Report No. 22313-TH Thailand Country Development Partnership for Competitiveness June 13, 2001 Poverty Reduction and Economic Management Sector Unit East Asia and Pacific Region Document of the World Bank KINGDOM OF THAILAND FISCAL YEAR: October 1 - September 30 CURRENCY EQUIVALENT (June 2001) Currency Unit= Baht B US$1.00= B 45.12 B 1.00 = US$ 0.0022 ABBREVIATIONS AAT Airport Authority of Thailand MOF Ministry of Finance ADB Asian Development Bank MOU/MOID Ministry of Industry AMC Asset Management Corporation MOSTE Ministry of Science, Technology and AusAid Australian Agency for International Environment Development NCC National Communications Commission BAAC Bank for Agriculture and Agricultural NECTEC National Electronics and Computer Cooperatives Technology Center BOT Bank of Thailand NESDB National Economic and Social Development BOI Board of Investment Board CAT Communications Authority of Thailand NGO Non-Government Organization CBC Central Bankruptcy Court NITC National Information Technology Committee CDRAC Corporate Debt Restructuring Advisory NPL Non-performing Loan Committee NPL Non-performing Loan CDPC Country Development Partnership for NSTDA National Science and Technology Competitiveness Development DCA Debtor-Creditor Agreement OSE Office of State Enterprises DOVE Department of Vocational Education PDMO Public Debt Management Office DVT Dual Vocational Training PPIAF Public-Private Infrastructure Advisory Facility EFAL Economic and Financial Assistance Loan PTT Petroleum Authority of Thailand ECRC Electronic Commerce Resource Center RTG Royal Thai Government EMAL Economic Management Assistance Loan SEC Securities and Exchange Commission FIDF Financial Institutions' Development Fund SET Stock Exchange of Thailand FRA Financial Restructuring Authority SECPC State Enterprise Capital Policy Committee FSIAL Financial Sector Implementation SICGC Small Industry Credit Guarantee Corporation Assistance Loan SME Small and Medium Enterprises GATS General Agreements on Trade in Services SRT State Railways of Thailand GTZ German Technical Cooperation TCC Trade Competition Commission ICA Inter-Creditor Agreement TGI Thai-German Institute ICAAT Institute of Certified Accountants and TFASB Thailand Financial Accounting Standard Auditors of Thailand Board IFCT Industrial Finance Corporation of Thailand TOT Telecommunication of Thailand ILO International Labor Organization UNDP United Nations Development Programme JBIC Japan Bank for International Cooperation UJNIDO United Nations Industrial Development JETRO Japan External Trade Organization Organization JBIC Japan Bank for International Cooperation USAID US Agency for International Development JICA Japan International Cooperation Agency WTO World Trade Organization Vice President Jemal-ud-din Kassum, EAPVP Country Director Jayasankar Shivakumar, EACTF Sector Director Homi Kharas, EASPR Team Leader Ejaz Ghani, EACTF THAILAND COUNTRY DEVELOPMENT PARTNERSHIP FOR COMPETITIVENESS Table of Contents FoREwoRD ACKNOWLEDGEMENTS ii CHAPTER I ...........................................................1 A. Introduction .........................................................1 B. Framework for the Competitiveness Program .....................................2 C. The Competitiveness Program .......................................................4 D. Development Impact ........................................................ 25 CHAPTER 2: DEVELOPMENT POLICY MATRIX ..................................... 27 CHAPTER 3: PARTNERSHIP MATRIX ............................................... 59 TABLES Table 1: Grant funds and TA .........................................................2 Table 2 Thailand: Gaps in Science and Technology ............... 12 Table 3 Formal Enterprise-Based Training in Thai Manufacturing 1997 ...... 12 Table 4 Correlation of Structure of Manufacture Exports (1995) ................ 21 Table 5 Structure of Applied Tariffs in Thailand ................................... 22 Table 6 Limits on Foreign Ownership in Services Sector ......................... 23 FIGURES Figure 1: Total Factor Productivity Growth ..........................................3 Figure 2: Real GDP and Real Credit ..................................................4 Figure 3 Progress on Debt Restructuring ............................................7 Figure 4 Gini Coefficients for Education for Selected Countries ................ 13 Figure 5 International Comparison of R&D Investments ......................... 15 Figure 6 World Market Shares for Exports of Electronics ........................ 21 FOREWORD THE COUNTRY DEVELOPMENT PARTNERSHIP FOR COMPETITIVENESS The Royal Thai Government (RTG) is in the process of finalizing its Ninth Economic and Social Development Plan (2002-2006). The Plan is being prepared through a grass-roots participatory process and will provide the vision and strategy for Thailand's development efforts in the medium-term. It has identified four strategic reform areas that will require intense focus in the years ahead, namely competitiveness, governance, social protection and environmental management. The competitiveness reform area focuses on (i) enhancing the knowledge and skills base to enable Thailand to compete in a globalized world; (ii) improving the delivery of infrastructure services and raising environmental standards; and (iii) strengthening the macroeconomic and business environment in which firms and businesses operate. The World Bank Group is supporting the RTG in the four reform areas through a new form of partnership, a rolling three-year program called the Country Development Partnership (CDP). The CDP will assist the RTG in working with civil society, the private sector, and external agencies to lay down clear objectives, identify constraints, and implement a work program that will address these constraints and objectives. These efforts are primarily reflected in a Development Matrix, as well as a Partnership Matrix that articulates the technical assistance arrangements with domestic and international partners. The CDP is a new activity which supports the development approach envisioned in the RTG's own Holistic Development Framework and the World Bank's Comprehensive Development Framework. The convergence of these approaches was highlighted by Mr. Wolfensohn's launch of the RTG's Ninth Plan preparation process in February 2000. The CDP brings together technical assistance and capacity building needs, private sector and civil society involvement, and grant resource mobilization, all under one umbrella. By recognizing that the Government is in the driver's seat and by garnering the participation of the private sector and civil society, the CDP ensures that reforms gain momentum from forces within the country. In addition, by emphasizing open consultation and broad dialogue, the CDP fosters transparency and good governance within a democratic framework. An added advantage of the CDP is that it provides the foundation for a Bank adjustment loan, in the event that the RTG requires such assistance to deal with an unforeseen crisis. This document describes the analytical foundation and strategy proposed under the Country Development Partnership for Competitiveness, including the Development Matrix and the Partnership Matrix. This is the first CDP that has been developed for Thailand. Drawing upon that experience, CDPs for Governance, Social Protection and Environmental Management are expected to be put in place in the coming months. J. Shivakumar World Bank Country Director, Thailand Acknowledgements This Report has been prepared in close collaboration with the Royal Thai Government (RTG) by a team led by Ejaz Ghani. The task team consisted of Michael Markels, M.Vidal, Renuka Vongviriyatham and Tom Rose (financial sector reform), Tanatat Puttasuwan (corporate restructuring & legal reform), Sudarshan Gooptu (public debt management) Magdi Amin (information technology, science and technology), Nat Pinnoi (skill development, competition policy, trade regime), Abha Joshi-Ghani (infrastructure regulatory framework and SOE reform), and Behdad Nowroozi (corporate governance), and Angkanee Luangpenthong (organizing workshop). The peer reviewers for the report were Carl Dahlman and Zia Qureshi. The team is grateful to the peer reviewers and J. Shivakumar, Ijaz Nabi and Homi Kharas for comments and suggestions. This report was discussed at a joint public workshop between Ministry of Finance (MOF), National Economic and Social Development Board (NESDB) and the World Bank on March 15, 2001. We would like to thank all the participants of the workshop in particular: H.E. Khun Chaturon Chaisang (Minister to the Prime Minister's Office), Mr. Jamil-ud-din Kassum (Vice President, World Bank), Khun Sansem Wongcha-um (Secretary-General, National Economic and Social Development Board), Khun Sommai Phasee (Deputy Permanent Secretary, Ministry of Finance), Khun Damri Sukhotanang (Director General, Office of Industrial Economic, Ministry of Industry), Khun Pirash Thajchayapong (President, National Science and Technology Development Agency (NSTDA), Ministry of Science, Technology, and Environment), Khun Chana Kasipar (Chairman of the Subcommittee on Vocational Education and Training Reform) and Khun Wilaiporn Liwgasemsan (Senior Advisor for Policy and Plan, NESDB). We would also like to thank the aid agencies for their contributions to the CDPC programs, including Asian Development Bank (ADB), International Labor Organization (ILO), United Nations Industrial Development Organization (UNIDO), United Nations Development Programme (UNDP), United States Agency for International Development (USAID), Kenan Institute Asia, Japan External Trade Organization (JETRO), Japan International Cooperation Agency (JICA), Japan Bank for International Cooperation (JBIC), European Commission, German Technical Cooperation (GTZ), French Government, and Australian Agency for International Development (AusAID) Finally, we would like to thank the government agencies for their kind contribution to the report. Khun Porametee Vimolsiri, Khun Piyanut Pibulsarawut, Khun Thanin Pa- am (NESDB); Khun Pongpanu Svetarundra, Khun Ketsuda Supradit (MOF); Khun Atchana Waiquamdee (BOT); Khun Atchaka Brimble (BOI); Khun Chartri Sripaipan (NSTDA); Dr. Thaweesak Koanantakool (NECTEC); Dr. Surpiya Sithikong (Ministry of Industry); Dr. Areepong Bhoocha-oom, Dr. Pallapa Ruanggrong, Trevor Bull (OSD); Peter Raymond (Arthur Andersen); Simon Leary (PriceWaterhouseCoopers); Roger Sawdon (W.S. Atkins). CHAPTER 1 A. INTRODUCTION 1. A key objective of the Ninth Plan is to support economy recovery and enhance medium-term competitiveness. The Ninth Plan strategy is to cement recovery in the short-run, and lay the foundation for competitiveness aimed at achieving high quality and balanced growth in the medium-term. 2. Although recovery is on track, it remains fragile. Exports and fiscal stimulus have been the key drivers of recovery. This needs to be broadened to include private investment and consumption as the other drivers to help cement the recovery. Looking forward, a broad-based recovery could be constrained by the remaining high level of NPLs, and the inability of the banks to lend to credit-worthy customers including the SMEs. 3. Along with the weak balance sheet of the private sector (both banks and firms), structural weaknesses have emerged in three critical areas that could constrain Thailand's medium term competitiveness. These include: > The need to strengthen knowledge base-addressing skills gap, and improving quality and coverage of education; mainstreaming information technology; and enhancing science and technological capability. Strengthening the knowledge base will enable the Thai firms to compete more effectively, and be able to take advantage of the new opportunities arising from globalization. > The need to modernize the infrastructure regulatory framework to improve the efficiency and delivery of public services. A modem and efficient physical infrastructure will help to reduce the cost associated with infrastructure bottlenecks faced by the Thai firms. > The need to further improve the business environment and enhance competition-- corporate governance, trade and investment regimes, competition policy--so that scarce labor and capital can be utilized in the most productive sectors. In addition, an appropriate macroeconomic environment, by signaling the right relative prices (domestic interest rates and exchange rates), will enable the Thai firms to respond to emerging market trends. 4. Building on the government's own participatory process for the 9th plan, a development policy matrix has been prepared, through a participatory process. The development policy matrix identifies the key areas of reform, the objectives of reform, specific policy and institutional changes to be implemented with a timetable for its implementation, and the TA and capacity building needs to support the implementation of the Thai reform program. The Development Policy matrix is attached as Chapter 2 of this report. 1 5. Thailand has mobilized more than US$ 60 million in grant funds and TA to support the implementation of the reform program on competitiveness. The program will be financed by existing TA loans, grants, and through the mobilization of additional grant funds. Given the recent increase in public debt, Thailand will exercise caution with regard to borrowing future loans. Table 1: Grant Funds and TA to Support CDPC TAISM TOTALCO T (a n1"VTFD5 FIMWC.APn 2! L MAVAJ SOUNDMACROMIC 11 SILAGENNGFiAcALANDCORFORAIE m SIRNnREM HE iMMDGFONKM M27s5A 2,4,S; IV. NfINIEIN GINASTRLUtI REDGULA1IV FRANMhAND5OE 1 RREPM 6,i1a. V. SII1INGrhE tsINi9;ENVEMN1EcIr 39,1M iotdl ________ _74f69_ _47701101 6. The CDPC program is being led by MOF and NESDB, and the relevant line ministries. Along with the World Bank, most UN agencies, ADB, bilateral aid agencies, and civil society will participate in the program. A coordinating group consisting of staff from MOF and the NESDB is being established to oversee the program. In turn, these two central agencies will coordinate with the line agencies. Working groups have been established in all areas being supported under the program, and regular workshops have been held to deepen the reform program. A series of consultation has also taken place with rural NGOs on the CDPC. 7. Implementation. The implementation of the CDPC will be monitored by the Government (NESDB, MOF) with the support of the Bank, other donors, local partners from the civil society, and the private sector. An implementation workshop will be held every six month where the Government will report on the progress. These workshops would be public, and will involve the participation of the civil society. The public nature of the workshop will help implementation by adding credibility and accountability to the program. B. FRAMEWORK FOR THE COMPETITIVENESS PROGRAM 8. Competitiveness has emerged as a key issue confronting the policy makers in Thailand. Loss of competitiveness is argued to be a major cause of the economic crisis in Thailand. This is reflected in the changes in total factor productivity, which collapsed from around 3 percent per annum in 1986-1990 to 0.1 percent in 1991-95. As a result, GDP growth declined by almost 2 percentage points in the years leading up to the crisis. These productivity trends, in turn, were in part the consequence of faulty incentives that resulted in imprudent and unprofitable decisions by financial and non-financial corporate agents. Structural reform initiated in response to the economic crisis has sought to change the incentive structure to instill prudent decision-making and avoid the excesses that led 2 to the financial collapse'. In the medium term will require the vigorous implementation of the reform program. Figure 1: Total Factor Productivity Growth 10 0% S.O>/o . 3 yars moving 5.0% _7 3 ea e 0.0% X -5 0% _ TFP -15.0%__ 982 94 19869 1988 990 1992 199a '999 1998 20909 Source: Bank Staff calculation 9. The broad framework for competitiveness is organized as follows. Financial and corporate sector reform (including rationalization of laws governing creditor-debtor relations) that were initiated at the height of the financial crisis in 1997-98 aim to strengthen the incentive framework governing the allocation of capital and monitoring of projects, thereby maximizing the return to capital. These reforms exert pressure on firm owners/managers to produce at their competitive frontiers and may be called the determinants of the demand for competitiveness. Consultations with market players and key policy makers helped identify the key themes and the detailed reform program. The proposed program will support and track progress on these themes and identify the key decisions that need to be taken to maintain the reform momentum. 10. The principal focus is to extend the reform program by explicitly incorporating into the competitiveness framework measures that address the remaining constraints on competitiveness. The program will focus on three critical areas. First, the knowledge base of the country will be enhanced to enable the Thai firms to compete in a globalized world. The emphasis would be on education and skills, information technology, and science and technological capability, all of which are vital to strengthening the capability of Thai firms to compete in an increasingly knowledge driven economy. This may be called supply-side measures to strengthen competitiveness. Second, and another important supply side variable, is the relatively high cost of infrastructure services, which reduces the ability of the Thai firms to compete in the international markets. The program will help to improve the delivery of infrastructure services through the modernization of the regulatory frameworks (including SOE reforms), increased participation of the private sector, and the resulting improvements in the provision of infrastructure services. Third, and finally, the demand-side measures will focus on improving the business and macroeconomic environment facing the firms. The business environment will be improved through the implementation of the new laws on competition policy, and reform of the trade and investment regimes. Increased domestic ' See Thailand: Social and Structural Review; Beyond the Crisis: Structural Reform for Stable Growth (19732-TH, January 25, 2000) for a detailed discussion on the loss of competitiveness leading up to the crisis. 3 and external competition will force firms to increase their productivity. An appropriate macro-environment will help firms to respond to the changes in relative prices and market trends. Finally, in all of the above, a special focus will be on providing an enabling environment for the growth of the SMEs, which account for a large share of jobs and output in the country, and supporting balanced and high quality growth. C. THE COMPETITIVENESS PROGRAM Maintaining Sound Macroeconomic Management 11. Thailand has adopted and will continue to maintain appropriate macroeconomic policies to support recovery and enhance competitiveness. Monetary policy is accommodative and supportive of recovery. The BOT has continued to make progress with the implementation of the inflation targeting framework. This, however, is still at an early stage, with inflation forecasting models and institutional arrangements - including formal central bank independence--still being developed. Within the context of managed floatation, BOT foreign exchange rate market interventions are limited to smoothing operations. Figure 2: Real GDP and Real Credit 101 i CDPandCr.-dit(1997Q2 - 100) 97 R.1,~, - 9s _ 9709> 97123 97Q*4 98C1 '48c2 98093 98042 99Q21 99C22 99<:2 Source: Bank Staff calculation. 