TRENDS AND IMPACTS OF FOREIGN INVESTMENT IN DEVELOPING COUNTRY AGRICULTURE

THAILAND
Trends and impacts of foreign investment in
developing country agriculture
and maintaining high capital mobility. The Thai
Government tried to induce foreign capital by
raising domestic interest rates. This undoubtedly
caused a reduction in domestic investment, while
the huge influxes of FDI into Thailand increased
from 99 733 million Baht in 1996 to 284 938
million Baht in 1998. Even with such a boost,
Thailand’s economic growth in 1998 was the
lowest among Southeast Asian countries and
continued growing at a lower rate than that
of Malaysia and Singapore during 1999-2000
(Statistics Division of the United Nations, http://
unstats.un.org). Malaysia, in contrast, responded
to the crisis which occurred in 1997 by rejecting
the rescue plan. Malaysia did implement a stricter
capital control policy than Thailand, which
led to a relatively lower domestic interest rate
compared to that of Thailand in the same period
(IMF, 2001). Malaysia successfully recovered
within a year after the crisis. Thus, it may be
concluded that the ability of the governments
to effectively formulate and implement policies
when external shocks occur is crucial for
continuous and sustainable economic stability.
Additionally, the government should build a
good balance between domestic and foreign
investments, as high fluctuations in FDI could
cause macroeconomic turbulence. This should
be taken into account and heavy reliance on FDI
should be avoided.
Micro-level policies: BOI policies
The Office of the Board of Investment was
established on 21 July 1966, commonly known
as Thailand Board of Investment (BOI). The BOI
is the core government agency responsible for
promoting investments, both local and foreign,
mainly in the manufacturing sector. Since 1966,
the Board of Investment has played an important
role in shaping Thailand’s direct investment
policies including the policies affecting FDI in the
agricultural sector. Although there are several
Thai agencies affecting investment policy climate,
the BOI is uniquely positioned to provide policy
feedbacks from direct access to foreign and
domestic enterprises.
To maintain a favourable investment climate,
the Thailand Board of Investment has adjusted
its policies over time in accordance with
102
economic conditions and the National Economic
and Social Development Plans. The BOI (2006)
summarizes the investment promotion policies
as shown in Figure 1. There are three main
policies: import-substitution, export-orientation,
and the dispersion of direct investment to
regional areas.
Investment policy to promote importsubstitution
took place during 1958-1971,
which is in line with the first and the
second national development plans. This
policy aims at encouraging firms to use local
raw materials, developing infrastructures,
and encouraging FDI in the form of joint
ventures. The target industries during this
policy include sugar, paper, automobile
tyres, and plywood.
Investment policy to promote exportoriented
industries began in 1972 and
continued through 1992 in accordance
with the third to the sixth national
development plans. This policy shifted
emphasis towards promoting exportoriented
activities as well as promoting
small-scale and regional industries. A thrust
was also given to agroprocessing industries
such as canned food, fertilizers, and food
processing.
Policy to disperse investment activities
to regional areas has been emphasized
since 1993, as stated in the seventh
national development plan and continues
to the present. To maintain the country’s
competitiveness and promote more
balanced growth, increased emphasis has
been placed on the dispersion of industrial
activities to regional areas. The agroindustry
has been set as one of the target
industries serving as a basis for long-run
industrial development and linkages. The
BOI has relaxed its conditions and offered
more incentives in order to encourage
investors to improve their production
efficiency and technology. For example, the
BOI encourages food-processing factories
to enhance their operations to the level of
international standards ensuring food safety
(e.g. GMP, HACCP), and traceability.