THAILAND Country Profile

General Information

The Political Climate


Thailand is a constitutional monarchy and has been headed by King Bhumibol Adulyadej since 1946. Following the December 2007 national election, Thailand resumed its democratic tradition that had been interrupted by the undramatic military coup d'état in September 2006. The military overthrew the Thai government led by Prime Minister Thaksin Shinawatra, a telecommunication billionaire, on the grounds of alleged abuse of power and corruption. Thaksin's political party, the Thai Rak Thai (TRT), was subsequently dissolved and all leading party members were barred from political office for five years. Although the 2006 guardian coup allegedly took place to eradicate widespread corruption, the military-backed government itself suffered from corruption scandals. The 2007 election resulted in victory for the People Power Party (PPP), which gained popular support by campaigning as a proxy to Thaksin and by promising to clear his name.

By September 2008, popular anti-government demonstrations organised by the People's Alliance for Democracy (PAD) had taken on such a scale that Prime Minister Samak Sundaravej declared a state of emergency. The protesters demanded the resignation of the government because it was perceived to be the puppet of ex-Prime Minister Thaksin, who is living in the United Kingdom in order to avoid being put on trial for corruption charges in Thailand. At the same time, the military-backed election commission found the PPP guilty of vote fraud during the December 2007 election, and therefore recommended that the Supreme Court dissolve the PPP. Despite these circumstances, Prime Minister Samak refused to resign as Prime Minister. However, he was forced to do so when the Constitutional Court ordered him to step down after convicting him of violating the constitution for hosting a cooking show on television. Prime Minister Somchai Wongsawat, who is the brother-in-law of Thaksin, then entered office and lifted the state of emergency, but protests continued, and in November demonstrators blockaded Bangkok's airports. The protests did not end until the day after the Constitutional Court declared in December 2008, that the PPP and other coalition parties were found guilty of electoral fraud and the parties had to be dissolved. Furthermore, Prime Minister Somchai, along with other political leaders, was banned from politics for five years. Thailand's political crisis resulted in a new fragile coalition government headed by Prime Minister Abhisit Vejjajiva, the leader of the Democrat Party. Prime Minister Abhisit, so far untainted by corruption and conflict of interests, faces a very difficult job trying to bridge the differences of opinion between the Thaksin supporters and opponents. In his political career, he has consistently given priority to anti-corruption policies and clean government, but heading a potentially unstable coalition will require political skills and ability to compromise, thus restricting his possibilities to run through his own policies.

According to a survey conducted by Political and Economic Risk Consultancy (PERC) in 2008, expatriates perceive the level of corruption in Thailand to be among the highest in Asia. The main source of corruption in Thailand is known as money politics, a term that refers to the flow of money within the political scene. This is confirmed by the Transparency International Global Corruption Barometer 2009, where the political parties are named by Thais as the most corrupt sector in Thailand. Party leaders use money to attract suitable electoral candidates. Parliamentary candidates spend large sums to get elected, including outright vote-buying. Party leaders must pay retainers to keep their parties together and sometimes also to buy votes for parliamentary motions. The purchasing of a post within the bureaucracy is also common practice. According to the Global Corruption Barometer 2009, the general view by the public on the government's anti-corruption measures is somewhat pessimistic, with 65% of the respondents viewing the government's efforts to fight corruption as ineffective. The enactment of the 2007 constitution may contribute to change this view, as it contains provisions about access to public information, thus providing citizens with the possibility to scrutinise the discharge of governmental tasks. However, it remains to be seen how Prime Minister Abhisit and the new government can reconcile the country's deep political cleavages, effectively combat corruption and restore the public's confidence in government.

Business and Corruption

Aside from having experienced a considerable downturn in connection to the Asian financial crisis in the late 1990s, Thailand has traditionally displayed high economic growth rates (6-8%) since the 1960s. However, Thailand's investment climate continues to suffer from several obstacles. According to the World Economic Forum Global Competitiveness Report 209-2010, companies consider corruption to be a large barrier to doing business in Thailand, along with government and policy instability and inefficient government bureaucracy. Moreover, 41% of companies surveyed by the World Bank & IFC Enterprise Surveys 2006 consider corruption to be a major constraint to their operations. Bribery is particularly concentrated in a few governmental sectors in charge of large financial transactions: the Land Department, Tax and Customs Department, the Transport Department and the Police Department.