12. Fiscal stimulus has been instrumental in the recovery of Thailand, and fiscal consolidation will require increasing attention over the medium-term. The medium- term, the modernization of public debt management and tax collections departments will help achieve fiscal consolidation and reduce the level of public debt. Thailand wishes to achieve a fully integrated debt management operation, as per international sound practice, to be retained within the Ministry of Finance (MOF) with appropriate information systems, analytical tools and staffing. The program will facilitate the establishment of a debt management decision-making structure in government that permits vulnerability, risk and cost to be more judiciously assessed in a sovereign balance sheet framework. An appropriate road map of technical assistance and training activities, systems upgrading and customization is being developed by the authorities with financing from the Asian Development Bank, the U.S. Treasury, the World Bank and the Thai Government's own funds. Discussions with other interested donors (such as JEBIC (Japan)) are also underway. 4 13. The tax collection departments--Revenue, Excise, and Customs-are also being modernized to enhance their ability to collect revenue more efficiently and transparently. These departments, for example, will be making greater use of information technology to improve taxpayer accounts, identify arrears, help with audit, and provide timely management information-all of which will help strengthen the ability to collect revenue efficiently and transparently. The program, with the help of EMAL, will provide technical assistance to the Revenue Department with the introduction of the automated audit selection system and the tax identification number system. The assistance to the Excise department will include modernization of electronic data imaging and processing system and improved statistical tools for forecasting revenue. Strengthening Financial and Corporate Reform 14. NPLs have declined across all sectors and reported NPLs have dropped to 17.7% of total loans as of January 2001. New NPLs have slowed, but NPL re-entry has increased. The number of commercial banks has declined to 13 due to consolidation and closure. The state bank, Krung Thai Bank, has been split into a good and bad bank, which should accelerate the resolution of its NPLs. Private banks have raised $ 7.3 billion in tier 1 capital from private investors since the crisis broke. Four domestic banks have now majority foreign ownership. Total capital raised by financial institutions (including injections of public funds into state banks) from January 1998 to June 2000 amounted to around US$ 22.5 billion, which enables them to meet the provisioning rules under the forbearance program. However, because of regulatory forbearance and insufficient transparency of financial institution balance sheets, the full extent of unrealized losses is uncertain. Partly as a result, investor interest in recapitalizing private banks has waned. The refinancing plan for financial sector restructuring costs is not clear. The supervision regime is being strengthened, evidenced by Cabinet and Council of State approval of the Draft "Financial Institution Law" in Ql 2000. The BOT is reengineering its supervision function and risk-focused supervision is being phased in.2 15. Key challenges remain. The key short-term issues on financial reform include: (i) transition strategy for full enforcement of international and BIS standards related to loan impairment and collateral; (ii) possible adjustments to the public support scheme for capitalization of private banks and implementation of the proposed centralized asset management corporation; (iii) expedite the resolution of NPLs in state banks; (iv) increase the court capacity and process to adjudicate loan and mortgage enforcement cases; (v) implement the application of new accounting and financial reporting standards; (vi) confirmation of the plan for fiscalization of financial sector restructuring costs; and (vii) enact the proposed amendments to the Financial Institutions Law and the Central Bank Act. The medium term agenda is to (i) further rationalize and strengthen the banking sector: (ii) fully implement the proposed laws, and enact the proposed Deposit Insurance Act with appropriate transitional arrangements; (iii) implement risk based supervision; (iv) deepen capital markets, starting with implementation of reforms 2 See Thailand Economic Monitor, December 2000, for a detailed assessment of the financial sector. 5 underway for the government bond market, and (v) engage the private sector and investors in dialogue over the medium term strategy. 16. The program, while continuing to provide technical assistance, will help to engage market participants and the authorities in a strategic reassessment of financial sector and debt restructuring. To resolve failed banks, including the management and disposition of assets from the intervened banks and FIDF - owned AMCs; to recapitalize and strengthen remaining core financial institutions (both private and state-owned); to enhance markets for bank shares, franchises (of intervened financial institutions) and assets (including NPLs) by introducing full transparency on losses and selling assets already in the public sector in a well planned and measured fashion; by strengthening key institutions, such as credible credit rating agencies, credit bureaus, asset management companies; to assist the transformation of existing financial institutions to better meet the challenges of a more open and competitive financial system; to assist with strategy and implementation of the government bond market, and the new public debt management office; to strengthen supervision of banks, securities and insurance firms; to increase market discipline via enhanced disclosure requirements and a limited deposit insurance regime. The TA tasks for financial sector work for this fiscal year (FY01, Thai fiscal year is October 1, 2000 to September 30, 2001) have already been funded. Corporate Restructuring 17. The Government has pursued a three-part restructuring program consisting of (a) more credible threats to impose losses on debtors (e.g., through foreclosure or receivership) and encourage cooperation with voluntary restructuring efforts; (b) elimination of potential impediments to corporate restructuring; and (c) development of processes for out-of-court workouts. Thailand has made progress on corporate restructuring, although there is room for improving the quality of restructuring. Figure 3 shows that at the end of July 2000, a cumulative total of 281,222 cases were restructured (Baht 1.66 trillion). This is a significant progress over 1999 (173,709 completed cases for a cumulative total of Baht 1.07 trillion), and 1998 (9,015 completed cases for a cumulative total of slightly over Baht 100 billion). But there is room for increasing the pace and improving the quality of restructuring. 6 Figure 3 Progress on Debt Restructuring 1800.0 r-- - - - - ~-- - - - -- - --- - 60 0% 160.0 1400.0 C 0.o0 Completed 1200.0 40 00/0 Restructuring Source:In- Ban process 800f0 Restructuring 600j0 2000,/ 4NPLst(% ofLoans) 400.0 200.0 -00 Source: Bank ofv hailand 18. The backlog of cases in the Civil Courts poses a serious threat to the resolution of distressed assets. The backlog is estimated to be about six to seven years for judgments, and an additional one to two years to auction the collateral once a judgement is reached. At the end of September 2000, 46% of the target cases with credit exposure value over Baht 1.19 trillion failed the CDRAC process and have proceeded to the courts. Most cases are filed in the Civil Court. Several remedial measures can be implemented immediately: (1) The Civil Courts can establish a special division to process commercial cases which involve financial institutions, this will accelerate the pre-trial phase. This can be accomplished by issuing a ministerial decree; (2) proactively engage the pre-trial mediation support that was mandated by the Cabinet in August 2000 (a budget of Baht 254 million was approved by the Cabinet); and (3) in the Civil Court of Southen Bangkok, where most of the non-performing loan cases are filed, there are approximately 130 judges, and only about 20% are senior judges. Non-performing loan cases are more complex then other cases, and require knowledgeable and experienced judges. Due to the shortage in the number of judges, a postponement of a typical court hearing often takes up to four months, which fuirther delays the judgement process. Senior judges and experienced administrators should be dedicated to the commercial mortgage enforcement cases. The number of judges could be increased and adequate training and institutional building capacity support should be the priority of the Courts of Justice. 19. The amendment to the Code of Civil Procedures on default was passed into law in March 2000, but the impact on judgement rates has been minimal. The amendment eliminates a frequent delay tactic by enabling judges to issue a judgement in favor of the plaintiff if the defendant fails to appear for a hearing. However, since the enactment of the new default procedures, creditors have reported increasing delays in the civil court process for enforcing security interests, and in the execution of the auction of the collateral in the market. Reform is needed to speed up the auction process. For example, reserve prices could be eliminated so that the collateral would be sold in the first round of auction instead of delays from multiple rounds. 7 20. The enactment of the Evidence Laws would accelerate the legal process in the resolution of NPLs. The Ministry of Justice drafted two Evidence Laws in 1997 called the Codes of Civil and Criminal Procedures (Evidence). The Council of State has completed the review of the laws in mid-2000. The passage of these two laws would allow the Courts of Justice to issue decrees to streamline the evidence discovery process and provide for continuous hearings to speed up the process of rendering judgements. 21. Few, if any, mergers between distressed firms have occurred. The merger process in Thailand is time consuming and onerous, requiring six months notice period during which creditors may object to the merger or demand immediate payment. The Civil and Commercial Codes and the Public Limited Companies Act require that the two merged entities lose legal status before creating a new legal entity out of the two independent units. In addition, although the Government has extended numerous tax incentives to induce mergers such as the waiver of tax on non-cash mergers, the actual transactions are few. The primary obstacle to the mergers is the inability to carry net losses from the merger candidates forward into the new entity. 22. The tax incentive measures have not been widely utilized. Since January 2000, Thailand has announced several measures aimed to facilitate debt restructuring. Property transfer tax is waived if the proceeds from the sale of the collateralized property (sold to either financial institutions or to a third party) are used to repay outstanding bad debts. The announcement was not widely known to the public, and in some cases, the Land Department failed to grant the tax waiver on transactions that comply with the announcement. The Small Industry Credit Guarantee Corporation (SICGC) was mandated to provide credit guarantees for credit lines granted to small-medium-sized borrowers involved in debt restructuring. However, SICGC requires guarantees from the counterpart financial institutions or a personal guarantee, which has made the instrument unattractive. Both of these measures have not produced the "quick win" debt restructuring results desired by the Government. 23. The program will maintain the effort led by the Thai reform program to accelerate voluntary, out-of-court restructuring through policy advice and technical assistance provided to the Bank of Thailand, Corporate Debt Restructuring Advisory Committee, Thai Bankers' Association and the Federation of Thai Industries. Activities are focused on coordinating actions among key players; providing legal framework for insolvency and technical recommendations; developing guidelines for voluntary debt restructuring; training; institutional strengthening (CDRAC); advice on monitoring corporate financial performance; advice on development of institutional capability to restructure and support SMEs. The CDPC will assist the authorities on ways to expedite and increase the quality of enforcement process through the civil court and the bankruptcy process. Legal and Judicial Development 24. A number of changes in the field of economic laws have been completed. The efforts have been segmented among responsible line ministries and in particular areas (e.g. bankruptcy, secured lending, credit information, financial institutions, foreign ownership). The sweeping agenda for developing and implementing economic law 8 reform in Thailand has barely begun to be addressed systematically. There is a need for participatory, consensus-based reform efforts. In amending the existing laws and enacting new laws, public and private interests need to be incorporated into the participatory development process. Thailand's strategy is to undertake a comprehensive and strategic reform of economic laws to strengthen the legal framework as well as the enforcement mechanisms to sustain economic recovery and meet the challenges of the new economy. Although the reform agenda is in the developmental stage, specific areas of reform include: restructuring financial institutions and strengthening supervision, securities regulations, taxation; corporate reorganization, bankruptcy/insolvency; improving the pace and quality of debt restructuring by state banks by removing legal liability from state bank employees who accept reasonable write-offs in debt restructuring; strengthening the legal framework for secured lending, debt collection, and security enforcement mechanism; corporate governance against international benchmarks; removing hurdles to competition; accelerating state enterprise reform; strengthening public participation and accountability, combating corruption; strengthening intellectual property and trade laws; and strengthening the capacity to use IT to expedite transparency and govern white-collar fraud and new forms of E-crimes. 25. The comprehensive economic law reform presents important challenges and opportunities for shaping the nature of the emerging institutional framework The new constitution and subsequent organic law call for a separation of legal matters and responsibilities between the executive and judicial functions of the Ministry of Justice. To strengthen Thailand's legal and institutional framework and capacity in such a comprehensive modality would require strategic coordination and leadership of economic law reform; and country-led, consensus-based consultative process. Strengthening the Knowledge Economy 26. The program will integrate assistance in three key areas: information technology, skill development, and science and technology-all of which are critical for Thai firms to remain competitive in an increasingly global and knowledge driven economy. Information Technology 27. The digital divide between Thailand and its neighbors and within Thailand between urban and rural is on the increase. There are growing gaps between Thailand and its regional counterparts in the application of information technology in commerce, academia, and society, as well as a wide gulf between rural and urban areas in the use of IT. Internet penetration (internet users as a share of total population) is less than 2%, compared to global average of 5%, and penetration rates exceeding 30% in more developed Asian economies. Computer penetration, e-commerce revenues and teledensity all indicate that Thailand is increasingly on the wrong side of the digital divide. To date, the limited diffusion of the Internet in non-metropolitan areas limits the size of domestic market for IT applications. 9 28. There are eight key factors constraining internet diffusion, particularly for electronic commerce. (i) High access costs, particularly leased line services, which are a direct result of the Communication Authority of Thailand's regulation of internet service provision. (ii) Low awareness, particularly in rural areas and in small and medium-sized enterprises, of the utility of IT; (iii) a lack of trust in online transactions, which limits e- commerce and e-government acceptability; (iv) a lack of specific skills and management capacities in such areas as back office process management and fulfillment, XML programming, and English language; (v) slowly emerging legal and policy framework, a factor which was set back further by the delay in passing the Digital Signature and National Information Infrastructure laws before Parliament was dissolved; (vi) underdeveloped third-party and intermodal logistics, and online payment systems; (vii) poor diffusion of common standards in both industry and government in such a manner as to promote interoperability and data sharing; (viii) a lack of Thai product development, due to difficult market conditions for Thai technology entrepreneurs. 29. Thailand is in the process of developing a comprehensive information technology strategy - IT2010. The strategy has three major aims: (i) to facilitate access to information technologies to different segments of the society; (ii) to promote the diffusion of e-commerce; and (iii) to optimize service delivery, participation, and governance through electronic government. The National Information Technology Committee (NITC) located in the Prime Minister's Office is coordinating this task. 30. As an interim measure in the context of E-ASEAN, NITC has recently embarked on e-Thailand, a project designed to accelerate the diffusion of information technology in six areas: (i) e-society: reduce the digital divide for the Thai population, and help build an e-Thailand community, and preparing people to participate in the next phase of the electronic era; (ii) e-government: develop linkages in the public sector, which will enable the public to access services electronically, and promoting transparency in government procedures; (iii) International economic policy: develop cooperation between the public and private sectors, so that the e-Thailand concept can be realized. (iv) Liberalization to promote, develop, strengthen and enhance competitiveness in the local IT and telecommunication sectors; (v) Making e-commerce transactions based on international standards, while developing secure electronic payment and settlement within the country; and (vi) Developing interconnectivity and interoperability standards to facilitate the government, the private sector and the general public to go online. 31. The implementation of the new constitution and the process of decentralization make it necessary to dramatically scale up e-government capacity. An updated e-government strategy is required which defines the overall vision, articulates clear implementation objectives, builds awareness, and presents specific e-government plans for each government agency. As a first step NITC and NECTEC need to assess the organization and technical readiness of these institutions. NECTEC is now in the process of developing a draft strategy. Given the complexity of this task, the capacity of NITC will need to be substantially upgraded as has been included in the National Information Infrastructure Act. Some leading e-government agencies appear to be the Revenue Department, Department of Commercial Registration, Ministry of Commerce, and Department of Local Administration. 10 32. The Cabinet has approved NECTEC's Framework for Thailand e- Commerce Policy, but important legislation was delayed. Two laws, the combined E- Transaction-Digital Signature Act and the National Information Infrastructure Act, have been forwarded to Parliament. The pending agenda items will await the new Parliament. NECTEC, meanwhile, will develop a package of laws which address security and online payments. A second challenge for the government will be to accelerate reforms in the telecommunication sector and coordinate these reforms to better serve the needs of the National IT strategy. 