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Mekong Memo Thailand Weekly, October 6, 2023: Business, politics, finance, trade & legal news.

Oct 6, 2023

We monitor and filter the very best and most insightful stories from Southeast Asia directly to your inbox every weekday.

By reviewing a wide variety of media including legal, financial and other relevant industries along with government and NGO sources, we are able to sift through the noise and bring you only what we believe to be relevant to an informed observer of Thailand business news.

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Here is your Mekong Memo Thailand for the week of October 6, 2023:

Headlines:

Central Bank Holds Rates Steady After Unexpected Hike

Clash Between PM and Central Bank Rattles Markets

Economy Faces Downward Revision by UTCC and World Bank

Baht Hits 11-Month Low; Central Bank Blames External Factors

Significant Power Tariff Reduction Takes Effect

Liquidity Concerns Surround Leading Developer MQDC

Bangkok's "New Chinatown": Chinese Investment Fuels Thailand's Real Estate Surge

Bhumjaithai Party Champions Legal Casino Initiative

Thai Tycoons Challenge 7-Eleven's Reign in Convenience Store Boom

Economic Stimulus Faces Credit Downgrade Risk

Thailand Accelerates FTAs with Key Partners

Ambiguous Tax Directive Threatens Digital Nomad Appeal

Thailand Prioritizes Water Management for Industrial Growth

El Monte's Thai Workers: From Enslavement to Recognition

Central Bank Holds Rates Steady After Unexpected Hike

After a surprising interest rate increase to 2.50%, the highest in ten years, Thailand's central bank chief, Sethaput Suthiwartnarueput, announced a pause in rate adjustments, deeming the current rate suitable for the nation's economic landscape. The hike aimed to stabilize inflation, which remains a focal concern. Despite a reduction in the 2023 growth forecast, the 2024 outlook has been raised, with growth expected to be fueled by domestic demand, tourism recovery, and merchandise exports.

Clash Between PM and Central Bank Rattles Markets

Tensions between Thai Prime Minister Srettha Thavisin and the Bank of Thailand (BOT) Governor Sethaput Suthiwartnarueput are causing market unease. The discord centers on Srettha's proposal for a $15 billion cash handout program to stimulate the economy, which the BOT deems "inappropriate." This disagreement, coupled with contrasting views on currency strength, has led to Thai stocks and bonds hitting new lows. Such policy rifts, while not uncommon in Thailand, come at a critical juncture as the nation transitions from military rule, with foreign investors pulling out approximately $1.7 billion since Srettha's August election.

Read more: Bloomberg, Thai Examiner, CNA

Economy Faces Downward Revision by UTCC and World Bank

The University of the Thai Chamber of Commerce (UTCC) has adjusted its economic growth forecast for Thailand to 3% for this year, citing lower exports and state budget preparation delays. The World Bank also revised its growth projection for Thailand, reducing it to 3.4% for 2023 and 3.5% for 2024, attributing the change to anticipated export contractions due to decreased global demand. Both institutions highlight the significant role of tourism and private consumption in driving the nation's economic growth.

Baht Hits 11-Month Low; Central Bank Blames External Factors

Thailand's central bank highlighted external influences as the primary reason for the baht's depreciation to an 11-month low of 37.095. The bank is actively monitoring the currency and is prepared to intervene against irregular movements. Factors contributing to the baht's decline include the potential for the Federal Reserve to maintain interest rates longer than anticipated, falling gold prices, and rising oil prices. Prime Minister Srettha Thavisin commented that a weaker baht could bolster exports and tourism.

Significant Power Tariff Reduction Takes Effect

Thailand's cabinet has approved a reduction in the power tariff to 3.99 baht per kilowatt-hour, effective for the last quarter of the year. This decision, backed by the Energy Regulatory Commission, is a further reduction from the initially proposed 4.10 baht, aiming to alleviate electricity costs for households and businesses. The adjustment also includes a decrease in the fuel tariff component, which is influenced by various factors such as fuel prices and government policies. This move is part of the government's broader energy price strategy.

Liquidity Concerns Surround Leading Developer MQDC

Thailand's real estate sector faces potential turbulence as Magnolia Quality Development Corp (MQDC), a prominent non-listed developer, reportedly grapples with liquidity issues. Despite MQDC's denial of these concerns, industry insiders and bankers have expressed doubts, pointing to payment delays to suppliers. Such challenges from a major player like MQDC could have ripple effects on the broader industry, especially smaller developers. MQDC, known for significant projects like Forestias, has substantial bond obligations approaching, with over 53.8 billion Baht due by July 2026.

