Given certain diplomats’ comments and the foreign news coverage about the latest in a line of coups d’état in Thailand, you would think Thailand was the worst place to do business right now.
Added to that, there is a common assumption that emerging economies’ regulatory infrastructure is less sophisticated than their more developed counterparts. In some cases this is indeed true; yet the assumption does overstate the overall standards in developed markets.
The 2007-2008 Global Financial Crisis made it painfully clear that markets which had been deemed too agile and sophisticated for the stringent regulatory regime that had its origins in the post-Great Depression era, had crumbled because their regulatory structure had been over-diluted. In their book This Time is Different,1 Harvard University economics professors Carmen Reinhart and Kenneth Rogoff’s main point is that complacency has been a recurring factor in economic crises over the last eight hundred years.
Not so long ago, Thailand would have fit the stereotype of underdeveloped standards. In 1971, trading volume was at just THB 28 million for the whole year and despite an increase in volume over the following decade, the exchange lacked government support and a base of investors who understood equities markets.2
Nowadays the SET is much larger: in May of this year it had an average market capitalisation of around THB 12.67 trillion (USD 391 billion) and its daily share volume averaged around the 6.5 billion mark.3 By the end of Q1 2014, it had 546 listed companies.
Put into perspective, these figures compare well with ASEAN’s prominent financial centre, Singapore. It has 767 listings, albeit with a much larger May market cap of around USD 556 bn, and its share volume in the same month was substantially lower than the SET’s at around 1.8 billion.4
The difference between Thailand and Singapore – and also Hong Kong for that matter – is that it is not under pressure to develop financial infrastructure. Its greater natural and human resources have allowed its financial system to grow with Thailand rather than to attract external investors alone. That way, regulatory arbitrage which has caused crises in major markets has not become abundant in the SET.
This relatively large stock exchange has implemented an investor protection fund and the SET and the Thai Securities Exchange Commission are in charge of regulating the markets; the SEC also sets out a rigorous check for investment advisory companies which wish to obtain a licence.
It could be argued that the 1997 Asian financial crisis was the necessary element to focus minds in Thailand on effective financial regulation and transparency. Certainly since then, there has been a move towards a more competitive regulatory infrastructure designed to attract international trade.
Evidence of this mentality can be found in accounting standards: the Thai Federation of Accounting Professions has committed to ensuring all new standards it issues are in line with International Financial Reporting Standards. Convergence with IFRS is being carried out in two stages: the first stage, for non-financial instruments, was completed in 2011. The financial instrument standards stage is expected to be fully completed by the end of 2015.5 Whilst Thailand is one of over 90 countries which have committed to adopting IFRS so far, the US recently decided not to adopt it.
The tax code follows a similar philosophy in its logic and consistency. When changes are made, as in January of this year, they are usually organic and evolutionary, rather than radical and revolutionary.
Furthermore, tax codes are not practised in isolation – Thailand currently has double taxation avoidance agreements with 56 other countries, including Australia, Japan and all fellow ASEAN countries, except Cambodia and Brunei.
In recent years the Bank of Thailand (BoT) has followed a path of independent policy. Over the last couple of years it has been a consistent opponent to the government’s attempts to push up base interest rates, as it scratched around for money to fund its costly first car and rice-pledge schemes. In fact I defended the BoT’s corner last year when CNBC Asia presenter Bernie Lo asked me if the Finance Minister’s push for higher rates amounted to Thailand being a banana republic. I explained that the BoT was acting as a genuine counterbalance to the government’s plans.
To me, that shows a sophisticated financial structure, which represents well the regulatory environment in Thailand.
1 C. Rienhart and K. Rogoff, This Tine is Different: Eight centuries of financial folly, Princeton University Press; First Edition (October 1, 2009).
2 History and Roles, Stock Exchange of Thailand website, http://www.set.or. th/en/about/overview/history_p1.html, retrieved 13 March, 2014.
3 Source: Stock Exchange of Thailand
4 Source: Singapore Exchange
5 IFRS website, http://www.ifrs.org/Use-around-the-world/Documents/Jurisdiction-profiles/Thailand-IFRS-Profile.pdf, retrieved 13 March 2014.
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