33. Reforms in the area of skills development will also need to be responsive to the National IT strategy. This will require strong coordination channels between NECTEC and the Department of Skills Development. 34. The program will provide assistance in preparing the National IT strategy; and developing a rural information technology plan. The key areas of support include: (i) legal framework for e-commerce; (ii) cost of leased line access; (iii) developing technical, programming and foreign language skills; (iv) increasing local content; (v) enhancing progress in developing and implementing a coherent e- government strategy that can catalyze the emergence of a private IT sector. Skill Development 35. While the average worker in Thailand is becoming more productive, the observed mix of skills in the labor market is not well suited for the emergence of a knowledge economy. The productivity of the labor force in Thailand has been growing steadily in all sectors (with the exception of agriculture) since 1980, mostly as a result of an increase in the share of the labor force with more than primary education. Thailand has a strong foundation in basic education, however, important challenges remain in terms of post-basic education and development of workers' skills. Thailand has important manpower gaps in the areas of science and technology. In part this can be explained by Thailand's low enrollment rates in scientific disciplines relative to other countries in the region. 36. The problem is reinforced by observed low levels of employer-provided training. While modern sector wage employees have on average 9 years of formal education, much lower levels of education persist among older workers and workers in the informal sector. This restricts labor mobility to modem sector wage employment and imposes constraints to the adoption and diffusion of new technologies. The distribution of employer-provided formal training is uneven, with the incidence of training being particularly low among small and medium-size companies. Almost forty percent of manufacturing establishments provide formal skills training to some members of their workforce, either through in-house training programs, or through courses given by external training providers. However, many firms do not train (SMEs in particular), given high labor turnover (and loss of training investments). Poor knowledge about how to train or the benefits of training and restricted access to appropriate financing mechanism are other constraints. 11 37. The institutional framework developed to stimulate employer-provided training is failing to generate expected results. The tax exemption incentives of 1994 and 1995 are relatively benign, however, there is a very low rate of use by companies. One of the reasons is that tax-based training policies tend to be very diffused and difficult to target. International experience indicates that training tax incentives tend to be used mainly by large companies and multinationals, most of whom already train, so that there is little "additionality". In particular, they do little to induce training among SMEs, the population of firms least likely to train. Table 2 : Thailand: Gaps in Science and Technology Thailand: Estimated Science and Technology Manpower Gap (at current level of demand) Field of Study Planned Output Incremental Demand Manpower Gap 1996 2001 1996 2001 1996 2001 B. Engineering 13,066 17,156 16,294 26,437 4,520 10,963 B. Science 4,938 8,506 9,329 12,970 5,874 7,015 M.Eng/D. Eng. 676 949 856 1,490 180 541 MS/DS 874 1,338 761 986 (113)1 (352) Source: Lall, 1999. Raising Competitiveness in the Thai Economy, Country Employment Policy Review, ILO. Table 3: Formal Enterprise-Based Training in Thai Manufacturing 1997 (%) Any Formal 28.3 62.2 82.1 40.1 Training In-house 14.2 44.1 71.8 35.5 Formal Training External 22.8 54.0 79.1 34.0 Formal Training Use Training Tax 0.8% 4.0% 3.6% 1.9% Exemption Source: 1997 Thailand Industrial and Competitiveness Survey (TICS) Notes: Survey of 1277 firms in five sectors, with approximate inverse sampling weights Size definitions: Small <50, Medium 50-300, Large <300 employees. 38. Thailand is reviewing its strategy on skills development, particularly in small and medium sized enterprises. The objectives include: (i) reforming the current Vocational Education Act and the Joint Public and Private Sectors Committee for Occupational Development Act; (ii) strengthening the organizational structure, financing mechanisms, and medium term strategy for specialized institutes; and (iii) amending the Skills Development and Promotion Act. 39. Institutional capacity within the Sub-Committee of Vocational Education and Training will be expanded. The committee needs to be endowed with appropriate human and financial resources. There is also need for a set of analytical studies on linkages between the supply of vocational education and the demand of different types of 12 skills. For instance, it is critical to understand how alternative policy variables (e.g., tuition, maximum enrollment rates, academic requirements, information about job opportunities and expected wages within alternative fields) affect individuals demand for training and how these can be accommodated to ensure that the supply of skills meets the demands of the industrial sector. 40. In the case of specialized institutes detailed working plans will be developed. These should lay down targets in terms of training, identify evaluation mechanisms, and design a sustainable financial plan with an appropriate balance of public and private resources. The organizational structure of the institutes and needs in terms of infrastructure and human resources should need to be reassessed to guarantee that objectives are achieved cost-effectively. 41. A major challenge will be to ensure that the Skills Development Fund does not generate incentives that go against its original intend of increasing employer- provided training. To this end, the regulations governing the operation and financing of the fund will need to be carefully assessed. It is important to involve in this process workers and firms and ensure that the final regulatory framework benefits from the experiences of other countries which have adopted similar systems. 42. The Gini coeficients for education in Thailand have been increasing during 1980-1990. This signifies that general education coverage has been declining. Improvements in quality of education complement the expansion of education opportunity as well as enhancing productivity growth. If poor children can only attend low-quality school, they are less likely to get high-paying jobs, and parents are disinclined to send them to school and keep them there. In order to enhance productivity and competitiveness, Thailand has to move forcefully to ensure universal access to quality education for its next generation. Figure 4: Gini Coefficients for Education for Selected Countries nId K M I s . caYI h p 0 T h a1 l d Source: World Bank, 2000, Quality of Growth. New York, Oxford University Press. 43. The program will support the following activities: (i) reforming the current Vocational Education Act and the Joint Public and Private Sectors Committee for Occupational Development Act; (ii) strengthening the organizational structure, financing mechanisms, and medium term strategy for specialized institutes; and (iii) amending the Skills Development and Promotion Act. Additional work is needed to develop a comprehensive strategy in the area of skill development. 13 Science and Technological Capabilities 44. Thailand is lagging behind other countries in the region in terms of indicators that reflect technology-related capabilities. Slow growth in total factor productivity, stagnant market shares of technology intensive exports, and low levels of R&D activity are some manifestations of Thailand's weak technological capability. It has been estimated for instance that in order to reach the level of technology development that Korea had reached around the early 1 980s, total R&D expenditure as a share of GDP in Thailand would have to increase five fold; the share of business-funded R&D would have to increase more than twenty fold, the number of researchers per 10,000 population would need to increase four-fold, and the number of international patenting per million population would need to increase around six fold.3 45. The problem is being addressed at three levels - the enabling policy and institutional environment, the university system, and at the firm level. Technology development is constrained by the low levels of competition, shortages of manpower trained in scientific areas, or the lack of a body of technological capabilities within firms which affect the acquisition, utilization, adaptation, and development of technology as well as inventions, innovation, and diffusion processes. The second cause is an inefficient institutional framework to stimulate technological development in the presence of market failures (e.g., public benefits arising from increased diffusion of knowledge, skill and experience in an economy). 46. The government has started to address the problem through a detailed evaluation of the current institutional framework for technology development. First, on the policy framework and institutional structure for industrial technology development in Thailand, and a second which reviews the organization and strategies of a number of industrial technical support institutes. The first study has two major aims: i) to review the structure and functioning of the whole array of government policy and institutions that are concerned with industrial technology development; and ii) to examine the role of NSTDA within that overall structure. The second study examines the effectiveness of technical institutes in delivering satisfactory services to target clients while attaining financial independence. 3Technopolis, Enhancing Policy and Institutional Support for Industrial Technology Development in Thailand, December 2000. 14 Figure 5: International Comparison of R&D Investments Q 3.0 - 2.5 c 'O1 i rTJ_LV+ Source: Thailand Economic Monitor, June 2000. 47. Preliminary results suggest that existing tax incentives for R&D are not generating expected results, and are geared excessively toward stimulating capital investment, rather than knowledge investment, and may not create sufficient new technology development. Grant-based mechanisms may be more appropriate. The incentive system managed by BOI has had little impact as it is only used by few firms. The incentive system managed by MOF includes depreciation provisions which allow machinery and equipment for R&D to be written off faster than other forms of equipment. The incentive package also includes a 100% expensing of R&D expenditure, plus a further 100% credit against income taxes. It seems unlikely that the incentive is affecting R&D activities or stimulating firms to deepen their technological development capabilities. First, firms are reluctant to claim tax allowances because of uncertainty about eligibility. Second, the current basic definition of R&D tends to exclude a large proportion of the activities that contribute to technology development. Finally, operation procedures are complex. While in principle NSTDA has a grant-awarding facility, it has only awarded eight grants during the 1992-97 period. A recommendation is to consider a flexible grant-based mechanism to stimulate firms to undertake technology development activities involving forms of design and engineering, basically operations that do not meet the eligibility criteria of the R&D tax incentive. 48. A simplification of the current system and better targeting of R&D activities could improve efficiency. Thailand should explore (i) the need to continue operating the scheme on the basis of firm's payments to approved R&D organizations; (ii) the possibility of redefining R&D in ways that come close to meeting priorities at the current stage of development in Thailand; and (iii) the value of operating both the BOI and standard MOF schemes in parallel. 49. Utilization of available soft credit mechanisms remain low. One of these mechanisms is the Research and Technology Development Revolving Fund managed by MOSTE. Low utilization is explained by several factors, including that financing 15 organizations operate like conventional banks, expecting well-defined projects with 'visible' commercial returns. 50. A plan to establish the National Science and Technology Policy Committee has been submitted to Cabinet. Combined with university autonomy, this presents an opportunity to dramatically enhance technology manpower. Through programs such as the Royal Golden Jubilee Program, Thailand has made important strides in creating a base of Ph.D. graduates necessary to serve Thailand's long-term knowledge needs. However, at their current scale, these programs are unlikely to be sufficient to provide a replacement resource for academic positions. They will not be sufficient to serve any increase in R&D by the private sector, or an expansion of the university system. A formal university-based research system, based on international norms, is necessary. University autonomy creates an ideal opportunity to create such a system. 51. Linkages between technology institutions and industrial firms need to be strengthened. Only 3-5% of industrial firms use the services of science and technology programs. In addition, there is a lack of institutional specialization and a pervasive overlapping functions among MOI Institutes, NRCT, NSTDA, TRF, TISTR and Universities. 52. A technology development strategy will need to be developed. This strategy will need to emphasize intra-firm technology transfers, a system of financial incentives that encourages better coordination between research institutions and firns, and a rational utilization of public resources which makes proper assessment of market failures such as those related to the production of public goods (e.g., basic research) or the existence of knowledge spillovers (e.g., adoption of a technology by early users). 53. The success in the implementation of this strategy will also depend on NSTDA flexibility to restructure its own organization. For instance, by exiting areas where there is a duplication of responsibilities with the private sector, universities or other government agencies. 54. The CDPC will provide assistance to develop a comprehensive framework for technology development. Recognizing the critical link between long-term competitiveness and science and technology development, the National Science and Technology Development Agency has been reviewing all elements of the Government's science and technology policies in the context of international best practices. Modernizing Infrastructure Regulatory Framework and SOE Reform 55. Thailand has a sizable private sector involvement in infrastructure: toll roads, a sky-train, leased port facilities; a public private partnership for the operation and maintenance of the first subway line, a substantial Independent Power Producer (IPP) Program under implementation; Build Own Operate (BOO) water treatment plants, and substantial private sector investment through Build Transfer Operate contracts in telecommunications. However, state investments dominate and markets are not yet liberalized, open for effective competition. Tariffs and cost recovery issues continue to hinder private participation. Stakeholder and employee issues have also dominated the 16 privatization program and have generated negative sentiments. The Government recognizes the need for engagement with the SOE employees and other stakeholders. A public campaign program has been launched. However, solutions such as the creation of employee fund or promotion of employee stock distribution still remain at the design stage with negligible impact. The Government is studying private participation in pensions and health insurance. 56. The Government is undertaking a program of divestiture of state enterprises. Progress has been made in the legal framework for privatization. The Corporatization Act has been passed, the Alien Business law has been amended and regulatory guidelines for some sectors have been drafted. Detailed restructuring plans for the telecommunications and energy sectors are ready. An independent telecommunications regulator is expected to be in place and the corporatization of Telecommunications Organization of Thailand (TOT) and Communications Authority of Thailand (CAT) has begun. A plan for institutional reformn, privatization and restructuring of the transport sector (aviation, maritime and land transport) has been completed and detailed legislation for each sub- sector has to be prepared. The sales process has begun for certain key SOEs such as Thai International Airways. The Ratchaburi Power generation plant made a very successful initial public offering in October 2000. The two telecom companies, TOT and CAT, the Petroleum Authority of Thailand, the Port Authority of Thailand and the Airport Authority of Thailand are being readied for privatization. 57. Telecommunications: The Act on Organization of Radio Frequency Wave Allocation and Supervision of Radio Broadcasting and Radio Television Broadcasting Business; and Telecommunication Business B.E. Frequency (The Frequency Management Act) became effective in March 2000 and will allow for the establishment of the National Communications Commission (NCC). The NCC will facilitate the establishment of an independent regulator in the sector. The selection committee for the telecommunication commissioners has begun work. The Telecom Bill which provides guidelines for the regulator was endorsed by the Cabinet in March 2000 and has been presented to the Parliament. The conversion of existing Build-to-Operate (BTO) concession contracts essential for full liberalization of the telecomm sector remains one of the most challenging issues in the sector. The Cabinet recently issued a resolution specifying guidelines for conversion concessions and a committee has been formed to oversee the conversion process which is expected to be completed within the next six months. 58. Transport and Energy: The cabinet has approved the regulatory framework and market structure for the energy and transport sectors and independent regulators in these sectors are expected by the end of year 2001. A comprehensive Transport Sector Framework Reform Study was undertaken and completed in April 1999. The report provides a framework for improved policy and planning in the transport sector, development of modal regulatory framework and the direction of reform for the 14 SOEs in the sector. The partial privatization of Thai Airways is expected and the privatization of AAT is being accelerated. In the energy sector, NEPO has prepared detailed plan for transition to a power pool. The partial privatization of Ratchburi power generating plant is on schedule and the IPO in October 2000 was oversubscribed. 17 59. Water and Wastewater: The Government has recently launched a study for the restructuring and privatization options for the water sector. Reforms in the water and wastewater sector have lagged behind, mainly because Government's focus has been on other sectors. The Government now plans to accelerate reforms in this sector. The study is scheduled to be completed in 2001. 