	investment

Political economy of the crisis

• brief outline of relevant political developments since 1997, change of
  government, the competing pressures from powerful special interests and
  the overall impact on Thailand's capacity to implement economic reforms
  and corporate and financial restructuring.
• Macroeconomic policy and economic recovery since the crisis
• implementation of IMF stabilisation program
• overview of fiscal and monetary policy and foreign exchange management
  reforms since the crisis
  • nature of fiscal policy reforms, including tax and expenditure
    reforms
  • nature of monetary policy and exchange rate reforms
  • debt management policies
  • impact of economic policies in stabilising inflation and the
    exchange rate, reducing uncertainty and raising foreign investor
    confidence.

Progress towards economic recovery and stability since late 1998,
highlighting

• exchange rate stabilisation, improving external account, rising imports
  and exports, strengthening production and demand, declining interest
  rates, falling inflation and the easing credit crunch as financial
  restructuring proceeds (use charts where possible)

Timing and strength of continuing economic recovery

• short term recovery prospects through to 2002
• comparisons with other crisis affected South East Asian economies,
  including Malaysia and Indonesia
• survey and assessment of medium to long term forecasts (2002-2008):
  • Consensus Economics, EIU, other sources, provide table of economic
    forecasts by key indicators.

Major risks to sustainable economic recovery, including

• delays in introducing and implementing economic reform laws, and role of
  special interest groups
• slow progress in restructuring corporate debt, and reasons for this
• slow progress in completing financial restructuring, resolving the
  burden of non-performing loans and recapitalisation, and reasons for
  delays

other, including external factors which might impede recovery.

CHAPTER 2: Economic Reform and Privatisation:
Implications for Business

This chapter will focus on Thailand's financial and corporate
sector reform in response to the economic crisis and progress with privatising
key state owned enterprises. While the authorities are progressing financial
sector reform, the problems of non-performing loans and bank recapitalisation
remain unresolved. The chapter will examine changes to corporate governance
and the risks posed by slow corporate debt restructuring. The chapter will
also examine progress in implementing the Government's privatisation agenda.
It will focus on the implications of the economic reform program for future
economic stability and business environment for foreign investors and traders.

Financial reform, corporate debt restructuring and corporate governance
(20 pages)

• Financial market reform (this will draws on the Thai section of EAAU's
  forthcoming financial market reform report, which will be available to
  consultants)
• brief outline of key restructuring principles, measures taken to
  modernise the regulatory and supervisory framework
• progress in reforming the financial and prudential regulation systems
• brief discussion of method and implementation of acquiring
  non-performing loans and recapitalising banks. Roles of Financial
  Institutions Development Fund, FIDF and Financial Sector Rehabilitation
  Agency, FRA.
  • Success and risks of new capital-raising instruments by banks, such
    as Stapled Limited Preferred Securities, SLIPS and Capital Augmented
    Preferred Securities, CAPS and expected impact on capital adequacy
    ratios
• likely long term effects of bank and non-bank sector restructuring on
  financial sector efficiency
• consequences of regulatory changes to reduce stock market volatility.
• Corporate debt restructuring and corporate governance reforms, including
• changes to corporate law affecting mergers and acquisitions, in the
  corporatisation law and foreign investment law and the framework for debt
  workouts
• progress achieved by government led debt restructuring including the
  Corporate Debt Restructuring Advisory Committee, CDRAC
  • progress with market-based debt workout agreements with creditors
    under the CDRAC
• changes implemented to corporate governance, including
  • bankruptcy law reform and foreclosure related legislation and
    implementation, including establishment of specialised bankruptcy
    courts and success to these to date
  • impact of voluntary processes, involving tax and other incentive
    encouraging debt workouts, without recourse to bankruptcy and
    foreclosure
  • administrative and legal framework reforms to curb corruption.
  • progress in overcoming legal, tax, accounting and other regulatory
    obstacles to good corporate governance.
• Implications of recent reforms and structural changes flowing from the
  crisis for the business environment and prospects for local and foreign
  investors
• discussion of how operational business environment has changed post
  crisis
• impact of improved regulatory framework and body of law on the business
  environment
• nature and extent of concerns about enforcement of new laws and
  regulations
• strategic considerations for foreign businesses, including improved
  trade and investment access and market entry strategies
• remaining problems regarding bank liquidity and weak domestic demand.

