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IPO plans for state firms, FTAs face uncertain future as new election called

The Nation, Bangkok, 27 Feb 2006

IPO plans for state firms, FTAs face uncertain future as new election called

The dissolution of the House of Representatives has put the government’s key economic policies - free-trade deals, the privatisation of state enterprises and investment in mega-projects - in limbo.

It has also encouraged businesses to delay investment.

The dissolution opened the way for a snap election, amid heated demands for Prime Minister Thaksin Shinawatra to resign. The public backlash against him has centred on his privatisation plans, moves to further liberalise the economy and - most importantly - the contentious sale of his family’s stake in Shin Corp Plc to Temasek Holdings, the investment arm of the Singaporean government.

"This election is a proxy [vote] on Thaksin and his policies. It will show whether people will still support Thaksin’s policies, especially those that have sparked public debate, such as the free-trade agreement with the US," a foreign business leader said.

The House dissolution puts free-trade talks in doubt. Bangkok and Tokyo have already wrapped up a trade deal that is scheduled to be signed on April 3, the day after the election is to be held.

"It’s impossible for the government to sign the FTA deal on the next day. Besides, the caretaker government is not supposed to sign any international agreement because it doesn’t have the mandate," a government official close to the talks said.

The fate of the free-trade talks with Washington is in jeopardy. They will be suspended during the election campaign and the deadline for concluding them by May will not be met, observers say.

Michael Delaney, counsellor for economic affairs at the US embassy, declined to speculate on the fate of the talks. "We have to discuss this with the Thai government. We’re aware of the time constraints, but we are still committed to the original deadline of negotiations," he said

Thai officials have refused to comment on the issue.

The snap election could also delay the privatisation of state enterprises, including Egat Plc. It was expected to launch its initial public offering (IPO) in the first half of this year. A delay could trigger a chain reaction of delays for other privatisations in the pipeline, such as the Metropolitan Electricity Authority and Provincial Electricity Authority.

Thanachart Securities said in a recent report that Thai Beverage’s listing is likely to be further delayed as the government would not try to push it through given the current political volatility and the public protests over the planned listing.

"While the premier’s clan will no longer be players in the Thai telecom sector, TOT Corp Plc and CAT Telecom Plc’s listings could still be delayed as any move to prepare for their listings might easily raise questions as to why [the listings] could not happen in the pre-Shin-deal era," the report said.

Delays to privatisations could dent confidence in the economy, as they could indicate a lack of political will to push through key measures to boost the economy. The privatisations and the listing of Thai Beverage are expected to give a big lift to the Stock Exchange of Thailand. By attracting more investment, domestic businesses will have more funding to expand.

Ammar Siamwalla, honorary adviser to the Thailand Development Research Institute, said the FTA talks with Washington and the privatisation deals would remain atop the national economic agenda if Thaksin was re-elected.

However, the most important factor in determining investor confidence is the fate of the Bt1.8-trillion mega-project drive.

Last week Transport Minister Pongsak Ruktapongpisal admitted that the mass-transit development - the heart of the mega-project drive - will be delayed by one month. The transit scheme alone will require an investment of Bt550 billion.

Several sectors are depending on the projects to boost demand as domestic purchasing power faces downward pressure from rising interest rates and persistently

high oil prices. Several companies, particularly those that make construction materials, are preparing to raise production, while several developers are planning projects along the new mass-transit lines.

Foreign investors are also expected to adopt a wait-and-see attitude. Academic Virabongsa Ramangkura said the snap election would temporarily stall economic growth. "It’s inevitable," he said, adding: "We can’t look only at the economic aspects."

The next government will face severe fiscal constraints, said Teerana Bhongmakapat, an economics lecturer at Chulalongkorn University. If Thaksin is re-elected, he is likely to continue to pursue the policy of further opening the economy to foreign capital. He is also likely to continue his populist spending programmes to maintain his political base - the rural poor.

Thaksin has prepared for the general election by announcing a flurry of populist policies. A few policies that would appeal to the low-income bracket were proposed at a meeting with top business leaders on Friday. Finance Minister Thanong Bidaya, however, insisted that the policies were not calculated to reduce political tension.

Still, many observers see the policies as providing a cushion for Thaksin, whose main base is the rural poor.

Not all businessmen support Thaksin’s snap election.

Boonsithi Chokwatana, chairman of Saha Group, opposed its timing. "Thailand will lose some opportunities to attract foreign investment, especially from Japan and China. We may lose out to Vietnam, Singapore and Indonesia," he said.

But Sigve Brekke, chief executive of the second-largest cell phone operator, Total Access Communication, said he did not expect much impact from the premier’s move. "It’s under democratic rules and the premier has the right to do so," he said.

Other business leaders, all of whom asked not to be named, said the snap election was a ploy to reduce the public’s anger at Thaksin. They said its timing was too swift.

Chulalongkorn’s Teerana doubts the snap election will bring lasting change. "The time constraint is not in favour of new candidates. Only the old faces will run in the election," he said.

Business Desk

The Nation

 source: The Nation