60. The program will assist with the process of implementing the policy, regulatory and operational reforms in infrastructure through advice on preparation of regulatory framework and legislative drafting; setting up of regulatory bodies in each sector targeted for privatization and capacity building of regulatory body including training, and review of the corporatization process of selected SOEs. More specifically, the following activities are being supported by the CDPC: (i) Water and wastewater: Water sector restructuring and privatization options study (WB/PHRD); (ii) Telecommunications: Preparation of telecommunications licenses, institutional strengthening of the telecommunications commission, regulatory training and capacity building and radio spectrum management (PPIAF); (iii) Transport: (a) State Railways of Thailand (SRT) restructuring study (EMAL); follow up work including privatization options for SRT and pilot privatization of selected core activities is under preparation and funding is being sought; (b) Express Transport Privatization study (EMAL); (c) regulatory framework and draft legislation for aviation and railways (EMAL); and (d) regulatory framework for maritime and road transport is being planned and funding is being sought; and (iv) Regulation: regulatory training and capacity building (EMAL), and institutional strengthening of Office of State Enterprise ( PPIAF). As other aid agencies are also engaged in this sector, the Bank will not take the lead here. Strengthening Business Environment Corporate Governance 61. There is broad recognition that poor systems of corporate governance contributed to the financial crisis by shielding banks, specialized financial institutions, and corporations from market discipline. The Thai corporate governance practices were characterized by ineffective boards of directors, weak internal controls, unreliable- financial reporting, inadequate protection of minority shareholder rights, lack of adequate disclosure, poor audits, and lax enforcement to ensure compliance. 62. The Government's reform strategy has focused on streamlining institutional arrangements, enhancing the reliability of financial information and disclosure, improving corporate board oversight and effectiveness, and increasing shareholder rights. It has also focused on improving the effectiveness of the legal and regulatory framework for enforcement of laws and regulations related to public companies. 63. The Public Companies and Securities and Exchange Acts are being amended to increase shareholders' rights and the ease with which they exercise those rights, improve accountability of boards of directors and officers, and improve enforcement of sanctions for violation of law. The enforcement of these provisions is intended to improve incentives and the business environment. Efforts are underway to 18 strengthen institutions responsible for ensuring accountability and compliance, including professional organizations, and to improve and enforce mechanisms such as the code of ethics and code of conduct for accountants and the code of best practices for directors. All listed companies are now required to have an audit committee of boards of directors. 64. An Institute of Directors has been established and 120 executives of Thai companies will have completed the Institute's training program for company directors. Significant effort has been expended to improve accounting and auditing standards and practices in the last few years. While further improvement in accounting standards is warranted, the challenge now is to ensure the proper and effective application of these standards as early as possible. 65. While significant progress has been made, the reform agenda remains unfinished. The most critical challenge lies in implementation--changing from a culture of minimal disclosure to one of adequate disclosure. Beyond the adoption of international standards, this involves strengthening institutions and setting mechanisms to ensure that the standards are applied properly. Minority shareholder rights must be strengthened, and accountability and liability of directors in the case of breach of duty must be clarified further. Efforts should intensify on improving effectiveness of the legal and regulatory framework. 66. Amendment of laws, including the Public Companies and Security and Exchange Acts, has been very slow and needs to be expedited. Amendment of the Accounting Professional Act to allow establishment of the Thailand Financial Accounting Standards Board and strengthening of the ICAAT needs to be expedited as well. Now that the corporate governance framework is largely in place, efforts should focus on transparency of business practices and promotion of business ethics. Efforts are also needed to promote good corporate governance among non-listed companies, especially medium-size firms. 67. The program will provide policy advice and technical assistance to promote corporate transparency and accountability. The emphasis will be on improving the effectiveness of internal and external monitoring mechanisms, the proper application of improved financial reporting and disclosure standards, and the streamlining of enforcement processes and procedures. Competition Policy 68. Thailand has enacted and drafted a number of laws aimed at improving competitiveness, productivity, and help facilitate technology upgrading. The new pieces of legislation or amendments to existing laws include the Foreign Business Act, the Patent Act, Law on Property Leases for Commerce and Industries, and amendment to the 1991 Trademark Act. To enhance product quality and increase the acceptability of Thai products in international markets, since 1997, Thai industrial standards are now systematically based on international standards. 69. To keep pace with rapid changes in market structures in the financial and real sectors, the Government has revamped the Price Fixing and Anti-Monopoly Act 19 of 1979. In 1999, the Parliament enacted the Business Competition Act, 1999 and the Price of Goods and Services Act, 1999 to replace the 1979 Act. These two acts aim to ensure fair competition, provide consumer protection and combat monopoly practices. 70. The Business Competition Act of 1999 embodies modern concepts of anti- competitive behavior. It provides a sound legal basis for the three substantive areas of competition policy: prohibited practices; abuse of dominant position, price fixing and collusion; and mergers and acquisitions, joint ventures and strategic alliances. The Act provides for the creation of an independent, free of conflict competition policy authority to oversee implementation of the Act. As required by law, the twelve members to the Committee have been appointed. 71. The 12-member Committee on Business Competition was established in November 1999. This Committee is located in the Department of Internal Trade, Ministry of Commerce. A key task is building the Committee's capacity to oversee and implement the Business Competition Act. Starting in the second half of 1999, the Government started implementing a program to provide the Committee with technical skills and resources for implementing the new Act. Under this draft, implementing regulations have been developed along with the corresponding guidelines and interpretation documents, containing standards, methodologies, and administrative procedures for the enforcement of the remedies and actions provided by the law. Training programs and seminars were also conducted for Committee staff on key competition policy issues. 72. The momentum on capacity building needs to be maintained, implementation regulations need to be finalized, and a manual of operating procedures and staff training needs to be prepared. The Competition Commission would also develop a strategy for disseminating information to the public and for encouraging a voluntary compliance strategy. Trade Policy 73. Even before the crisis, concerns were raised about Thailand's ability to compete in international markets. The reason for this was the stagnant share of Thai exports in world trade. Indeed, a review of the international trade flows by sector, before the crisis, shows Thailand's market share as stagnant, while the market shares of countries such as China were growing rapidly. 20 Figure 6: World Market Shares for Exports of Electronics 12 00% --- 0 Vletnonl 10 00°/ Thailandl D 0 China a c% Philipplns 0 o Ulaysia 6.00% _ 2 00% 2 00% 'dP 11-1 11 1t " _ 11 N leN - Source: Thailand Economic Monitor, June 2000. 74. Thailand will face increased global competition. A mechanism to evaluate the level of competition faced by countries is to compare the correlation between the structure of their exports. Table 4 presents the correlation at the three-digit SITC level across East Asian Countries. The results indicate high correlation across most of the countries. Thailand faces competition from all East Asian countries (Indonesia to a lesser extent), and in particular China, which has only weak correlation with the majority of other countries. Table 4: Correlation of Structure of Manufacture Exports (1995) CH HK IN KO MA PH SI TH TA CH - _= HK 0.59 1 IN 0.35 0.17 1 KI 0.21 0.40 0.1 I MA 0.17 0.43 0.18 0.73 1 _ I = PH 0.31 0.51 0.21 0.66 0.82 1 SI 0.2 0.36 0.07 0.66 0.74 0.62 TH 0.57 0.54 0.21 0.52 0.59 0.58 0.70 1 TA 0.35 0.44 0.09 0.64 0.67 0.56 0.81 0.76 1 Source: Lall et al (1999). 75. Import tariff surcharges introduced during the crisis have been eliminated. Thailand has largely maintained an open and export-oriented trade regime and reduced its dependence on customs receipts as a revenue source. Currently, customs revenue accounts for about 8 percent of tax revenue. Applied tariffs, in September 1999, ranged from zero to 242 percent (out-of-quota duty on raw silk) with a simple average of 18.4 percent (compared to 23 percent in 1995). With the onset of the financial crisis, a 10 percent surcharge was applied to all imports bearing duties of 5 percent or more. These surcharges have now been eliminated. 21 76. Thailand intends to continue the process of liberalization by further compressing the tariff bands, and reviewing the system of special duties and exemptions. The government is currently preparing for the introduction of tariff changes within the context of AFTA agreement. According to this agreement, Thailand will have to have 85 percent of tariff line items within the 0 to 5 percent band. A certain core set of items is common to all AFTA members but broadly the individual countries are free to choose the list. Currently about 73 percent of lines are at the 0-5 percent level. The other 12 percent remain to be identified. The list will eventually be expanded to cover 100 percent of tariff line items. Thailand cannot retain significant duties on capital goods and raw materials and still be competitive with regional imports of finished goods at 0 to 5 percent. The Government has established a Tariff Committee within the Ministry of Finance to carry out a comprehensive review of the tariff schedule. It is likely that the rates for raw materials and capital goods would be reduced to zero and the other rates set in a range up to a maximum of 15 percent. Zero rates at the raw and capital end would alleviate some difficulties with rebates (drawbacks) and would reduce the need for certain BOI tariff exemptions. Table 5: Structure of Applied Tariffs in Thailand 6. Bound tariff lines as a share of total lines 72.4 73.5 rDuti-free tariffolines 2.6 3.6 Non-ad valorem tariffs/all tariffs 31.1 21.3 . Tariff quotas/all tariffs 0.9 0.9 5. Tariffs with no ad valorem equivalent 2.5 0.3 6. Simple average bound tariff rate 37.6 33.1 Agricultural products (HS 01-24) 40.0 37.8 Industrial products (HS 25-97) 37.3 32.0 7. Simple average applied tariff rate 23.1 18.4 8. Simple average applied MFN tariff rate 23.1 17.1 Agricultural products (HS 0 1-24) 43.1 32.1 Industrial products (HS 25-97) 20.7 14.6 9. Domestic tariff peaks 0.1 7.6 10. International tariff peaks 59.3 47.7 11. Overall standard deviation (SD) 16.9 17.9 12. Coefficient of variation (CV) 0.73 0.97 Source: WTO, 1999. 77. The Customs Act was amended in March 2000. This will allow introducing the WTO Agreement on Customs Valuations which will help to increase transparency, reduce uncertainty and corruption in the process of import valuation, and allow the implementation of an electronic system for the submission of claims and an ex-post auditing system based on importers and exporters customs records. To be able to compete in a global economy Thailand needs to reduce logistic costs. To this end, consolidating customs reform is a critical factor. Substantial progress has been made in this area. One of the main implications of the electronic system is that medium and large importers would be able to clear their merchandise without inspection, thus reducing clearing time considerably. Guidelines and regulations for the implementation of the Act have been drafted and are expected to be approved. The Customs department would then 22 need to focus on implementation and the completion of its internal plan for administrative reform including human resources management. 78. Thailand has continued to open its services sector to foreign investment. Low FDI in services tends to hamper productivity improvement in critical business services, and also cripples efficiency improvement in the economy at large. Pre-crisis, Thailand had one of the tightest restrictions on Foreign Direct Investment (FDI) in services, especially in communication and financial sectors, in East Asia. 79. Since 1997, Thailand has made new commitments with respect to insurance, banking, and other financial services, first in its Schedule annexed to the Second Protocol to the General Agreement on Trade in Services (GATS) on Financial Services. The 25% limit on foreign equity participation in banking and other financial services, except insurance, has been lifted. In the insurance sector, 25 new insurance licenses (12 life and 13 non-life insurance companies) were granted to enhance the competition. The amendment of insurance laws to further increase foreign equity participation in this sector is underway. 80. Thailand has included accounting, auditing and bookkeeping services in its GATS Schedule of Specific Commitments. Cross-border supply of such services and movement of natural persons have been left unbound. In contrast with accountancy services, in practice, legal advice can be sought abroad. Although foreigners are not allowed to practice law in courts, they may act as legal advisers or work as solicitors for companies if they have work permits. Table 6: Limits of Foreign Ownerships in Service Sector Foreign Ownership Service Sector Limit (% of total equity) Life Insurance 25 Non-life Insurance 25 Other Financial Institutions None Telecom. Suppliers 40 Accountancy 49 Architectural and Engineering 49 Air Transportation 49 Maritime None Source: WTO 1999. Trade Policy Review in Thailand. 81. Thailand has not included a number of professional services in its GATS schedule, especially in light of the shortage in science and technology personnel. The sample of science and technology related professional services not included in GATS consists of research and development services, integrated engineering, testing and analysis services, technical consultation, geological services, medical, dental, and veterinary services. Since foreign individuals may not be licensed as certified public 23 accountant (CPA) in Thailand, the number of internationally qualified auditors are limited. 82. Increased market access for foreign service providers (cross-border supply) in Thailand's GATS schedule should be considered carefully as a vehicle to foster the competitive environment. However, it is also crucial to evaluate the impact of the Thai liberalization programs on various sectors so as to identify the most vulnerable ones. Supporting measures can then be formulated. Foreign Investment Regime 83. BOI has revised its investment policy to reflect the changing economic and investment environment and to lessen the tax burden on the government budget. A new policy took effect on August 1, 2000. The new key provisions include the following measures. First, to facilitate foreign investment, the new criteria allow total foreign shareholding in almost all eligible activities according to the Foreign Business Act (FBA). Only activities listed under List One of FBA require Thai majority shareholding. Second, the system of performance-based system has been adopted requiring a promoted investor to provide evidence of qualified performance before claiming the proposed incentives. Third, the new policy also aims at promoting quality improvement. A project with more than 10 million Baht investment (excluding the cost of land and working capital) must obtain a quality certificate such as the ISO 9000. Fourth, Small and Medium Size Enterprises with only a million Baht investment (excluding the cost of land and working capital) will now be able benefit from investment incentives from BOI. Fifth, to encourage prudent financial strength, the requirement of a debt-equity ratio has been reduced from 4:1 to 3:1. Intellectual Property Rights 84. Thailand has amended its legislation in order to implement the WTO agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which was required of developing country members of WTO by January 1, 2000. In particular, the Patent Act was amended to introduce the principle of national treatment and elimination of the requirement that products under a patent must be manufactured locally. Since its inception in 1997, the Intellectual Property and International Trade Court has been working on all civil and criminal cases involving intellectual property rights violations. The Coordinating Center for Suppression on Intellectual Property Rights Violation, under the Department of Intellectual Property, Ministry of Commerce has apprehended approximately 5,000 cases involving 5 millions pieces of goods, since 1996. The first nine months of 2000 alone accounted for 1/3 or 2,000 cases and /2 of the evidence. The cases are roughly split in half between violations of Trademark and Copyright Acts. 85. Thailand has made efforts to lessen the problem of infringement. Typically, most infringement cases have been prosecuted as criminal offences. However, these are often not sufficient to deter infringement because of the disagreement between the right holders and the defendants in determining the value of the counterfeit. Consequently, the revenue and custom laws have been rarely invoked. The government has stepped up the 24 efforts against infringing production, but it needs to do more to tackle the increasing level of illegal optical media production. The right holders have been actively involved in the enforcement process in coordination with the Thai authorities. Small and Medium Scale Enterprises 86. SMEs make up a large portion of Thailand's national economy in terms of output, employment and effective utilization of regional resources. More than 90% of establishments in the manufacturing sector in Thailand are SMEs, which are scattered both in the Bangkok Metropolitan area and the regional areas. They employ about 50% of industrial workers and contribute substantial amount of the total manufacturing value added. The competitiveness of SMEs, thus, is a crucial component of the national competitiveness agenda. The SME Promotion Act was enacted in February 2000. The SME Promotion Committee, chaired by the Prime Minister, and the Office of Small and Medium Sized Enterprise Promotion, have been established to promote the development of SMEs. The SME Promotion Fund has also been created with the seed money from the government and other private sources. The Fund can be used for lending to SMEs or groups of SMEs and for funding projects of government departments, other government agencies, state enterprises, and private sector organizations as approved under the SME Promotion Action Plan. These measures, however, have not fully addressed the constraints facing SMEs. 87. The support for SMEs will focus on the following areas: (i) strengthening of technological and management capabilities; (ii) developing skills and knowledge (iii) enhancing market accessibility; (iv) strengthening of the financial support system; (v) establishing a conducive business environment; (vi) commercialization and incubating programs; and (vii) developing networks and clusters. Additional work is needed on SMEs, given its potential for job creation. D. DEVELOPMENT IMPACT 88. The program will help to address the critical bottlenecks to achieve the development outcomes under the Ninth Plan. The development targets for the Ninth Plan are still being formulated. Tentatively, the program will try to achieve the following objectives. First, it will support Thailand to cement its recovery. Second, over the medium-term, by helping to address IT and skill development as well as improved labor and capital allocation, this program will help to achieve a GDP growth rate of around 5%. A key source of growth will be the improvements in total factor productivity growth, and increases in private investment. TFP growth is expected to increase to 2-3 %, while private investment rate is expected to increase by 3-4 percentage points from its current depressed levels of around 12% . Third, increased growth will help to create new jobs-- around 200,000 to 300,000 people per year. This should be sufficient to absorb new graduates every year. In addition to the above macro targets, the program will help to modernize institutions and market governance that would minimize boom and bust cycles in the future. 