Bangkok's "New Chinatown": Chinese Investment Fuels Thailand's Real Estate Surge

Thailand's real estate market is experiencing a significant boost, largely driven by Chinese investments. Bangkok's Huai Khwang district, now referred to as "New Chinatown," is experiencing significant transformation due to an increasing number of Chinese residents. This influx has led to a rise in property and rental prices, making it challenging for local Thais to afford housing in the area. While the district has embraced the changing demographics with events like Lunar New Year celebrations, the economic implications are evident. Many Thai businesses struggle to compete with well-funded Chinese expatriates, leading to a shift in the business landscape. The challenge for the Thai government lies in balancing the economic benefits of foreign investments with the pressing need for affordable housing, ensuring both economic growth and social welfare.

Bhumjaithai Party Champions Legal Casino Initiative

The Bhumjaithai Party is advocating for the acceleration of the government's legal casino project, viewing it as a solution to illegal gambling dens, online fraud, and corruption. MP Saritpong Kiewkhong emphasized the potential revenue benefits, citing Singapore's success with legal casinos boosting its tourism by 20%. A recent study suggests that an entertainment complex, inclusive of a legal casino, could employ 30,000 people and be strategically located near major tourist spots or international airports. The proposal includes permitting eight types of gambling activities.

Thai Tycoons Challenge 7-Eleven's Reign in Convenience Store Boom

Thailand's convenience store sector is witnessing a surge in competition as the nation's billionaires, including liquor magnate Charoen Sirivadhanabhakdi, seek to capitalize on the growing consumer trend of frequent, smaller shopping trips. Charoen aims to transform 30,000 local shops into his 'donjai' business model by 2027. However, they face a formidable opponent in CP All Pcl, which operates over 14,000 7-Eleven stores, dominating nearly three-quarters of the market. The sector's growth is bolstered by the government's economic stimulus and a hopeful resurgence in tourism.

Economic Stimulus Faces Credit Downgrade Risk

Thailand's strategy to revitalize its $500 billion economy, which includes cash handouts and loan moratoriums, is under scrutiny by ratings agencies due to increasing debt reliance and sustainability concerns. Prime Minister Srettha Thavisin's plan to increase government borrowing by 8% has raised eyebrows among foreign investors and caused friction with the central bank. Ratings agencies, including S&P, Moody’s, and Fitch, have expressed concerns about the nation's fiscal policies and their potential impact on Thailand's credit rating.

Thailand Accelerates FTAs with Key Partners

Thailand is on track to finalize free trade agreements (FTAs) with the UAE, European Free Trade Association (EFTA), and Sri Lanka by next year, potentially boosting trade volume by about US$31 billion annually. The FTA with the UAE, which is nearing completion, is set to enhance exports in sectors like food, textiles, and automotive components. Sri Lanka's strategic location offers opportunities for Thai investments in processed food and textiles, while the EFTA agreement could open doors for Thai farm products, processed foods, and services in Europe.

Read more: Thai News PRD, Thai PBS World

Ambiguous Tax Directive Threatens Digital Nomad Appeal

Thailand's Revenue Department's recent directive, effective January 1, 2024, mandates individuals earning overseas income to pay Thai taxes upon bringing that income into the country. However, the directive's vagueness, especially concerning who is liable and when, may deter foreign investors and the growing digital nomad community. Thailand, a popular destination for remote workers due to its cost of living and culture, might lose its appeal with these unclear tax rules. Amidst the rise of remote work, this could also discourage companies from establishing remote teams in Thailand, potentially impacting foreign direct investment.

Read more: Thai Enquirer (summary), Thai Enquirer (opinion)

Thailand Prioritizes Water Management for Industrial Growth

PM Srettha Thavisin emphasized the government's focus on enhancing water resource management over projects like the high-speed train, particularly to support the industrial sector in the eastern region. Addressing concerns of potential water shortages by April next year, he directed the Irrigation Department to ensure adequate supply in the Eastern Economic Corridor. While promoting Thailand's investment potential abroad, the PM stressed avoiding negative press about water scarcity. Additionally, he envisions Thailand as a global leader in food production and discussed the temporary debt moratorium for farmers.

And now for something completely different.

While the focus of The Memo is on news for business, here’s a story from the United States about Thai workers who survived being enslaved in an American sweatshop and are now thriving:

El Monte's Thai Workers: From Enslavement to Recognition

In the early 1990s, 72 Thai workers were lured to El Monte with promises of fair wages and good working conditions, only to be enslaved in a garment sweatshop. Their harrowing story, one of the earliest known cases of modern-day slavery in the U.S., led to significant changes in labor and immigration laws. Recently, 25 of these workers were honored by the U.S. Department of Labor for their courage and resilience. Their case has since inspired stronger protections for immigrant workers and survivors of human trafficking.