THAILAND

Thailand's economy is 63.5 per cent free, according to our 2008 assessment, which makes it the world's 54th freest economy. Its overall score is 1.3 percentage points lower than last year, reflecting worsened scores in five of the 10 economic freedoms. Thailand is ranked 9th out of 30 countries in the AsiañPacific region, and its overall score is higher than the regional average.

Thailand enjoys high scores for business freedom, government size, and especially labor freedom. Opening a business takes less time than the world average, and overall licensing procedures are simple and transparent. Government spending is also low as a percentage of GDP. Thailand's labor market is highly flexible, and firing a redundant worker is not difficult.

Thailand could do better in monetary freedom, investment freedom, and freedom from corruption. Though inflation is moderate, the government directly subsidises the prices of a number of staple goods. Foreign investment is subject to a variety of serious restrictions that are not enforced uniformly. Corruption is significant, although not as extensive as it is in many neighboring countries.

Background

Thailand's democratic government was overthrown by a military coup in September 2006, casting doubt on the trend of economic liberalisation under previous administrations. Thailand had been known for its open economy and willingness to accept foreign direct investment. The economy was hit hard by the 1997ñ1998 Asian financial crisis, but economic reforms helped it to recover to pre-crisis levels by 2003. The current military-installed government has damaged Thailand's economy through a number of ill-considered actions, including the imposition of capital controls and the seizure of foreign pharmaceutical companies' drug patents.

Business freedom - 72.1%

The overall freedom to start, operate, and close a business is relatively well protected by Thailand's regulatory environment. Starting a business takes an average of 33 days, compared to the world average of 43 days. Obtaining a business license takes less than the world average of 19 procedures and 234 days. Bankruptcy proceedings are fairly easy and straightforward.

Trade freedom - 75.2%

Thailand's weighted average tariff rate was 4.9 per cent in 2005. Import bans and restrictions, service market access barriers, complex import taxes and fees, prohibitive tariffs, burdensome standards and import licensing requirements, restrictive sanitary and phytosanitary rules, non-transparent government procurement, non-transparent and inefficient customs, export subsidies, and weak enforcement of intellectual property rights add to the cost of trade. An additional 15 percentage points is deducted from Thailand's trade freedom score to account for non-tariff barriers.

Fiscal freedom - 74.7%

Thailand has burdensome tax rates. The top income tax rate is 37 per cent, and the top corporate tax rate is 30 per cent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 16.3 per cent.

Freedom from Government - 90.7%

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 17.6 per cent of GDP. Government intervention persists, and privatisation has suffered several setbacks.

Monetary freedom - 66.7%

Inflation averaged 4.4 per cent between 2004 and 2006. Relatively unstable prices explain most of the monetary freedom score. The economy-wide price freeze imposed after the 2006 coup is still in effect. The government can set price ceilings for basic goods and services and influences prices through regulation, subsidies, and state-owned utilities. An additional 20 percentage points is deducted from Thailand's monetary freedom score to account for policies that distort domestic prices.

Investment freedom - 30%

The law permits 100 per cent foreign ownership except in 32 service occupations, such as fishing, TV and radio outlets, farming, and newspapers, where foreign ownership is forbidden. Non-Thai businesses and citizens may own land only on government-approved industrial estates. Regulations are enforced inconsistently. A 2007 investment law addendum expanding the definition of a foreign company has caused several foreign firms to reduce their holdings. Privatisation is slow. Residents and non-residents may hold foreign exchange accounts, subject to approval in some cases. Foreign exchange transactions, repatriation, some outward direct investments, and transactions involving capital market securities, bonds, debt securities, money market instruments, real estate, and short-term money securities are regulated and usually require government approval.

Financial freedom - 50%

Financial regulation and supervision remain short of international standards. Credit is generally allocated on market terms. A December 2006 change in reporting standards for non-performing loans improved the health of many banks. In early 2007, there were 12 domestic commercial banks and 17 foreign banks. The government owns 56 per cent of Krung Thai Bank, 48 per cent of Siam City Bank, and 49 per cent of BankThai, which are among the 10 largest domestic institutions. Foreign ownership is restricted in some cases. Roughly 100 insurance companies are registered, including many foreign firms, but new capital requirements should force consolidation. Capital markets are relatively well developed. The stock exchange is active and open to foreign investors.

Property rights - 50%

Private property is generally protected, but the legal process is slow, and litigants or third parties can affect judgments through extralegal means. Despite a Central Intellectual Property and International Trade Court, piracy (especially of optical media) continues. Under the Trade Secrets Act, the government can disclose trade secrets to protect any "public interest" not having commercial objectives, and there are concerns that approval-related data might not be protected against unfair commercial use.

Freedom from corruption - 36%

Corruption is perceived as significant. Thailand ranks 63rd out of 163 countries in Transparency International's Corruption Perceptions Index for 2006. Foreign and Thai companies continue to allege customs irregularities. The government is trying to make the evaluation of bids and awarding of contracts more transparent. Convictions of public officials on corruption-related charges are rare.

Labour freedom - 89.6%

Flexible employment regulations enhance overall productivity growth and employment opportunities. The non-salary cost of employing a worker is low, and dismissing a redundant employee is relatively costless. Regulations related to the number of work hours are quite flexible.

— Courtesy: The Heritage Foundation

Quick Facts

*          Population     64.2 million

*        GDP (PPP)  $557.4 billion

                    4.5% growth in 2005

                    5.8% 5-yr. comp. ann. growth

                    $8,678 per capita

*          Unemployment:          1.8%

*          Inflation (CPI)          4.5%

*        FDI (net inflow)          $3.4 billion

*          Off.Dev. Assist.          $838.8 million

                    (2.2% from the U.S.)

*          External Debt          $52.3 billion

*          Exports        $133.6 billion

          Primarily textiles and footwear, fishery products, rice, rubber, jewelry, automobiles, computers and electrical appliances

*          Imports        $129.8 billion

          Primarily capital goods, intermediate goods and raw materials, consumer goods, fuels