25 89. The specific targets for policy reforms and the outcomes are listed in the Development Matrix in Chapter 2. In particular, the CDPC will help to: > Achieve fiscal objectives by modernizing public debt management and tax collection departments. > Strengthen the balance sheet of the private sector (both banks and firms), improve the supervisory regime for the financial sector, and deepen the capital markets. > Enhance skill development, improve the quality of education, mainstream IT, and strengthen S&T capability. > Modernize the infrastructure regulatory framework and facilitate the role of private sector in the provision of services. > Improve the business environment that will contribute to increased private investments and enhanced productivity. 26 CHAPTER 2 Thailand: Development Policy Matrix for Competitiveness > Maintaining Sound Macroeconomic Management > Strengthening Financial and Corporate Reform > Strengthening the Knowledge Economy > Modernizing Infrastructure Regulatory Framework and SOE Reform > Strengthening the Business Environment 27 THAILAND: DEVELOPMENT POLICY MATRIX FOR COMPETITIVENESS' Thai Reform Program I Implementation Benchmarks yCaacit Buildin I. MAINTAINING SOUND MACROECONOMIC MANAGEMENT 1. Maintaining sound economic management Objectives: Thailand has made enormous progress * Monetary Policy Board at the BOT has * Technical Assistance (TA) to develop since the crisis in terms of achieving financial increased the transparency of monetary policy Automated Audit Selection System, Tax stability and resuming economic growth. Thailand operation and the accountability of policy Identification Number System (PINTHIP), and has a satisfactory macro framework in place. The makers. Transaction Control Log and Accounting institutional framework for managing monetary * Tax collection system is being modernized in system for the Revenue Department (ongoing and fiscal policies are being modernized to prevent order to achieve fiscal consolidation. with expected completion date: I QFY02, the boom and bust cycles in the future. World Bank Economic Management Assistance Loan, EMAL) 2 * TA to modernize and enhance the effectiveness of the Excise Department (ongoing with expected completion date: IQFY02, the World Bank EMAL). * TA to provide IT enhancement for the Treasury Department (ongoing with expected completion date: IQFY02, the World Bank EMAL). 2. Modernizing public debt management Objectives: Public debt has increased as a result of The Ministry of Finance has established the Public The Bank, along with the IMF, provided early the crisis. Looking ahead, fiscal consolidation and Debt Management Office. An implementation assistance on the framework, organizational modernization of public debt management will be "road map" for an institutional capacity building, arrangements, human resource requirements and needed to reverse the run up in public debt. technical assistance and information technology systems needed for best practice debt management. systems upgrading program has been finalized. The Bank organized a Workshop on Public Debt This document does not fully reflect activities of all aid agencies. Some activities shown under "Need for capacity building" do not yet have adequate funding in place. 2 FY01 is the Thai fiscal year-October 1, 2000 to September. 30, 2001, and 2Q, 3Q, 4Q are the second, third, and forth quarter, respectively. 28 Thai Reform Program |[ Implementation Benchmarks Capacity Building The Public Debt Management Office (PDMO) was This program aims at achieving key identifiable Management with international experts and the created within the MOF (on September 20, 1999) milestones over the next three-four year period. In Thai authorities. In addition, the Bank assisted with the mandate to be a single office in the short term these include: with the development of an implementation plan, Government with responsibility for public debt * Public debt data consolidation and satisfactory including assistance available from various management in Thailand. PDMO plans to achieve progress towards comprehensive tracking of partners. Future capacity building needs include: a fully integrated debt management system within contingent liabilities, including the guaranteed * Advisory services to PDMO on Project the Ministry of Finance (MOF) with appropriate and non-guaranteed debt (domestic and Implementation Management, Information information systems, analytical tools and staffing. external) of State-owned enterprises (2 Q Technology, Sovereign Debt and Risk This involves putting together a debt management FY01). Management (2Q 2001; World Bank Financial decision-making structure in government that * Necessary legislation to be adopted Sector Implementation Assistance Loan, permits vulnerability, risk and cost to be more establishing PDMO's mandate within the FSIAL). judiciously assessed in a sovereign balance sheet etbihn DOsmnaewti h SA) juamework.y assessed in a sovereignbalancesheet government to manage the country's public * Human resource development activities, framework. debt and track its contingent liabilities (2Q including workshops, training programs, and FY01). study tours (2Q 2001; World Bank FSIAL). * IT systems design, selection and * Advisory services on Systems Project implementation proceeds as per "road map". Management, Legal and Regulatory aspects on * Building institutional capacity within the Sovereign Debt Management; Risk PDMO towards minimizing key-person risks Management and Sovereign Debt Management through continuous training (including training System (starting between the 3Q and 4Q 2001; of trainers), either in-country or abroad on key World Bank FSIAL). functions of a debt management office * Asian Development Bank (ADB) has provided proceeds satisfactorily. Technical Assistance to strengthen the capacity * Formulation and dissemination of operational of PDMO (ongoing). guidelines and procedures in the front, back, and middle office of the PDMO (3Q FY01). * PDMO to actively disseminate debt management principles and guidelines and has a regular program of capacity building in place for debt managers in state-owned enterprises and other stakeholders on risk management practices and control measures (4Q FY01). * Working group established, with members from PDMO, SOEs, and other stakeholders, to regularly meet on debt management strategy (4Q FY01). * Regular stock taking and appraisal against milestones to determine next steps. Periodic 29 Thai Reform Program Implementation Benchmarks Capacity Building workshops would provide a good forum for the relevant stakeholders to undertake such training and stock-taking exercises (first such stock taking workshop to be completed by 2Q .____________________ _ FY01). II. STRENGTHENING FINANCIAL AND CORPORATE REFORM II.A FINANCIAL SECTOR REFORM A. Managing Problem Institutions 1. Orderly resolution of the 56 closedfinance comp, ies Objectives: The FRA has completed the sale of The FRA has auctioned all core assets of the 56 World Bank advisory services have been provided core assets of the 56 finance companies and has failed finance companies. to the FRA on due diligence, transaction started distribution of proceeds. The AMC needs * The FRA plans to complete the adjudication of structuring, auction process and adjudication of to have adequate capacity to fulfill its role in the claims and distribution of proceeds (2Q creditor claims. management and disposition of purchased assets. FY01). The AMC has submitted to MOF a preliminary * The MOF plans to complete a review of the plan for the management and ultimate disposition AMC and its activity which will cover the of assets acquired from the FRA. FRA has initiated adequacy of its supervision, and to adopt a the process of adjudication of claims and final plan for the management and ultimate distribution of proceeds to creditors. disposition of assets by the AMC (IQ FY01). 2. Restructuring and recapitalization of the core afiancial institutions Objectives: Significant progress has been made in The Government implemented public support for World Bank, in cooperation with the Fund, has the restructuring and recapitalization of financial the recapitalization of private banks in 1998, with provided policy advice on the privatization of institutions. NPLs have declined from a peak of total funding of US$7.5 billion. So far, private intervened banks and the restructuring and 48% in 1999 to 22% in Oct 2000, but they remain banks have utilized US$1.76 billion. Two recapitalization of the remaining core financial high. The authorities need to continue to take intervened banks, NTB and RSB, have been institutions. timely action against the weakest financial privatized. * World Bank is providing assistance to the institutions and ensure that all financial institutions * The Government completed (IQ FY01) its authorities and the private sector on the public meet capital standards. internal review of the public support scheme dialogue on "Strategic Reassessment of (including the August 14 package) for the Financial Sector and Corporate Debt recapitalization of banks. The scheme will Restructuring in Thailand" (ongoing) expire end of 2Q FY01. * World Bank is providing advisory services to * Government established an AMC specifically the BOT to develop a model which (1) for non-performing loans from KTB, which estimates recapitalization needs based on will be managed by professional, third party different assumptions and (2) monitors 30 Thai Reform Program Implementation Benchmarks Capacity Building asset managers (IQ FY01). financial performance of financial institutions. * Cabinet has approved the final terms of Need for training the BOT examiners to use privatization of Bangkok Metropolitan Bank the model and make the consolidated estimate (IQ FY01) and will adopt final plans for the of recapitalization needs (Ongoing). resolution of Siam City Bank (3Q FY01). * Advisory Services on the implementation of * The Government plans to adopt a time bound FIDF-owned AMCs (ongoing; Policy and plan for the transfer of a majority of Bank Thai Human Resource Development fund, PHRD) to private parties (2Q FY01). * Advisory Services to assist the KTB "good * In the medium term, the Government remains bank" with strengthening risk management, committed to the transfer of a majority of KTB treasury, asset/liability management and to private parties, such that the bank operates performance accounting, in preparation for todprivt pmrtie, atl h bank operate eventual conversion to commercially based corporate governance and private ownership. governance. (IQ-4Q FY01; PHRD) B. Strengthening the Financial Structure 1. Formulating a medium-term strategy for the financial sector Objectives: The Financial Services Task Force has The Financial Services Task Force completed and The Bank organized the Conference on Reform of completed a preliminary report which establishes a sent to the Ministry of Finance a draft report on the the Commercial Banking Sector and round-table medium term strategy for a sound and efficient strategy for a sound and efficient banking sector in discussions for the Task Force. banking sector. The next step is to identify the key early 2000. The SEC submitted to the Task Force * The Bank will help to organize a series of actions and implement them. its medium term strategy for the Capital Market in roundtable discussions and conferences, August 2000. including market participants and the Thai * The MOF will comment and the Financial authorities, to reassess clearing of NPLs; Services Task Force will complete its final competitiveness for Thai firms, lenders and report. The report will include borrowers in the new economy; and improving recommendations on changes to law, investor interest in Thai securities. (ongoing; regulation, policy and institutional ASEM) arrangements necessary to implement the strategy. The recommendations will seek to enhance competition such that customers are better served, to develop and modernize both banking and capital market infrastructure and to supervise financial institutions for safety and soundness (3Q FY01). 2. Developing capital markets Objectives: The bond market needs to be further The task forces established under the Domestic The Bank assisted the Ministry of Finance to developed to ensure successful placement of large Bond Market Committee have finalized terms of establish the Domestic Bond Market Committee, 31 Thai Reform Program Implementation Benchmarks Capacity Building volume, Government bond issues; to fund growth reference, have initiated all tasks and have a time and provided assistance to all eight task forces. by Thai corporations; to facilitate the conduct of bound plan for completion of remaining tasks for * Removal of Tax Impediments to Bond and monetary policy by the BOT, and encourage risk the eight task forces. The Committee is an Derivatives Market Development: Advisory diversification at the macro level and by banks to interagency group; each task force is led by a services were completed (IQ FY01). help them manage maturity mismatches, interest committee member. * Real Time Delivery vs. Payments Settlement rate and liquidity risk, thus enhan,ing systemic The SEC has issued policy guidance regarding System Project (Phase II): Advisory services stability of the financial sector and resiliency of the legal recognition of various derivatives instruments to define business requirements and set system economy against external financial shocks (such as and prudential regulations for intermediaries which specifications for Bahtnet 2 (completed IQ short-term capital flow). deal in derivatives instruments traded on the OTC. FY01). The SEC plans to strengthen prudential regulation * All the task forces under the Domestic Bond * Establishment of Thai Securities Institute: the and supervision of the securities intermediaries in Market Committee will complete the tasks project includes curriculum development, order to enhance soundness of firms and stability under the Committee's plan (4Q FY01). training, and software development. The goal of the market. * The Cabinet plans to review the "Derivatives is comprehensive training and certification of Derivatives market needs to be developed for both Bill", and upon enactment, the SEC will securities market professionals, and increased commodities and financial instruments in both establish the derivatives market for financial awareness among prospective retail investors. organized and OTC forms. instruments (FY02). A TOR has been drafted. The project is * The SEC and the BOT will create and planned for 2000-2003 (between the TSI and a implement an action plan which enhances the bilateral donor). secondary market architecture, including * Initial study for architecture of secondary bond trading platforms (exchange vs. OTC), and market, including standardization of market clearing and settlement (government and transaction conventions, advice on trading corporate bonds). system architecture, and clearance and settlement architecture (Planned for 3Q FY01). * Need for specialized assistance to implement action plan in trading, settlement and hedging. (FYOI-02 -- funding not available). * Kenan Institute Asia with funding from USAID is supporting a project for the U.S. Bond Market Association to provide technical assistance to the Thai Bond Dealing Center. The project aims at developing bond market standards in Thailand to build trust, accountability and confidence in the market. * Kenan Institute Asia with funding from USAID is providing technical assistance and training to improve the Stock Exchange of Thailand's knowledae of derivatives and 32 Thai Reform Program Implementation Benchmarks Capacity Building systems to offer derivatives products. * Kenan Institute Asia with funding from USAID is providing support to the Thailand Securities Institutes (TSI) of the Stock Exchange of Thailand (SET) to organize, develop, and deliver economics education programs for Thai youth and to promote Thai capital markets. * Kenan Institute Asia with funding from USAID is providing support to the Thai Credit Bureau to promote the concept and the use of credit bureaus in Thailand to the public, industry, and government. 