Government's amendments seek to remove legal ambiguities and promote transparency.

The Cabinet yesterday approved in principle amendments to the Foreign Business Act designed to plug heavily exploited loopholes and enable authorities to more effectively enforce foreign ownership and voting rights restrictions in protected sectors, such as telecommunications. The amendments, to be finalised by the Council of State, will affect only those foreigners who have circumvented ownership limits by using Thai citizens as nominees to hold legal control of companies on their behalf, while keeping majority voting rights to themselves.

Those who have been side-stepping the law in this manner will now be required to reduce their voting rights and shareholdings in Thai-registered companies to within legal limits, or under 50 per cent, in compliance with the Foreign Business Act and other relevant laws. They will be given a maximum of two years to clean up their act in regard to voting rights, and two years to divest their shareholdings to the level allowed, or face legal action.

It must be stressed that the amendments to the Foreign Business Act - which some foreign investors have described as controversial if not altogether anti-foreigner - is consistent with international standards that require governments to enforce the rule of law, promote transparency and ensure a level playing field. Overall, the Surayud government's decision to clear up legal ambiguities and tighten enforcement is sensible and just, and as such all responsible corporate citizens in this country should welcome it.

The laws of this land were not made to be flouted by Thais or foreigners and Thailand's attractiveness as a venue for foreign investment should not hinge on lax law enforcement and the opportunity for foreigners to exploit legal loopholes.

The amendments to the Foreign Business Act were long overdue. Previous democratically-elected governments lacked the political will to push through with this difficult task because the amendments were considered unpopular within the foreign business community and could have resulted in a negative impact on the investment climate.

That said, the timing of the amendments could have been better. Coming as it does close on the heels of the Bank of Thailand's draconian measure to control short-term capital flows as part of its effort to curb speculation on the value of the baht, the amendments could be misconstrued as anti-foreigner or as a shift towards an inward-looking economic policy management style.

However, the Surayud government probably did not have the luxury to avoid dealing once and for all with the legal loopholes on the use of nominees by foreign investors to unlawfully engage in restricted businesses. The takeover of Shin Corp by Singapore's Temasek Holdings, which triggered a political crisis that led to a military coup and the downfall of Thaksin Shinawatra, was an extreme example of how such unlawful business practices can undermine the rule of law in this country.

Ideally, the government should prescribe such bitter pills at a better economic time so that any impact could be more easily managed. As it happened, the Surayud government will now have to redouble its efforts to restore its credibility, ensure economic stability, and reassure foreign investors that they will always be welcome in this country as long as they strictly adhere to Thai laws.

The government must also realise, however, that even with the most effective laws and regulations in place, it still takes a consistent and straightforward approach by them to produce the desired outcome - protecting business sectors that require it either on national security grounds or for some other reason. And it cannot be emphasised enough that eventually some if not all of the protected sectors will have to be liberalised if Thailand is to engage more fully in the global economy.

As Thailand moves inexorably towards integrating itself into the global marketplace, what we need is not an increase in regulations and restrictions. Rather, Thai businesses require a greater level of competitiveness so that they are capable of not only competing successfully in the domestic market protected by the Foreign Business Act but also of taking on all comers in the global economy.

Changes to law 'less drastic than feared, will mainly impact telecom, property firms'

Only 15 listed companies at most would have to restructure their shareholdings to meet the new foreign business ownership rules approved yesterday, according to Stock Exchange of Thailand president Patareeya Benjapolchai. "Most of them are in the telecom and property sectors," she said. "We thought the impact would have been greater due to the lack of information and understanding of the draft amendments. But when the details were revealed, we found out that the impact for the entire market, which has nearly 500 listed companies, is quite limited." She did not identify the 15 companies.

Patareeya's comments came as the stock market took another nose-dive.

It tumbled 2.69 per cent as spooked investors reacted to the Cabinet's agreement in principle to the revised Foreign Business Act.

The SET Composite Index slumped to the day's trough at 615.66 in a knee-jerk response to the Cabinet's resolution reported in the afternoon, before rebounding slightly to close the day at 616.75. Turnover was moderate at Bt21.81 billion.

Foreign investors dumped Thai shares with net sales of Bt274.79 million.

Bangkok Bank was off 3.54 per cent at Bt95.50, PTT dropped 3.03 per cent to Bt192, and Siam Commercial Bank fell 6.60 per cent to Bt49.50.

"Investors sold off their shares on fears that many listed companies would have to restructure their shareholdings, following the amendments.

"However, now that the impact is limited, they should not be panicky," said Patareeya.

The stock market has suffered a series of hard blows and has given up 15.58 per cent of its value since the Bank of Thailand on December 19 adopted harsh measures to counter baht speculation.

The New Year's Eve bombings also gave a sharp jolt to the market.

Wiriya Lappromrattana, assistant vice president at Kiatnakin Securities, said the approval of the amended Foreign Business Act was to blame for the plunge in local share prices.

"This fact could be seen from the stock market's steep fall after the law was endorsed, though the government will give foreign investors a certain period to comply with it," she said.

As amended, the law limits foreign investors to holding no more than 50 per cent of the shares or voting rights of local companies.

The revised legislation will give foreign investors up to one year to rectify their shareholdings, and two years to adjust their voting rights.

Wiriya said she still recommended investors to hold cash rather than stocks, even though some stocks are attractive.

"Investors can start considering piling up on some stocks with good fundamentals when the SET ranges around 600-610," Wiriya said.

Thanomsak Saharatchai, a director of Capital Nomura Securities, estimates that 0.5-1 percentage point would be shaved off of gross domestic product from a combination of the recent bomb blasts in the capital and fallout from tightening up the Foreign Business Act.

These factors will also threaten the earnings of listed companies, he said.

However, he sought to soothe market jitters by saying that the road to the next general election had become a step clearer now that the head of the Constitution Drafting Assembly was appointed.

Under the government's time frame, the assembly must complete drafting a new, permanent constitution within a period of 180 days.