Thailand loses luster with Vietnam's rise

Since the foreign ownership law does not clearly define a nominee, Temasek's investment and a host of others are now in limbo. The government said it would specify proposals on amending the law in early January – and many Thai business leaders hope that an investor-friendly compromise can be reached.

"The most important thing is to clear up the definition on foreign holdings and nominees," Patareeya Benjapolchai, president of the Stock Exchange of Thailand, said in an interview. "If there is a clear definition and it's enforced according to the law, that will be good for all parties concerned. Even so, I think the definition should allow foreign investors here to be more free."

The questions surrounding foreign investment bear themselves out in BoI statistics. Through the first 11 months of this year, the board approved $3.8 billion worth of foreign investment, down 32 percent from $2.6 billion in the same period last year.

By contrast, foreign firms poured $6 billion into Vietnam last year, and investment officials say that could jump to $8.5 billion this year, a 42 percent increase.

Last month, Intel upped its investment in the country to $1 billion from $300 million. Nike and Canon have also expanded production.

"Vietnam is quite worrisome to us," said Pornsil Patcharintanakul, deputy secretary-general of Thailand's Board of Trade, a government-affiliated industry group. "Foreign investors are looking more at Vietnam, and even Thai investors are eyeing opportunities there."

Thai investment officials say the drop this year occurred because the country came off a banner year in 2005. But others counter by noting that many sectors are operating at full capacity and are in desperate need of new investment in order to grow.

"Talk to any businessman, and they say Vietnam is the next China," said a Bangkok-based Western diplomat who monitors economic activities. "Yes, the infrastructure may not be as good as in Thailand, but they have 84 million people, they work like dogs, and they really want the investment. In Thailand, they no longer care about economic growth and they can't figure out what they want."

The business community hopes that the new government can make firm decisions on where to lead Thailand so that certainty can return to the market and foreigners can once again feel confident putting their money here. A clearer political situation would also allow policymakers to spend time fixing greater long-term worries like overhauling the country's dismal education system and easing requirements for visas and work permits.

"Vietnam is on the tip of everyone's tongue, but Thailand is still much more developed in terms of infrastructure and service industries," said Peter van Haren, chairman of the Joint Foreign Chambers of Commerce in Thailand, which represents 10,000 businesses. "Unfortunately, there will be uncertainty here until the political situation is figured out."

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