3. Modernizing specializedfinancial institutions (SEIs) Objectives: Preliminary assessments of the The MOF has developed an action plan to The Bank assisted the MOF to develop a time governance and financial operations of the rationalize roles, scope of activities, and fiscal bound action plan to rationalize the roles, scopes of government-owned specialized financial treatment of the largest SFIs, and is now activities and fiscal treatment of the eight key SFIs. institutions (SFIs) (which play a major role in the implementing the plan. The government is * Advisory services to assist with financial system) indicate the need to upgrade planning to shift the responsibility for prudential implementation of action plans. (3Q FY01; their risk management capacity, internal controls supervision of SFIs from the MOF to the BOT. AUS AID) and corporate governance. The Thai authorities The roadmap for institutional strengthening of the * Advisory services on institutional plan to strengthen the financial operations of the Government Housing Bank (GHB) has been strengthening of GHB: credit risk management SFIs: rationalizing the roles, scopes of activity and completed. (underway); mortgage insurance; treasury, fiscal treatment of SFIs in view of the current * BOT will prepare and submit to MOF a asset/liability management, processes and transformation of the financial system; preliminary time-bound action plan (3Q FY0 1) systems (2Q FY0 I through 4Q FY0 1; PHRD). strengthening corporate governance of SFls, such and will adopt a final action plan (IQ FY02) * Advisory services and systems procurement that they fulfill their policy mandates while for the supervision of SFIs. The final plan will for the new Thai National Real Estate Center operating on a safe and sound basis. include the preparation and submission of (ongoing; World Bank/FSIAL). appropriate amendments to the law and the issuance of enhanced prudential rules. * Need for series of studies and advisory * MOF will develop a time bound plan to servive sudy ofpleed) Phase I recapitalize all SFls based upon independent Development of a time bound plan (to be diagnostic reviews and/or BOT examinations completed 2Q FY01); Phase III: Drafting (IQ FY02). implementing legislation and regulation. * The Government plans to adopt a time bound (Planned for FY02 funding not available) plan to establish a National Real Estate dvisory Services on Home Ownership Information Center, which will reduce* dsoySrce onHm Owrhp nfmi Cee wi wlru Assistance Project. This would provide low- 33 Thai Reform Program Implementation Benchmarks Capacity Building information inefficiencies in the market (4Q income housing policy options (underway - 2Q FY01). FY01 through end of FY01; World The Government plans to develop programs BanklFSIAL). and instruments in social housing finance in * ADB has provided TA to assist the which any private mortgage lender can choose Restructuring of Specialized Financial to participate, thereby creating a level playing Institutions including Industrial Finance field among GHB and private financial Corporation of Thailand (IFCT), Small Industry institutions (Home Owner's Assistance Finance Corporation (SIFC), and Small Project) (IQ FY02). Industry Credit Guarantee Corporation (SICGC) (ongoing). * GTZ is assisting BAAC (Bank for Agriculture and Agricultural Cooperatives), in strengthening its capacity to provide appropriate and sustainable financial services. C. Enhancing the Regulatory and Supervisory Regime 1. Introducing a comprehensive supervision framework Objectives: Financial institutions are currently MOF has established a Task Force of all The Bank has provided assistance to the Task supervised by several agencies. This approach can supervisory authorities whose purpose is to identify Force on international experience regarding options result in gaps in the supervisory process and and draft those regulatory changes required to for supervision of financial conglomerates. inconsistent decisions regarding the supervision of supervise financial conglomerates effectively and * Further advisory services and workshops will financial functions. The Thai authorities plan to to ensure consistency in the prudential regulation support implementation, including regulatory harnonize prudential regulations and supervision to and supervision of all financial institutions. changes required to supervise financial promote fair competition among different financial * The Task Force will submit its report and conglomerates (to be completed 2Q FY01; institutions and the soundness of the sector. recommendations. The authorities will PHRD). implement recommendations on an expedited basis (2Q FY02). 2. Strengthening supervision and regulation offinancial institutions Objectives: Banking supervision is being The new drafts of the Central Bank Act and the The Bank has provided extensive advisory services strengthened in terms of supervisory capacity and Financial Institution Act were approved by the and training on the preparation of new supervisory legal foundations for the regulation and supervision Cabinet and by the Council of State. regulations, the development of specific rules on of financial institutions. * BOT, consistent with the new legislation, will accounting, disclosure and auditing for financial develop and implement a core set of revised institutions, training of supervisory staff locally prudential regulations in line with best and abroad, developing best practice in supervision international practices (IQ FY02). process and manuals. . BOT has finalized and will adopt specific * Specialized training of examiners in specific accounting rules for financial institutions, aspects of risk focused supervision, pursuant to international accounting standards information system supervision and 34 Thai Reform Program Implementation Benchmarks I Capacity Building (4Q FY01). implementation of the new on-site manual * Streamlined regulatory reporting (both on (underway, to be completed 3Q FY01; consolidated and individual basis) will be PHRD). developed and implemented, and on the basis * Assistance in off-site supervision of this, an effective Early Warning System will (Development of data management be put in place by BOT (3Q FY01). department) (underway, to be completed 3Q * The SEC will issue an administrative guidance FY0 1; PHRD). on its examination of intermediaries' capacity * Preparation of guidelines on external audit of of EDP, risk management and internal control commercial banks consistent with international (Advisory services will start 3Q FY01). standards. (FY02 -- funding not available) * MOF will submit draft amendments to The * Advisory services for the SEC on supervision Securities and Exchange Act to the Cabinet, of electronic data processing (EDP) which will submit the draft amendments to capabilities of securities intermediaries (3Q Parliament (4Q FY0 1). FYOI/PHRD). * SEC will establish a policy for the resolution * Need for advisory services for the SEC to set of distressed or bankrupt intermediaries and international standards for methodology and for investor protection against intermediary certification of property valuation in Thailand bankruptcy (4Q FY01). (TORs are being drafted.) (FY01-FY02-- funding not available). * A second assessment of BOT's supervision capacity according to the BIS core principles will be conducted once the draft "Financial Institutions Law", "Central Bank Act" and appurtenant regulations are enacted. (FY02 -- funding not available) * Kenan Institute Asia with funding from USAID is providing a series of bank specific training programs focusing on risk management, credit managing, corporate governance and internal control. 3. Introducing deposit insurance scheme Objectives: Best practice mandates a limited The Deposit Insurance Act was drafted. * Advisory services for a study of deposit deposit protection scheme to minimize moral * The Government will prepare a time bound dynamics in Thailand (underway, to be hazard and provide sustainable funding of financial plan for the institutional arrangements and completed 2Q FY01; PHRD). intermediaries. staffing of the Deposit Insurance Agency in * Advisory services on organizational design advance of the implementation of deposit and development of manuals for key functions insurance (1Q FY02). of a Deposit Insurance Agency (4Q 35 Thai Reform Program [Implementation Benchmarks Capacity Building FY01 /PHRD). * Public Information to facilitate transition to Deposit Insurance (IQ FY02/PHRD). * Study tour: establishment of deposit insurance agency (4QFYOI/PHRD). * WBI Distance Learning tele-seminar on Deposit Insurance (completed IQ FY01). 4. Strengthening supervision of insurance companies Objectives: supervision of insurance companies The Department of Insurance of the Ministry of * Advisory services to review current legal is being strengthened both by reviewing current Commerce has adopted a program aimed at framework, supervisory regulations and legislation and regulatory regime and by improving developing a new direction of insurance institutional strengthening of the Dol the supervisory capacity. supervision, following recent international (underway; PHRD) practices. This program would involve: * Review of current insurance acts and regulations with a view to meet international practices (to be completed 3Q FY01). * Review structural organization of the Dol, skills mix and information systems (2Q FY01). 36 Thai Reform Program Implementation Benchmarks eCapa Building Il.B CORPORATE RESTRUCTURING A. Strengthening the Legal Framework 1. Improving legislativeframework for debt collection and security enforcement Objectives: To strengthen the institutional The Provisions of Loan Default in the Civil * Technical assistance to provide appropriate capacity and the mechanisms for debt collection Procedures Code were published in the Royal legislative and institutional framework for and enforcement of security rights outside the Gazette and became law in March 2000. secured lending and collateral registration bankruptcy regime and diversify the form of The Secured Lending Act will be considered by the system - a part of the Economic Law collateral for secured lending purposes. Parliament after the general election. Reform Project (2Q FY01; World * The draft Secured Lending Act has been Bank/FSIAL). approved by the Cabinet and being reviewed * Technical assistance to strengthen the by Council of State. Government plans to institutional capacity of the debt collection submit the Secured Transaction Act to the regime - a part of the Economic Law Parliament for approval after the general Reform Project (2Q FY01; World Bank/ election. Thereafter, Ministerial Decree and FSIAL). Regulations on procedural requirements and * Capacity building program to assist MOJ and enforcement will be issued (3Q FY01). MOC in developing the implementation plan * The joint working committee consisting of to establish the Office of the Collateral MOJ and MOC will be established after the Registration, including the identification of separation of the Court of Justice from the the organization structure, human resource Ministry of Justice (IQ FY01). The requirements, IT and technical requirements committee will develop the implementation - a part of the Economic Law Reform plan to establish the Office of the Collateral Project (IQ FY01; World Bank/ FSIAL). Registration, including the identification of the organization structure, human resource requirements, IT and technical requirements, and means of capacity building (2Q FY01). 2. Improving the legislative and institutionalframe orksfor corporate bankruptcies and business reotg nizations, and participatory legal reforms. Objectives: To further strengthen the legislative The Cabinet has mandated the existing legal * Technical assistance for the MOJ "Legal and institutional frameworks to enable the court to "Expert Committee", comprising of experts and Expert Committee" to carry out the review handle the increased volume of filings more stakeholders including government agencies and of the Bankruptcy Act - a part of the efficiently and to make its interpretations and Thai Bankers Associations, to complete a Economic Law Reform Project (completed decisions on insolvency clearer and more effective. comprehensive review of the Amendments to the IQ FY00). Bankruptcy Act, the Code of Civil Procedures, and * Public Participation activities for Thailand the Civil and Commercial Code. Legal Development Project (2Q FY0 1; World * By June 2001, the Expert Committee (with Bank/ FSIAL). 37 Thai Reform Program Implementation Benchmarks Capacity Building the Ministry of Justice acting as a * Central Bankruptcy Court IT/MIS Secretariat) will complete its comprehensive Development Project. To assist CBC in review and make comments and identifying the needs and develop strategic recommendations on the Solvency test. plan to enhance the IT capability to efficiently * The Court of Justice aims to increase the support the increased court filings and public participation in the legal development judgement processes. (IQ FY01/ FSIAL) and judicial reforms (on-going projects to be * Kenan Institute Asia with funding from completed IQ 2001) USAID is supporting a project for the American Bankruptcy Institute (ABI) to provide technical assistance to the Thai Central Bankruptcy Court (CBC) in training and establishing systems to deal under the revised laws with the backlog or corporate bankruptcies. This is in coordination with the World Bank. B. Strengthening the Restructuring Process and Enabling Environment 1. Introducing greaterflexibilityfor state-owned banks to take losses on debt restructuring Objective: The slow progress of debt restructuring The FIDF Board has approved the Principles and * Technical Assistance to FIDF to (1) Develop in state banks is largely due to potential legal Guidelines for Valuation of Debt Restructuring, as the Principles and Guidelines for Valuation of liabilities arising from the State-Owned Enterprise a manual to be used by state banks to facilitate debt Debt Restructuring by State Banks; (2) Develop Legal Code of 1956. Thai authorities plan to write-off in restructuring (completed 4Q FY00). Industry Database to be used as a benchmark provide state banks with principles and guidelines MOF has established a committee to review and for financial forecasts that state-owned banks for decision making in debt restructuring and write- propose amendments to the State-Owned can use as reference in restructuring loans; (3) off that would reduce the possibility of legal Enterprise Legal Code of 1956 to protect Train the state-owned banks and AMCs in the liabilities clouding over state bank employees. employees in State-owned banks from potential roll-out phase (Project completed IQ legal liability problems that could arise in the FYOI/PHRD I). process of restructuring loans. FIDF will finalize the Principles and Guidelines for Valuation of Debt Restructuring, communicate and train stakeholders (state banks, regulators, and auditors), and promulgate the guidelines; and State banks will adopt the guidelines as a working manual ( IQ FY0 1). Submit the recommendations of the MOF committee to cabinet for approval (3Q FY01). 38 Thai Reform Program Implementation Benchmarks Capacity Building 2. Removing tax disincentives to corporate restruct ring Objectives: Business consolidations or mergers In early 2000, MOF issued a Ministerial Decree to * Technical assistance to Thailand Legal are viewed as a market-based tool to aid and waive legal and taxation impediments on mergers Development Project - Judicial Reforms (on- accelerate corporate restructuring. However, so and acquisitions. going, to be completed by 3Q FY01; PHRD) far, mergers between distressed firms have been * The MOF Task Force continues to review * Kenan Institute Asia with funding from few. In part this is because the merger process in other potential tax impediments to mergers and USAID is supporting a study to examine the Thailand is time consuming and onerous. The acquisitions, especially with regards to the impact of Thailand's present tax structure on Civil and Commercial Code and the Public Limited Civil and Commercial Code, Public Company the financial and capital markets from both the Companies Act require that the two merging Act, and the Tax Code. economic and administrative aspects. entities lose legal status before creating a new legal entity. In addition, the tax treatment of the net loss carried forward of the merged entities is viewed as a major obstacle to the transaction. Thai authorities are simplifying the merger process, reducing time and costs, attracting foreign direct investment, and inducing accelerated corporate restructuring. 3. Facilitating information sharing among creditors on debt service performance by individual companies Objectives: Lack of credit information on debt The Parliament has approved the Credit * On-going advisory service on the service performance by individual companies Information Act in principle. A House Sub- establishment of the Corporate Restructuring increases the reluctance of financial institution to Committee was established to review the Act in Database - Sectoral and Profitability Data extend credit. The Cabinet has approved the preparation of the 2nd reading. This Act is (Completed). establishment of two credit bureaus: The Thai currently under review. * Need for advisory and technical assistance Bankers Association and the Government The Thai Bankers Association and the Government support to the two credit bureaus (funding not Housing Bank. Pending the passage of the Credit Housing Bank have each established a credit available). Information Act, the two credit bureaus are bureau and have commenced limited operations. limited in operation. * After review by Parliamentary Sub- Committee, the MOF will submit the Credit Information Act to the Parliament for approval after the general election. * The Credit Bureaus will be fully functioning and operating upon the Act being passed into law (2Q FY01). 4. Enforcing voluntary debt restructuring agreemen ts (DCA /ICA /SA) Objectives: CDRAC's list of target cases has The Government advocated the adoption of Debtor * Technical assistance to CDRAC to provide increased from the initial 702 cases in 1999 to over Creditor Agreements (DCA), Inter Creditor Debt Restructuring Advisors: Corporate 9,000 cases, including small-medium-sized loans Agreements (ICA), and Simplified Agreements Finance and Restructuring Experts to facilitate as of the end of June 2000. To date, most corporate (SA - for SMEs) to expedite completion of debt the voluntary restructuring process monitored cases have been resolved either voluntarily or restructuring within specific timeframe, which by CDRAC (underway, to be completed by 39 Thai Reform Program Implementation Benchmarks Capacity Building through the courts. The remaining cases are mostly include the provision for: (a) the remaining time March 200 1/PHRD) small-medium-sized loans. Approximately 50% of needed to complete the cases, (b) any significant * Technical assistance to CDRAC to (1) train the these cases have been extended, which cause issues/impediments, (c) instances where regulated creditors, debtors, and regulators to better delays in approval of restructuring plans and financial institutions have failed to adhere to all understand the voluntary agreements and potential recovery of problem loans. Thai provisions of the Debtor-Creditor Agreements, and sustainable usage of the agreements over the authorities plan to eliminate delays and further (d) BOT imposition of penalties against financial long term; (2) communicate to the public the strengthen the enforcement mechanisms and institutions for failure to adhere to and enforce all benefits of debt restructuring and the voluntary accelerate the debt restructuring process. provisions of the agreements. debt restructuring agreements * The Bank of Thailand will continue to (ongoing/PHRD). strengthen regulations and provide advisory supports to facilitate the DCA, ICA, and SA process to expedite debt restructuring and eliminate unnecessary delays (IQ FY01). II.C LEGAL AND JUDICIAL DEVELOPMENT 1. Building institutional capacity to undertake cor prehensive reform of economic laws Objectives: A number of changes in the field of * The Cabinet will establish and appoint a * Technical assistance will be provided to all economic laws have been completed since 1997, National Advisory Committee (NAC) three institutional levels: the National Steering but efforts to update economic laws have largely comprising of experts from the public and Committee, the secretariat Office, and the been segmented among responsible ministries. The private sectors, academia, and legal Working Groups, to build institutional government program aims at building and professionals. NAC is an interim mechanism capacity, access international expertise, carry strengthening institutional framework and capacity and its role is to formulate and advise the out strategic implementations, and monitor the to coordinate the economic law reform efforts, and Government on the strategic directions of reform progress (IQ FY01 to IQ to undertake a comprehensive strategic leadership economic laws reform (2Q FY01). FY03/FSIAL). of economic law reform. * MOJ will establish a full-time Secretariat Office responsible for developing the work programs, coordinating the efforts, and carrying out the reform projects (completed IQ FY01). * Working Groups (WGs) will be established to pilot participatory, consensus-based, country- led analyses of law reform issues in key areas. The WGs will develop specific proposals for legal reform in urgent/priority areas. WGs will be served by the Secretariat and submit their recommendations to the NAC (2Q FY01). 