Privatisation and Infrastructure

• Extent and nature of government business enterprise privatisation plans
• privatisation timetable and progress regarding major enterprises
  scheduled for sale
• status of draft master plan for state enterprise reform
• extent and nature of privatisation and deregulation of infrastructure
  enterprises
• legal framework for corporatisation processes
• Risks to successful privatisation, including political will to proceed
  and weaknesses in appropriate regulatory framework
  • expected efficiency and fiscal benefits
• potential impact of privatisation on medium term economic restructuring.
• Implications for business, including any remaining restrictions on
  foreign ownership of state owned enterprises

CHAPTER 3: New Trade and Foreign Investment
Policies and Directions

This chapter will discuss post crisis changes in Thailand's trade
and foreign investment policies, including reductions in the levels of
protection and foreign direct investment, FDI restrictions. The chapter will
seek to identify new opportunities for Australian trade and investment. A
considerable part of the chapter should be forward looking in assessing future
trends and prospects for trade and investment.

Trade policies and opportunities

• Brief outline of trade policy developments in Thailand since the
  economic crisis
• analysis of trade performance, data on composition and direction of
  trade 1996 to 1999
• use of tariff and non-tariff barriers, including temporary tariff
  increases and taxes to restrict imports.
• Extent and nature of trade regime reforms
• impact of crisis on Thailand's commitment to trade liberalisation
• post-crisis liberalisation in trade barriers
  • tariffs and non-tariff barriers, and import taxes
  • import licensing
  • export controls
  • establishment of free trade zones
• Impact on re-crisis commitments under WTO, AFTA and APEC.
• Sectoral prospects for trade growth
• present medium to long term scenarios for trade growth and import demand
  patterns (must be consistent with broad macroeconomic outlook identified
  in Chapter 1)
• identify major sectors affected by trade liberalisation and the trade
  opportunities in the agriculture, manufacturing and services sectors
  emerging from the crisis and liberalisation.

Foreign investment liberalisation

• Brief discussion of openness to foreign investment
• Sources of FDI, sectoral distribution (use tables/charts)
• Discussion of major changes to post-1997 foreign investment regime

changes to legal framework (including Alien Business Law, Alien Occupation Law)	main sectors affected by liberalisation
major remaining restrictions on FDI	likely future reforms, significant constraints to further reform

• expected FDI trends in the short and medium to long term (to 2008)
  • forecasts of FDI trends (consistent with economic forecasts in
    Chapter 1)
  • expected major shifts in sectoral distribution and levels of FDI
    over period.
• Long term expected impact of trade and foreign investment reforms on
  Thailand's competitiveness and economic structure and overall
  implications for domestic and foreign business.

Chapter 4: Australia-Thailand Business:
Opportunities and Challenges

The chapter will analyse trends in Australia's exports to and FDI in
Thailand. It will investigate Australia's post-crisis trade and investment
performance in Thailand, and its long term prospects in the Thai market. The
chapter will conclude by looking at strategies to develop particular markets
and highlight new opportunities for Australian business.

• Trends in Australia-Thailand bilateral trade and investment 1994-99
• Trends in exports, imports, services trade 1994-99
• Trends in direct investment between Australia and Thailand, 1994-99
• Australia's official development assistance to Thailand 1994-99
• Australia-Thailand trading framework, including bilateral consultative
  arrangements and business links.
• Implications of trade, foreign investment and industry policy reforms
  for Australian traders and investors including:
• trade performance in traditional sectors, identifying opportunities for
  Australian minerals, manufactures and primary products
• new sectoral opportunities likely to emerge for Australian exporters as
  a result of Thailand's trade reforms (particularly in services, IT, and
  infrastructure ) and privatisation
  • new investment opportunities for Australian business due to FDI
    liberalisation, trade and industry policy reform and privatisation
  • nature and extent of Australian corporate interest in strategic
    investment in Thailand
  • identify and report relevant case studies.
• Major remaining impediments to expanding bilateral trade and investment
• determinants of success, including remaining tariff, non-tariff and
  investment barriers and in-country competition.
• Implications of economic reform for Australia's development assistance
  program to Thailand
  • changes in Australia's aid program to Thailand since the crisis
  • major aid activities in current priority sectors (education,
    environment, natural resource management, health and agricultural
    research
  • potential aid projects in areas such as financial markets and
    corporate governance.

CHAPTER 5: Conclusions

Implications for Government, regarding

• bilateral trade relations agenda
• residual desirable investment and governance reforms
• productive avenues for ODA

Implications for business

• summary of prospective trade and investment opportunities in Thailand

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