Corruption is reportedly a significant problem in Thailand both within the private and public sectors, but it is mainly found in the intersection between business and government where illicit payments are widespread. Companies are in fact actively engaged in bribery to enhance their business and officials actively seek rent opportunities by selling favours. The political and administrative power-holders have been able to create possibilities for corruption, particularly with regard to securing monopolies, protecting against foreign competition and giving protection to illegal companies. These practices secure the flow of money into politics and have resulted in a high degree of interconnectedness between the business sector and the political system. The close personal connections between politicians, civil servants and businesspeople reach from the heights of the central government down to local government bodies. Generally, the board memberships of Thai corporations are still characterised by an emphasis on personal connections over professional competence. Despite being illegal for civil servants to be board members of private companies, high-ranking bureaucrats are commonly found on the boards of Thai companies, which is indicative of Thailand's patronage systems and problems concerning law enforcement.

Public procurement is an area, which is particularly at risk of corruption. An estimate made by the then National Counter Corruption Commission (now renamed National Anti-Corruption Commission) calculated that up to 30% of the government procurement budget vanishes due to corrupt practices. The National Institute of Development Administration (NIDA) reported that corruption in 95 mega-projects have cost the state THB 400 billion since 2001. In order to best reduce the risk of extortion and demands for bribes in the procurement process, foreign investors considering bidding on public tenders are therefore advised to use a specialised due diligence tool on public procurement. Moreover, companies are generally recommended to develop, implement and strengthen integrity systems and to conduct extensive due diligence when considering doing and when already doing business in Thailand.

Regulatory Environment

Thailand is generally considered to be a business-friendly economy and has for several years been able to offer favourable investment incentives to foreign companies (e.g. tax exemptions, especially if the investment includes new technology or is located in a less developed area) and good investment protection compared to many other countries in the region. Thailand has several bilateral free trade agreements, including agreements with Australia, New Zealand, Peru and other countries. Foreign investment in Thailand must adhere to the Foreign Business Act 1999 unless exempted by a bilateral treaty or agreement. The Foreign Business Act lists a number of sectors in which non-Thais are not allowed to invest. Foreign ownership is limited to 49% in most service sectors, but majority foreign ownership is permitted in the manufacturing sector. According to the US Department of State 2009, non-Thai companies and citizens are only allowed to own land in government-approved industrial estates. Consequently, many foreign companies opt for long-term land leases instead of buying land.

Conducting business in Thailand is in some respects relatively easy. According to the World Bank & IFC Doing Business 2010, it takes an average of 7 procedures and 32 days at a cost of 6.3% of GNI per capita to start a company in Thailand, which is significantly lower than the regional average. Despite this relative ease, the US Department of State 2009 recommends that companies seek qualified legal advice when entering the Thai market because Thai business regulations are governed by criminal law rather than civil law. Furthermore, one should note that Thailand does not recognise decisions by foreign courts. As a means to remedy the inefficiencies of the court system, companies may set up their own arbitration agreements. Thailand has signed, but not ratified, the Washington Convention 1965. It is also a member of the New York Convention 1958, and has enacted its own rules and procedures for conciliation and arbitration. Contact the Arbitration Institute under the Ministry of Justice for information on these rules and procedures.

Enforcing a contract is relatively cheap, but trying to do so through the Thai judicial system is also time-consuming. According to the World Bank & IFC Doing Business 2010, it takes 479 days to settle a commercial contract lawsuit. However, Thailand's business regulatory environment has, in general and in relation to other countries, significantly improved since 2007-2008, particularly in the areas of registering property, paying taxes and trading across borders. The enforcement of bankruptcy and reconstructing judgments has also been eased since 2004. A reform of the Civil Procedure Code on Execution of Judgments has limited debtors' use of frivolous appeals as a means to stop the enforcement of those judgments.