40 Thai Reform Program im lementation Benchmarks Ca acity Building III. STRENGTHENING THE KNOWLEDGE ECONOMY III.A INFORMATION TECHNOLOGY 1. Establishing a high-level information technology strategy and implementation team Objectives: Information and Communication * Enhance the role of the National IT * The Bank will provide advisory services in the Technology (ICT) has become integral to the Committee, focusing its mandate on strategy formulation of the National IT Strategy. operational development and competitiveness of development and capacity building, and Knowledge services are being provided for the public, private and the educational sectors. providing it with dedicated, multi-agency, managing the development of the national Strategic guidance and capacity building are multidisciplinary implementation team. strategy including a policy seminar for needed to accelerate development of the ability of * The NITC through NECTEC will establish government awareness building for e- all segments of society to participate in the new National Information Technology Strategy government. economy and to lessen the digital divide among building upon the IT 2000 plan prepared in * TA is needed to provide E-Government various groups of citizens. The National 1995 (2001). Investment Analysis. This TA will enable Information Technology Committee was set up NITC will develop a plan for monitoring NITC/NECTEC to screen, evaluate and according to the Office of the Prime Minster's Thailands progress toward new economy coordinate investment project proposals made Regulation on enhancement of Information objectives. by various agencies in support of the E- Technology Development B.E.2535 as the focal Government initiative, in coordination with the point for IT development. The National Electronics Bureau of the Budget. and Computer Technology Center (NECTEC) * TA is needed to study the establishment of IT serves as its Secretariat. Nonetheless, Thailand is Investment Promotion Office. The office will falling behind regional and international provide potential investors with accurate comparators in key IT benchmarks. The role, information on skill and resource availability capacity and approach of the NITC needs to be in Thailand, enable access to incentives substantially upgraded. offered by the Thai government. * TA is needed to provide Impact Monitoring and Evaluation. This component will strengthen NITC/NECTEC's ability to monitor and evaluate the development impact of IT diffusion projects executed by civil society, academia and the private sector. This mechanism will also lead to more effective strategic coordination with external partners. 2. Promoting rapid diffusion of electronic commerce Objectives: The benefits of electronic commerce, * Strategic Focus. A draft "Framework of * TA is needed to formulate e-commerce policy. including enabling industrial collaboration, Thailand e-commerce policy" prepared by * TA is needed to establish an c-commerce 41 Thai Reform Program Implementation Benchmarks Capacity BuiIdin2 lowering production costs, and enhancing market NECTEC was approved by the cabinet in institute to advance the e-commerce strategy access for Thai producers, are critical to Thailand's October 2000. The strategy will address such as payment and settlement systems, medium-term competitiveness. To accelerate e- specific gaps in e-commerce infrastructure, venture capital, supply chain management, commerce diffusion, Thailand needs a sharper including payments and fulfillment systems. security, and logistics, and to support the strategic vision of how IT will enable The EC Strategy will incorporate mechanisms development of export-oriented supply chain competitiveness. to promote industry leadership and self- management. In December 1998, the Economic Ministers regulation. * The U.S. Chamber of Commerce is providing Committee and the Cabinet approved the * By the end of 2000, ECRC will finalize and training and creating electronic communities establishment of the Electronic Commerce submit strategies of information discrimination for the Small and Medium-sized Enterprises in Resource Center (ECRC), a unit under NECTEC and e-commerce training courses to NECTEC. Thailand and leveraging the Internet as one and National Science and Technology * By the year 2001, NECTEC will be in the component of the partnering process between Development Agency (NSTDA), to be responsible phase of preparation to set up an institute Thai SMEs and U.S. firms. for being the main focal point for coordinating and responsible for testing and certifying standard supporting the development of e-commerce in of telecommunications and electronic products Thailand and components. E-commerce will not function without a strong * By the year 2001, NECTEC is going to legal and institutional foundation consistent with prepare the setting up of the public evolving international standards. The framework information networking necessary for should include strong industry input and leadership increasing the efficiency of product in defining regulatory approaches, and an overall manufacturing in various fields. strategy that enables innovation and avoids excess rglto. * Legal Framework. NECTEC will develop a regulation. package of laws enabling electronic commerce Finally, Thailand needs to remove a number of (IQ FY01) addressing such issues as public obstacles to the creation of an entrepreneurial IT key infrastructure, security, and universal services community. access. * The government has proposed the Electronic Transactions Act and the Electronic Signature Act to the Parliament for approval. * In October 2000, NECTEC proposed the equity provision of the national information infrastructure Act to the Cabinet for consideration. * In addition, the laws and regulations working- group is drafting other IT and e-commerce laws such as Law on Universal Access, Law on Computer Crime, Law on Electronic Transfer of Money and Law on Protection of 42 Thai Reform Program [I mplementation Benchmarks Capacity Building Personal Data. * At the beginning of 2001, NECTEC is going to propose the other three e-commerce laws to the Cabinet for consideration. * ECRC has conducted nationwide training programs for the business sector and has developed an information dissemination and diffusion strategy (ongoing). 3. E-Government Electronic government - the optimization of * NITC and NECTEC will redefine its role as a * Technical assistance is needed to develop the service delivery, participation and governance facilitator and catalyst to accelerate e- e-government strategy and undertaking through the use of IT - holds the potential to government development in Thailand. agency-level capacity assessments. transform the interaction between government and * NITC and NECTEC will establish an e- * Project preparation support is being provided its stakeholders. government strategy in FY01, defining the for developing projects to create e- The Government has established the CIO program overall vision and implementation objectives, government, train IT personnel and establish in 1998 to enable IT competency in government leadership, enterprise-wide applications, the an IT infrastructure in rural areas (ongoing). agencies, and provided training to over 200 ClOs. shared service model; and begin to undertake It has also established GINet to enhance assessments of the organizational and technical connectivity between Bangkok and Provincial readiness of each Ministry for e-government. Government. Tactical implementation of e-government will Implementation of the new Constitution, public be defined at the Ministry level, supported by a sector reform, and decentralization combine to unique capacity building plan. make it necessary to now dramatically scale up e- government capacity through specific e- government plans within each government agency and for specific government services. Implementation of e-government has substantial spillover effects to enhancing digital literacy and stimulating a Thai software sector. 11L.B SKILL DEVELOPMENT 1. Improving skills . Objectives: Thailand has a strong foundation of * The National Education Act 1999, in * GTZ's the DVT (the Dual Vocational Training) basic education, but important challenges remain in accordance with the New Constitution, Project team is advising the Department of terms of post basic education and development of specifies that compulsory education, defined Vocational Education (DOVE) on development workers' skills. Current government tax incentives as nine years of basic education, and the of the DVT system. And the TGI (Thai-German 43 Thai Reform Program Implementation Benchmarks Ii Capacity Building for enterprise training are weak and rarely used, option of twelve years of free education and Institute) project was established with the and then mostly by large firms. The RTG aims to assured quality are to be implemented by objective for TGI to support the transfer of review these mechanisms to increase their August 21, 2004. modern production technologies to Thai effectiveness. * The Ministry of Education has appointed the manufacturing industries (ongoing). Sub-Committee of Vocational Education and * The study on Thailand Secondary Education for Training Reform. Several specialized institutes Employment was completed by the World (such as, automotive; electronics; gem and Bank in November 2000. This study undertook jewelry) were established in 1999 to upgrade an evaluation of the system of secondary skills. The Skills Development and Promotion education and skills development. Act has been approved by the Cabinet and is being considered by the Council of State. * The Sub-Committee of Vocational Education and Training is drafting a new Vocational Education Act required under the Education Act of 1999, and the Joint Public and Private Sectors Committee for Occupational Development Act. * A 3-year Partnership Plan is being developed between private and public sectors for the specialized institutes. This plan will identify the direction and strategies for resource sharing, and management and organizational structure. * The new regulations governing the operation of the Skills Development Fund is being prepared. III.C SCIENCE AND TECHNOLOGY CAPABILITIES 1. Modernizing the strategic and institutionalframework Objectives: Thailand lags severely in several The Cabinet has approved the establishment of the * TA is being provided to a study entitled important benchmarks of technological National Science and Technology Council, charged "Enhancing Policy and Institutional Support development, including absolute levels of research with coordinating S&T policy. for Industrial Technology Development." and development, as well as the share of R&D NSTDA should continue to refine its sphere of (ongoing with expected completion date: conducted by private firms, and human capital. operation to concentrate on the activities it is 2QFYO 1, the World Bank PHRD). The authorities have agreed that improving uniquely qualified to perform. These include: * Following this study and its dissemination in a Thailand's technological competitiveness will * Strategic direction, evaluation, and assessment public workshop, additional support for the require a fundamental shift in how technology including S&T indicators: creation of an implementation strategy is 44 Thai Reform Program Implementation Benchmarks Capacity Building development is approached and supported. including S&T indicators; needed. * Stimulate university-industry cooperation; * The new technology development strategy has * Stimulate programs that enhance interfirm substantial implications for the role of several collaboration and technology spillovers; and institutions. The transfornation of those * Identify and initiate programs in high-priority institutions to new roles will require additional and emerging areas. support. * NSTDA should coordinate in areas where there * Following the Industrial Survey Phase 1, is a duplication of responsibility with the technical assistance is being provided to private sector, universities or other government (ongoing with expected completion date: agencies. .o3QFY01,wth Word Bk d * MOID will review the operations and impact 3QFYO I, the World Bank EMAL).. of the Sectoral Technical Institutes and * Technical assistance is being provided to provide recommendations to the management evaluate sectoral technical institutes, e.g. of te crresondng Istiutes(I FYOI).National Food Institute, T'hai-German of the corresponding Institutes ( I Q FY0 1). Institute, and the Foundation of Thailand * MOID will consider an appropriate Productivity Institute (ongoing with expected implementation processes of the completion date: 2QFYO I, the World Bank recommendations suggested by the study (2Q PHRD). FY01). * By the year 2001, according to NECTEC's action plan that will be submitted at the end of October 2000, NECTEC will expand its activities in developing technologies used for product manufacturing and design. 2. Strengthening incentives for technology development Objectives: Past tax incentives have not been very * NSTDA will review the existing tax incentives * Technical assistance is needed to design effective in enhancing technological capability of to assess their usefulness in supporting performance-based budgeting and evaluation Thailand. technology development. Alternative systems for technology support systems. mechanisms, including shifting the strategy away from subsidizing capital and towards subsidizing knowledge will be considered (Q2 FY01). * The Government will consider the establishment of grant-based mechanisms to encourage training and technology development. 45 Thai Reform Program | Implementation Benchmarks - Capacity Building 3. Align university policy with long-term human capital and technology development needs * Create incentives for high quality research in a * The Millennium Science Initiative will hold a Objectives: Through programs such as the Royal segment of the university system. This will workshop of a high-quality research system Golden Jubilee Program, Thailand has made allow for greater differentiation among the through university autonomy. (planned for 3Q important strides in creating a base of PhD universities with some aspiring to leadership in FY01). graduates necessary to serve Thailand's long-term research. knowledge needs. However, at their current scale, * Establish outcome-based funding mechanisms these programs are unlikely to be sufficient to that support the goals of improved efficiency provide a replacement resource for academic and quality for both research and teaching. positions. They will not be sufficient to serve any * Strengthen university govemance and increase in R&D by the private sector, or an mangemen univ e fornane and expansion of the university system. A formal management to prepare for the full university-based research system, based on implementation forautonomy. international norms, is necessary. University autonomy creates an ideal opportunity to create such a system. IV. MODERNIZING INFRASTRUCTURE REGULATORY FRAMEWORK AND SOE REFORM 1. Strengthening regulatoryframework, competition, and legislationfor privatization Objectives: The Government objectives are: to Corporatization and Regulation * Preparation of the Master Plan for improve sector performance and productivity of The Corporatization Act was passed in to law in Privatization, identification of required legal the Thai economy; to promote greater efficiency December 1999 and will enable SOEs to become framework, sector specific framework for and transparency in the state owned enterprises legal corporate entities. The State Enterprise energy, water, telecommunications and by facilitating the privatization process. A Capital Policy Committee (SECPC) to initiate the transport (completed). streamlined legal framework is required to corporatization process for SOEs was approved * Telecom License preparation and institutional enable SOEs to convert into independent legal by the Cabinet and formed in July 2000. strengthening (ongoing with expected corporate entities as a step towards privatization. completion date: 4Q FY01; Public Private A regulatory framework for each sector in Telecom Sector Infrastructure Advisory Facility, PPIAF) preparation for privatization is being prepared. Spectrum Allocation and Regulation in the * Radio Spectrum Management and Broadcasting Sector and the Telecommunication Organizational Development of National Sector Act 2000 (NTC Act) has been effective Telecommunications Corporation (ongoing since March 2000. with expected completion date: 2Q FY02, * Establishment of an independent regulator PPIAF). under NTC Act (2Q FY0 1). * Telecom concession conversion (ongoing) * Enactment of the Telecommunication Act to * Postal Reform - Private Participation in Postal establish the framework for Services Phase I Regulatory Framework (need 46 Thai Reform Program Implementation Benchmarks Capacity Building telecommunications regulation (2Q FY01). for capacity building) * A Concession Conversion Committee has been * Energy regulation and power pool established. Concession conversion for implementation (ongoing) existing concessions and Telecommunications * Transportation Market and Regulatory License preparation work. (4Q FY01) Framework Study (completed) * Corporatization of Telecommunication * Air Transport Detailed Regulatory Framework Organization of Thailand (TOT) and Study and Legislative Drafting (need for Communication Authority of Thailand) (CAT) capacity building). (2Q FY01). Initial share sale (3Q FY01). * Maritime Transport Detail regulatory Enermy Sector Framework Study (need for capacity building) Design of power pool and detailed sector * Express Transport Privatization (under restructuring was developed and approved by preparation the World BankEMAL). NEPC. Thailand power pool is expected to be pRearaton, tegW orldFBaneMAL). operational by December 2003. Draft of new * Roads Sector Regulatory Framework Study Energy Law was approved by the cabinet in and Legislative drafting (need for capacity October 2000 and is under review by the Council building) of State. Drafting of power pool rules and energy * BMTA Commercialization (ongoing with regulation is underway. Cabinet approved expected completion date: 3Q FY01, GTZ). separation of Petroleum Authority of Thailand * Railroad Sector Regulatory Framework Study (PTT) gas trading and distribution. Third party and Legislative Drafting. (need for capacity access regime is being defined by Ministry of building) Industry. * State Railways Thailand (SRT) Accounting * Establishment of Energy Regulator (IQ and Financial Management Study (completed) FY02). * State Railways Thailand (SRT) Restructuring * Corporatization of PTT (3Q FY01). Study (ongoing with expected completion Transport Sector date: IQ FY01, The World Bank EMAL). The cabinet approved the rescheduled privatization * Restructuring and Privatization of SRT (need of Thai Airways on 14 March 2000. ATT for capacity building) corporatization is under preparation. The State * Water Sector Restructuring and Privatization Railways of Thailand (SRT) have been identified Study (ongoing with expected completion date for corporatization. 