Asia Average = 59.1 World Average = 60.6 1995 2007 100 80 60 40 20 0 363 QUICK FACTS How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index. Thailand’s economy is 65.6 percent free, according to our 2007 assessment, which makes it the world’s 50th freest economy. Its overall score is 0.5 percentage point higher than last year, partially reflecting new methodological detail. Thailand is ranked 9th out of 30 countries in the Asia–Pacific region, and its overall score is higher than the regional average. Thailand enjoys high levels of business freedom, fiscal freedom, freedom from government, monetary freedom, and labor freedom. Opening a business takes less time than the world average, and overall licensing procedures are simple and transparent. Thailand imposes fairly high tax rates, and overall tax revenue is low as a percentage of GDP. Government spending is also low as a percentage of GDP, and state-owned businesses account for a small portiio of overall revenue. Thailand’s labor market is highly flexible, and firing a redundant worker is costless. Thailand could do better in monetary freedom, investment freedom, and freedom from corruption. Though inflation is low, Bangkok directly subsidizes the prices of a number of staple goods. Foreign investment is subject to a variety of restrictions, and these restrictions are not enforced uniforrmly Corruption is significant, although it is not as great a problem as it is in many neighboring countries. BACKGROUND: Thailand has a strong and business-friendll economy. The only Southeast Asian state never to be colonized, it has been independent for over 600 years and a constitutional monarchy since 1932. Thai politics were already in turmoil in early 2006, and then the military deposed Prime Minister Thaksin Shinawatra in Septembbe as this publication was being prepared for printing. Consistent annual growth rates of 4 percent–6 percent in recent decades and relatively high GDP per capita are largely the result of free-market economic policies, manufactturin and agricultural exports, and tourism. In 2004, Thailand began negotiating a free trade agreement with the United States that has yet to be finalized. THAILAND Population: 63.7 million GDP (PPP): $515.3 billion 6.2% growth in 2004 5.1% 5-yr. comp. ann. growth $8,090 per capita Unemployment: 2.1% Inflation (CPI): 2.8% FDI (net inflow): $702 million Official Development Assistance: Multilateral: $30 million Bilateral: $971 million (1% from the U.S.) External Debt: $51.3 billion Exports: $114.0 billion Primarily textiles, footwear, fishery products, rice, rubber, jewelry, automobilles computers, electrical appliances Imports: $107.5 billion Primarily capital goods, intermediate goods and raw materials, consumer goods, fuels The economy is 65.6% free Rank: 50 Regional Rank: 9 of 30 @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@BUSINESS FREEDOM — 76.1% Starting a business takes an average of 33 days, compared to the world average of 48 days. To maximize entrepreneurshhi and job creation, it should be easier to start a company. Obtaining a business license is simple, but closing a businees is difficult. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment. TRADE FREEDOM — 69.2% Thailand’s weighted average tariff rate was 5.4 percent in 2005. Some prohibitive tariffs, import bans, significant and complex import taxes and fees, export subsidies, burdennsom standards and import licensing requirements, restrictive sanitary and phytosanitary rules, service market access barriers, non-transparent government procurement procedures, and weak enforcement of intellectual property rights add to the cost of trade. Consequently, an additional 20 percent is deducted from Thailand’s trade freedom score to account for these non-tariff barriers. FISCAL FREEDOM — 83.2% Thailand has burdensome tax rates. The top income tax rate is 37 percent, and the top corporate tax rate is 30 perceent 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 15.9 percent. FREEDOM FROM GOVERNMENT — 91.2% Total government expenditures in Thailand, including consumption and transfer payments, are low. In the most recent year, government spending equaled 17 percent of GDP, and the government received 6.2 percent of its revennue from state-owned enterprises and government ownersshi of property. MONETARY FREEDOM — 77.6% Inflation in Thailand is low, averaging 3.9 percent between 2003 and 2005. Relatively unstable prices explain most of the monetary freedom score. The government retains authority to set price ceilings for 20 goods and services, including medicines, sound recordings, milk, sugar, fuel oil, and fertilizer, and influences prices through regulatiion subsidies, and state-owned utilities. Consequently, an additional 10 percent is deducted from Thailand’s monettar freedom score to account for these policies. INVESTMENT FREEDOM — 30% The law permits 100 percent foreign ownership except in 32 restricted service occupations. Non-Thai businesses and citizens may not own land in Thailand unless it is on governmmentapproved industrial estates. Regulations are not enforced consistently or predictably and remain an obstaccl to investment. Residents and non-residents may hold foreign exchange accounts, subject to approval in some cases and maximum limits. Foreign exchange transactioons 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 require governnmen approval in most cases. FINANCIAL FREEDOM — 50% Following the 1997 Asian financial crisis, Thailand pursued reform of its financial system. Financial regulation and supervision are largely transparent and have improved, although they remain short of international standards. Credit is generally allocated on market terms. Financial regulations can be burdensome. The government holds 56 percent of Krung Thai Bank, 48 percent of Siam City Bank, and 49 percent of BankThai, all of which are among the top 10 domestic banks. Foreign ownership of Thai financial institutions is restricted in some cases. The government’s establishment of an investment fund in June 2003 raises questions of impartiality. Roughly 100 insurance compannie are registered in Thailand, including many competiitiv foreign firms. Capital markets are relatively well developed and sophisticated. The stock exchange is active and open to foreign investors. PROPERTY RIGHTS — 50% Thailand generally protects private property, but there are indications of inefficiency and corruption. The legal procees is slow, and litigants or third parties sometimes affect judgments through extra-legal means. FREEDOM FROM CORRUPTION — 38% Corruption is perceived as significant. Thailand ranks 59th out of 158 countries in Transparency International’s Corrupptio Perceptions Index for 2005. LABOR FREEDOM — 90.4% The labor market operates under highly flexible employmeen regulations that enhance overall productivity growth. The non-salary cost of employing a worker is low, and dismisssin a redundant employee is relatively costless. THAILAND’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 100 = most free, = world average 0 50 100 364 2007 Index of Economic Freedom 76.1 69.2 83.2 91.2 77.6 30 50 50 38 90.4 L L L L L L L L L L