Post-Crisis Restructuring: Foreign Ownership, Corporate Resistance and Economic Nationalism in Thailand

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Introduction

The IMF prescriptions attached to the rescue loans agreed with Indonesia, South Korea, and Thailand during 1997 involved substantial and immediate liberalization, particular]y of controls over foreign ownership, reform of corporate governance and privatization of state-owned enterprises. This was a marked departure from earlier conditions under which liberalization and reforms of these types were seen as part of longer-term development. For many commentators, the demands for such rapid liberalization indicated that the IMF had not only exceeded its remit, but was serving the interests of Western and Japanese business that had long been demanding access to markets and ownership in the stricken economies. (1) However, the IMF policies have been justified in terms of increased foreign participation being necessary for the "cleaning up" and restructuring that neither domestic business communities nor governments were capable of undertaking. (2) Foreign investment in sectors that had previously been effectively domestic monopolies was expected to bring modern business practice, improved corporate governance and increased efficiency, as well as raise productivity and increase competition. (3) The World Bank laid particular emphasis on the importance of corporate reform to sustained economic recovery. (4) Overall, there were views that increased foreign market penetration and ownership would accelerate the recovery of the distressed Asia Pacific economies and the reform of corporate governance. (5)

It was widely expected that the liberalization measures, together with the distressed state of the corporate sectors, would result in rapid consolidation of ownership and expansion of foreign ownership. Indeed, many commentators foretold large-scale "fire sales", with foreign companies picking up substantial assets at rock-bottom prices. (6) However, it is argued here that, while there has been significant liberalization of the restrictions on foreign ownership in Thailand, this has not been accompanied by significant restructuring and effective reform of the corporate sector. In addition, while there has been a major increase in foreign participation in Thai registered companies, and some increase in foreign control, the latter has only involved a small proportion of the Thai corporate sector. To a degree, the limited developments in these areas reflects the slow and uncertain course of Thai economic recovery and reform, but, as is outlined in this article, there has been a significant element of resistance to restructuring by the Thai corporate sector, particularly the most heavily indebted elements. This has been facilitated by the established patterns of ownership and cumbersome bankruptcy and merger procedures, all reinforced by popular protest and continuing government support for major business interests, something that became more overt following the January 2001 election of the Thaksin Shinawatra government.

This paper is organized under four main headings: liberalization of foreign ownership, foreign ownership in the banking sector, corporate restructuring and reform of the non-financial sector, and the rise and fall of economic nationalism.

Liberalization of Foreign Ownership

Following the Thai government reaching agreement with the IMF in mid-August 1997 over the US$17.2 bn funding package, some immediate moves were made to liberalize foreign ownership. In October 1997 the government announced that majority stakes would be permitted in the distressed financial sector for up to ten years, after which any holdings over 49 per cent would have to be sold to local investors. (7) Later in the same month the BOI (Board of Investment) made use of its powers of exemption to permit majority sales of Thai companies operating under its promotion scheme in the Bangkok Metropolitan Region and Immediate Environs, provided that the local owners agreed. This was extended to the rest of the country in February 1998. …