Thailand

THAILAND Region : Asia Pacific Edition : June 2008 D&B Country Risk Indicator

DB4a

This "DB" Rating Indicates:

Trend

Moderate risk

Improving

Significant uncertainty over expected returns. Risk-averse customers are advised to protect against potential losses.

The country's overall risk profile is improving as a result of favourable political/commercial, economic and/or external developments

The 'DB' risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two year time horizon. The 'DB' risk indicator is a composite index of four over-arching country risk categories: Political risk - internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment; Commercial risk - the sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions; External risk - the current account balance, capital flows, FX reserves, size of external debt and all such factors that determine whether a country can generate enough FX to meet its trade and foreign investment liabilities; Macroeconomic risk - the inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth to provide further expansion in business opportunities. The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (ad), with an 'a' designation representing slightly less risk than a 'b' designation and so on. Only the DB7 indicator is not divided into quartiles.

Key Facts Country Overview: Population:

64.2m

Surface area (sq km):

513,120

Capital:

Bangkok

Timezone:

GMT +07:00

Official language:

Thai

Head of state:

King Phumiphon Adunyadet

GDP (USD):

176.6bn

GDP per capita (USD):

2,750

Life expectancy (years):

71

Literacy (% of adult pop.):

92.6

Thailand is located in Southeast Asia and borders Burma, Malaysia, Cambodia and Laos. The country was ruled by an absolute monarchy until 1932, and the monarchy retains a powerful position in society and commands enormous respect across the political spectrum. Since 1932 Thailand has alternated between periods of weak elected coalition governments and military backed governments; the most recent coup was when former PM Thaksin Shinawatra was toppled in September 2006. The country returned to civilian rule in early 2008 after an election in late 2007. Thailand has a free market economy, but state influence remains in some areas, and corruption is a serious problem. Exports (and high-tech manufactures in particular) are a key growth driver: the country is the world’s largest manufacturer of computer keyboards. However, Thai firms are seen as increasingly uncompetitive against low-cost Chinese producers of high-tech goods.

Trade & Commercial Environment Trade Terms Minimum Terms:

SD

The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country.

Recommended Terms:

LC

D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms.

Usual Terms:

30-90 days

Normal period of credit associated with transactions with companies in the stated country.

Transfer Situation Local Delays:

1-2 months

The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports.

FX/Bank Delays:

1-2 months

The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system.

Trade & Commercial Environment In May 2008, the government agreed to raise the minimum wage in Bangkok and surrounding provinces by just over 4.5% to THB203 (USD6.50) a day; it will increase the minimum wage elsewhere based on a 5% inflation rate. Although the increase is below inflation, it will help to stabilise private consumption; nonetheless, increased labour costs will cut firms' margins further. Between January and April, Thailand's FX reserves increased 21% to USD108.4bn. While Thailand registered a trade deficit in early 2008, net FX reserves increased as a result of strong services income (e.g. from tourism). Despite the Thai central bank removing its capital controls in March, uncertainty in Asian financial markets has obviated any large inflows of international funds.

Export Credit Agencies

US Eximbank

Full cover available

Atradius

ST cover available

ECGD

Full cover available

Euler Hermes UK

Full ST cover available

Economic Indicators 2005

2006

2007e

2008f

2009f

Real GDP growth, %

4.5

5.0

4.8

5.5

5.5

Inflation, annual ave, %

4.5

4.7

2.3

5.5

3.0

Govt balance, % GDP

0.2

0.1

-2.0

-2.6

-3.0

Foreign debt, % GDP

32.5

33.1

31.9

31.5

31.5

C/A balance, % GDP

-4.5

1.6

4.5

3.2

2.6

*Government balance data are for fiscal years (October-September).

Currency Information Exchange Rates (London, 19 May 08) EUR

50.1941

GBP

63.0541

JPY*

31.0113

USD

32.275

*(x 100)

Local Currency (Baht [THB]: USD)

Local Currency (Baht [THB]: USD) Dec 07

Jan 08

Feb 08

Mar 08

Apr 08

May 08

Week 1

33.848

33.448

32.925

31.475

31.675

31.725

Week 2

33.745

33.155

32.935

31.525

31.585

31.955

Week 3

33.595

33.035

32.515

31.380

31.435

32.275

Week 4

33.705

33.050

32.300

31.315

31.705

32.075

Week 5

33.685

31.440

Payments Performance Payments Performance (% of payments made 30 or more days over terms)

Data Table Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

27.0

27.5

28.3

28.9

29.2

29.0

26.8

Risk Factor Thai economic output picked up momentum in Q1 2008, growing 6.0% year on year (y/y) according to the Bank of Thailand. This marks an improvement over Q4 2007, when output grew 5.7%, and over 2007 as a whole, when output grew just 4.8%. Key macro-economic indicators suggest economic growth will continue its upward trajectory in 2008: private investment grew 7.2% in Q1, up from 4.1% in Q4, and private consumption grew 7.0%, up from 4.2%. Supply-side indicators also showed impressive growth in Q1; for instance, the index that captures manufacturing output climbed 12.9%. These positive indicators have led us to revise upward our forecast for real GDP growth by 0.5 percentage points to 5.5% in 2008. However, the economy continues to faces serious commercial risks, particularly from price pressures. Throughout Q1, the continued upward creep of producer prices, elevated by high international fuel and commodity prices, began to seriously dampen the outlook of Thai businesses. In March, processing prices of finished goods, intermediate goods and raw materials increased 8.6%, 14.4% and 15.9% y/y respectively, while consumer prices only rose 5.3%. As a result, business sentiment has fallen. In March, the firms surveyed by the Bank of Thailand expected that commercial conditions would worsen in the coming three months, the first time that they have expressed a pessimistic outlook in eight months. Meanwhile the index that captures the sentiment of small- and medium-sized trade and service firms, prepared by the Office of Small and Medium Enterprises Promotion in March, also had a pessimistic outlook over the next three months; their pessimism has also been triggered by high production costs. According to the Bank of Thailand, firms in the manufacturing sector were the most pessimistic of all; however, the outlook of infrastructure, trade, service and finance firms all worsened as well. In the short term, these sectors may represent potential payment risks. The government has implemented several schemes to ensure that demand remains adequate. For instance, it raised minimum wages to ensure that low earners are not overburdened with the new cost increases, and began selling fertiliser to small-scale farmers 35-45% cheaper than fertiliser sold by private firms. In general, Thailand is well positioned to benefit from rising global agricultural commodity prices: in Q1, farmers (who make up nearly 40% of the workforce) already saw benefits, with farm incomes jumping 21.1% as a result of the high agricultural commodity prices. Continued high prices should encourage more consumption on their part. Thai consumer confidence remains high and should help to mitigate the downside risks of inflation to businesses and economic growth.

Glossary & Definitions DEFINITIONS Minimum Terms: The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country. Recommended Terms: D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms. Usual Terms: Normal period of credit associated with transactions with companies in the stated country. Local Delays: The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports. F/X Bank Delays: The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system. C/A (current account) balance, % GDP:

Part of the balance of payments that records a nation's exports and imports of goods and services, and income and transfer payments. DSR (debt service ratio), %: Annual interest and principal payments on a country's external debts as a percentage of exports of goods and services. Govt balance, % GDP: The balance of government expenditure and receipts. Real GDP growth, %: GDP adjusted for inflation. Inflation, %: The increase in prices over a given period. GLOSSARY CiA CLC

Cash in Advance Confirmed Letter of Credit

CWP FX

Claims Waiting Period Foreign Exchange

LC LT

Letter of Credit Long term

MT OA

Medium term Open Account

SD ST

Sight Draft Short term

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