THAILAND Country Profile

General Information

Political Climate


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, in which 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 Transparency International Global Corruption Barometer 2009, the general view by the public on the government's anti-corruption measures is somewhat pessimistic, with 65% of household respondents viewing the government's efforts to fight corruption as ineffective. Moreover, 11% of the citizens surveyed reported paying a bribe in the past 12 months. According to the National News Bureau of Thailand, another 2009 survey conducted by the ABAC Poll Research Centre of Assumption University, shows that the majority of citizens surveyed see corruption as normal and more than half of respondents consider corruption as acceptable. The enactment of the 2007 constitution may contribute to a change in this view, as it contains provisions about access to public information, thus providing citizens with the possibility to scrutinise the discharge of governmental tasks.

Thailand is a constitutional monarchy and has been headed by King Bhumibol Adulyadej since 1946. In September 2006, the military overthrew the Thai government led by then Prime Minister Thaksin Shinawatra, a telecommunication billionaire, on the grounds of 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 and Thaksin fled Thailand to avoid being put on trial for corruption charges. A December 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, bringing Samak Sundaravej to office as Prime Minister. However, large scale popular demonstrations in September 2008 organised by the People's Alliance for Democracy (PAD, 'yellow-shirts') led Prime Minister Samak to declare a state of emergency. The yellow-shirts were instrumental removing Thaksin from office in 2006. This time the protesters demanded the resignation of the PPP government because they perceived it to be the puppet of Thaksin. During the protests, the military-backed election commission found the PPP guilty of vote fraud in the December 2007 election, and recommended that the Supreme Court dissolve the PPP. The Constitutional Court eventually forced Prime Minister Samak to resign after convicting him of violating the constitution. Prime Minister Somchai Wongsawat, Thaksin's brother-in-law, then entered office, but protests continued and, in November 2008, yellow-shirt demonstrators blockaded Bangkok's airports. The protests did not end until after the Constitutional Court declared in December 2008 that the PPP and other coalition parties were guilty of electoral fraud and that the parties had to be dissolved. Prime Minister Somchai and several other political leaders were then banned from politics for five years. This political crisis resulted in a fragile coalition government headed by Prime Minister Abhisit Vejjajiva, the leader of the Democrat Party. Prime Minister Abhisit, so far untainted by corruption and conflicts of interest, faces a very difficult job trying to bridge the differences of opinion between the Thaksin supporters and opponents.

In February 2010, Thailand's top court seized USD 1.4 billion of Thaksin's assets, saying it was accrued through abuse of power. In March 2010, large numbers of pro-Thaksin United Front for Democracy Against Dictatorship (UDD, 'red shirts') protesters took to the streets of Bangkok, calling Prime Minister Abhisit's government illegitimate and demanding that he dissolve Parliament and call fresh elections. Thaksin is widely suspected of having financed these initial protests, although protesters claim that they did not act in reaction to the verdict to freeze Thaksin's assets. Protests continued for more than two months, remaining largely concentrated in the centre of Bangkok and eventually turning violent as protesters and security forces clashed. Several red-shirt leaders surrendered themselves to police to prevent further bloodshed during a violent military crackdown on 19 May 2010, after which some 27 buildings were set ablaze in Bangkok and the military continued to fight pockets of remaining resistance. A relative peace had returned to Bangkok the following week. A controversial consequence of the protests has been the Thailand's Criminal Court's issuing of an arrest warrant for Thaksin based on terrorism charges - several red-shirt leaders are also facing terrorism charges. To aid companies and others affected by the riots, the Cabinet approved a relief plan on 25 May 2010, including unspecified grants and USD 154 million in soft loans. It remains to be seen whether Prime Minister Abhisit and the government can reconcile the country's deep political cleavages, effectively combat corruption and restore the public's confidence in government. The latest spur of red-shirt public protests in the spring of 2010 has raised concerns about the ability to do so.

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 2009-2010, companies consider corruption to constitute a substantial 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 obtain business and officials are actively engage rent-seeking opportunities by selling favours. Those with political and administrative 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 in which risks of corruption are particularly pronounced. 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. However, the US Department of State 2009 reports that the government has publicly pledged to improve transparency in the bidding processes and rewarding of contracts. According to the Bertelsmann Foundation 2010, the antitrust policy was set out under the Trade Competition Act 1999 (TCA) to reduce monopolies. Despite the fact that the TCA is considered rather advanced, it is being enforced unequally since certain parties, such as state-owned companies and public agencies are exempted from the Act, and the fact that several power individuals frequently receive exceptions from the Act. In order to enhance fairness and a competitive public procurement market, the competition law has to be further developed and enforcement improved. 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.

According to the World Bank & IFC Doing Business 2010, starting a company in Thailand takes an average of 7 procedures and 32 days at a cost of 6.3% of GNI per capita, which is relatively easy compared to the East Asia & Pacific region's corresponding averages. 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. 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. Still, however, World Economic Forum Global Competitiveness Report 2009-2010 describes the burden of government regulation as a competitive disadvantage in doing business in Thailand. This is further illustrated by UN ESCAP Press Release 2009, which reports that hidden costs related to red tape is estimated to add up to 15% of the value of traded goods. The UN ESCAP suggests that a reduction in bureaucratic burdens is needed in order to increase trade competitiveness in Thailand. 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.