2Q FY0 1, PHRD TF). * SEPC Transport Subcommittee plan for * Implementation of Water Sector Restructuring restructuring the sector completed in July and Privatization (need for capacity building) 2000. Submission to SEPC and Cabinet - (2Q * Private sector participation in Waste Water- FY 1). Institutional Study - pilot (completed IQ * Establish five independent regulators for FY01, PPIAF) Maritime, Air, and Land Transport. Sub- 47 i Thai Reform Program Implementation Benchmarks Capacity Building sectoral regulation to be submitted for * Solid Waste Management -pilot in approval to the Parliament (IQ FY02). Municipality of Phitsanulok (GTZ: ongoing). * Finalize Port Authority privatization plans (4Q * TA is needed to implement water privatization FY02). and sector restructuring. * Restructuring/privatization study of SRT to be * The WBOB in cooperation with Ministry of completed by MOTC (IQ FY01). Finance and donor agencies organized a * Urban bus transport/ restructuring to workshop on issues related to the Regulatory commence (2Q FY01). Framework and SOE Reform designed to Water Sector bring together key stakeholders to discuss Water Sector Restructuring and Privatization study ongoing and future activities, share is expected to be completed by March 2001. The experiences, and identify emerging issues, Government i accelerating the sectorregulatchallenges, and potential solutions (completed Government IS accelerating the sector regulation inI Y ) and tariff structure aspects of the water sector study in IQ FY01). in order to accelerate sector restructuring. * MOF will complete a comprehensive water sector reform plan (3Q FY01). Privatization Transactions * In March 2000 the cabinet approved Thai Airways Public Offering scheduled for 2Q FY01 followed by a private placement with a strategic investor. * Ratchaburi Public Offering 40%,-EGAT employees allocated 15% (completed October 2000). * Bangchak 32% share sale (2Q FY01). * Airport Authority of Thailand (AAT)- private placement of regional airport company (3Q FY01). * Partial share sale of telecommunications SOEs, TOT, and CAT (2Q FY01). * Petroleum Authority of Thailand (PTT)- Privatization and listing of shares (30%) on SET (3Q FY01) 2. Improving organizational structurefor privatization and build capacity Objectives: Introduce a framework for decision In July 2000, RTG established the State Enterprise * Evaluation of corporatization plans for making for corporatization of SOEs. Strengthening Capital Policy Committee (SECPC) to supervise Telecomm, Transport, Water and Energy 48 Thai Reform Program 11 Implementation Benchmarks Capacity Building institutional capacity of the State Enterprise Policy the process of transforming the legal status of the SOEs (under preparation with expected Commission (SEPC) and State Enterprise Capital state enterprises into corporate entities to facilitate completion date: 4Q FY02- partially funded by Policy Committee (SECPC) and the Office of State the reform process. The responsibility and mandate GTZ) Enterprise (OSE) at the Ministry of Finance to of the SECPC is clearly defined. The government * Institutional Strengthening of Office of State oversee the implementation of corporatization and is aiming to create an effective organizational Enterprise (ongoing with expected completion privatization strategies for SOEs. structure for overseeing and implementing date: 4Q FY02, PPIAF and GTZ). privatization in each sector and strengthening * Regulatory training -Phase I (ongoing with institutional capacity in Office of State Enterprise expected completion date: IQ FY02, the (OSE) to implement the reforms. This includes the World Bank EMAL) separation of the OSE from the Comptroller General's Department in April 2000 and the * Regulatory Training Project Phase-lI (need for allocation of privatization and corporatization work capacity building) to a specialized group within the OSE in July 2000. * Continuation of Thai language public * Maintain an effective public information information programs on privatization campaign on SOE reform (FYOI-02) including internet distribution of reform * Regulatory Capacity Building/Training : The policies (need for capacity building) Government would take measures to build appropriate regulatory capacity in all sector (FY0 1-02). V. STRENGTHENING THE BUSINESS ENVIRONMENT V.A CORPORATE GOVERNANCE 1. Rationalizing the institutionalframeworkfor setting standards and regulating accounting and auditingpractices Objectives: The program seeks to establish an The government has approved a framework as well * Technical assistance to develop a plan to independent standard-setting organization, to be as draft legislation to streamline institutions for establish TFASB (IDF: completed). called the Thailand Financial Accounting Standard setting standards and regulating the profession and * Capacity building program to strengthen Board (TFASB), with power and authority in establish the Thailand Financial Accounting ICAAT and technical assistance to improve standard-setting that is consistent with international Standard Board (TFASB) and strengthen the accounting and auditing standards and best practices. The program also seeks Institute of Certified Accountants and Auditors of practices (IDF: on going) strengthening the ICAAT's independence and its Thailand (ICAAT) as independent bodies. * Capacity building program to support role in setting auditing standards and regulating the * MOC will submit to the Parliament establishment of the Thailand Financial profession in a manner consistent with amendments to the Accounting Professional Accounting Standards Board and improve international best practices. Finally the program Act to establish the Thailand Financial accounting standards and practices (PHRD: on will aim at increasing effectiveness of the Accounting Standard Board (TFASB) as an going). disciplinary process and enforcement of sanctions independent organization with authority to set for accountants who violate the professional codes. accountin2 standards and to strenethen ICAAT * WBI Distance Learning teleseminar on 49 Thai Reform Program Implementation Benchmarks Capacity Building accounting standards and to strengthen ICAAT Implementing Financial Standards (December as a fully operational self-regulatory body (4Q 20, 2000). FY01). * Kenan Institute Asia with funding from * The TFSAB will begin setting accounting USAID is supporting the Institute for Certified standards (2Q FY02). Auditors and Accountants of Thailand * The ICAAT will begin enforcing the code of (ICAAT) to develop accounting instructional ethics for practitioners and will become the aids including video tapes, computer programs primary private source for developing national and teacher's manuals to use in higher professional qualifications, ensuring education with assistance from a US implementation of accounting and auditing counterpart university. standards, conducting quality control of its * Kenan Institute Asia with funding from members, and ensuring establishment of a USAID is supporting the Association for formal quality assurance process for firms that Investment Management and Research audit listed companies (4Q FY01). (AIMR) and the Securities Analysts * Measures will be implemented through SEC Association (SAA) in promoting a "code of and ICAAT to more effectively enforce ethics" for the Thai corporate sector by disciplinary measures on accountants who translating and adapting the AIMR's manual breach their professional duties (2Q FY0 1). for the Thai environment. 2. Improving the quality and reliability of key financial information provided by public corporations to regulators, shareholders, and the general public Objectives: Not all accounting and auditing * MOC will implement a plan to remove the * Review of accounting and auditing practices in standards and practices have been consistent with burdensome statutory and mandatory banks and financial institutions (IDF: international best practices. The government requirement for submitting audit reports to completed). program will continue to upgrade accounting and authorities for small limited partnerships (IQ- * Advisory services in the preparation of the auditing standards and practices to make them 4Q FY01). new supervisory regulations on accounting and consistent with international standards, revise * The Bank of Thailand will issue new specific disclosure for banks. Preparation of draft new relevant laws and regulations and identify rules on accounting and disclosures for banks specific rules on accounting and disclosure for mechanisms to ensure compliance. in line with international best practice (2Q banks (PHRD: completed). New rules to be Between 1998 and 2000 the Institute of Certified FY01). issued. Accountants and Auditors of Thailand adopted * The SEC and SET will review the listing rules * Technical assistance to improve accounting standards consistent with international accounting to ensure that the type and quality of and auditing standards to a level consistent standards for the preparation of financial disclosures to the investing public and with international standards (IDF: completed). statements and is in the process of adopting regulators, particularly those dealing with 17 improved accounting standards have been auditing standards fully consistent with related party transactions, insider trading, and issued, 11 exposure drafts on improved international auditing standards. compensation and ownership of officers and accounting standards to be issued. Auditing members of boards of directors, are consistent standards fully consistent with international with international best practice (3Q FY01). standards to be issued. 50 Thai Reform Program -Implementation Benchmarks |Caacity Building * The ICAAT will continue to issue and adopt improved accounting and auditing standards in accordance with international best practice (2Q-4Q FY01). * The Government will require that financial statements of listed companies, as well as large non-listed public companies, and banks and financial institutions with assets in excess of Btl billion, will be prepared and audited in accordance with those standards for the financial year 2000 (3Q FY01). 3. Improving accountability of board of directors, management, and shareholder rights of public co panies Objectives: The boards of directors of listed * MOC will submit draft changes to Public * Capacity building program to support the companies and financial institutions have not been Companies Act (PCA) to the Cabinet for directors' training program of the Institute of effective in overseeing corporate management approval with the view to: (i) reduce the Directors (ASEM: on going). performance. Minority shareholders have not had thresholds for exercise of minority shareholder * Advisory services to improve corporate adequate protection and rights. The government rights; (ii) increase accountability and liability governance practices in banks and financial program aims at increasing the effectiveness of the of directors; (iii) require sufficient information institutions (PHRD: on going). boards of directors and strengthening their for shareholders to be contained in notices to * Advisory services to improve corporate monitoring role. The program also seeks to ensure call shareholder meeting and proxy statement govemance laws and regulations for public better protection of minority shareholders and and provide the right to convene shareholder companies, including experiences of reforp in increase their rights and the ease at which they meeting when their request is unreasonably other countries (Bank Staff). exercise those rights and increase directors' denied by board of directors; (iv) accountabilities. introduce/enhance insider trading rules and * Technical assistance on benchmarking exercise SET has revised the guidelines on the code of best introducing severe sanctions on insiders for to assess the level of compliance of major listed practice for listed company directors consistent false and misleading disclosures; (v) introduce companies with the Code of Best Practices of with international best practice, and has made shareholder approval requirements for major SET (ASEM: on going). disclosure of non-compliance with guidelines transactions and connected transactions; (vi) * The Asia Foundation is assisting the National mandatory under the listing rules. limit the exemption of directors' liability only Counter Corruption Commission in the study of for cases that do not involve fraud or gross key issues and the strengthening of its staff. negligence; and (vii) introduce directors' * King Prajadhipok's Institute is leading a accountability requirements for ensuring that consortium to train citizen in their rights and accounts and report of the company present responsibilities under the new constitution. true and fair information and are prepared in accordance with Thai accounting standards (3Q FY01). * SET will issue revised Code of Best Practice for listed company directors, and the 51 Thai Reform Proyram Implementation Benchmarks Capacity Buildig requirement that listed companies disclose in annual reports whether they comply with the code of best practice and explain in detail non- compliance after considering recommendations of stakeholders (3Q FY0 1). * MOC will submit draft amendments to PCA to increase protection of minority shareholders, increase accountabilities and liabilities of boards of directors, and increase sanctions in case of violations of PCA to the Parliament (4Q FY01). * MOF will submit draft amendments to Securities and Exchange Act (SEA) to the Parliament (4Q FY01). 4. Strengthening the financial oversight role of the board of directors and Internal control of listed companies Objectives: The internal control and the financial * The SET will review and upgrade as necessary . On-going advisory services on the audit oversight role of the boards of directors of listed the requirements for the establishment of the committees best practices (ASEM: on going, companies have been weak. Audit committees of audit committees of the boards of directors, PHRD: to be completed). the boards of directors tend to be ineffective. The and internal control for listed companies, RTG programs seeks to strengthen the internal including qualification of members and control framework of listed companies, banks, and committees' roles and responsibilities, financial institutions and the responsibilities of consistent with international best practice. audit committees for oversight of the financial (Blue Ribbon Commission and COSO reporting process, internal audit function and framework) (4Q FY01). selection of external auditors. * The SET will review the need to require listed companies to establish the Executive Appointment Committee and the Executive Remuneration Committee to increase transparency and board oversight (2Q FY01)., 52 Thai Reform Program Implementation Benchmarks I Capacity Building 5. Rationalizing the regulatory framework and improve enforcement of laws and regulations for public companies Objectives: Responsibilities of SEC, SET, MOC, * MOF and MOC will consider submitting draft * On-going advisory services on impact of and MOF in enforcing laws and regulations amendments to PCA and SEA to the Cabinet improved enforcement on corporate overlapped in the past. The RTG program seeks to to further streamline and improve enforcement governance practices, including experiences of increase the effectiveness of the framework and for violations of PCA for listed companies. In other countries (Bank Staff). efficiency of the process for enforcing laws and addition, the Government will determine regulations and strengthen SEC's roles in whether it would be more effective for the enforcement of securities regulations. PCA and the SEA to be supervised by the same agency and/or Ministry (3Q FY01). * MOF will submit to the Parliament SEC's proposed amendments to SEA to enhance SEC's role in enforcement of securities regulations by streamlining criminal procedures for violation of SEA (4Q FY02). V.B COMPETITION POLICY 1. Building capacity to implement Competition Law Objectives: Rapid changes are taking place in * The TCC will finalize the scope of work and * AusAID and Australian Competition and financial and real sectors as a result of the crisis operations of the commission including an Consumer Commission (ACCC) provided and new industry structures are likely to emerge as operations manual, identify the institutional TA to access further capacity building needs the economy recovers. New legislation to replace framework and resource requirements, to effective implement the new law the 1979 act, the Business Competition Act, was authorize investigative and other (completed IQ FY01). passed into law in 1999. The new legislation administrative powers, review and propose * TA was provided to support the preparation reflects modern and international practice of threshold requirements so as to minimize prior of guideline to implement the new competition policies. However, the institutional review and approval by TCC of mergers and competition law (completed IQ FY01, the capacity to enforce the law needs to be developed. acquisitions, develop enforcement strategies, World Bank PHRD). The government program aims at establishing a and complete the standard operating * Technical assistance is needed to strengthen solid institutional framework and build capacity to procedures manual (2Q FY01). the institutional framework and capacity of administer the law. * The TCC will approve and promulgate the the implementing agency. A competition policy authority, the Trade competition regulations and develop a strategy * GTZ's project on Intellectual Property Competition Commission (TCC), has been to enhance public awareness about the System Development with the Department established, and 12 commission members competition law. A committee has been set up of Intellectual Property (DIP) as the appointed. The Business Competition Bureau was to review the guideline and submit the final implementing agency. DIP's mission is to also created within the Department of Commerce version for approval from TCC by 2Q FY01. register patent, trademark, service mark, (DIT), Ministry of Commerce, as a secretariat of * Staff training in interpreting and applying certification mark, collective mark and TCC competition law has commenced (ongoing). licensing of intellectual property rights; to * DIT is formulating the second phase of the develop systems, patterns and means to 53 Thai Reform Program [Implementation Benchmarks y CaDaCitv Building program to further strengthen the capacity of protect intellectual property; to promote the Competition Commission and Business effective use of intellectual property and Competition Bureau by 2Q FY01 technology information for the purposes of DIT in cooperation with Japan Fair Trade education, research, development and Commission (JFTC) will host a regional commercialization; and to study, analyze workshop on Competition Law in 2Q FY01. and recommend policies on intellectual property to the Royal Thai Government (ongoing). * World Bank in cooperation with DIT organized a workshop on the Implementation of the Trade Competition Act. The objectives were (i) to summarize the progress the implementation of the Trade Competition Act (TCA) carried out by the DIT; (ii) to identify key challenges and potential capacity building needs; and (iii) to deepen the partnership between DIT, WB, and the prospective donor agencies to monitor the progress. (completed in IQ FY01). * The Kenan Institute Asia and the Ministry of Labour and Social Welfare are organizing a series of workshops and training programs on voluntary labor codes to strengthen the ability of Ministry's officials, private sector managers, and labor representatives so that they understand and utilize these codes. 2. Competition law-policy enforcement Objectives: TCC does not have sufficient * Develop outreach initiatives designed to * Technical assistance is needed to strengthen resources (financial, human, and technical) to acquaint all affected stakeholders with the voluntary and non-voluntary compliance in pursue all matters simultaneously that may fall requirements of the new laws and regulations accordance with the implementation program. within its powers. Hence, TCC will face the and guidelines promulgated thereunder and to strategic challenges of determining a set of solicit feed-back on features of the new regime enforcement priorities, targeting at both voluntary and its administration that may raise concerns and non-voluntary measures. to stakeholders. * Institution of Advisory Opinions. (FY01, Q3, Q4) 54 Thai Reform Program Implementation Benchmarks | Capacity Building * Institution of Corporate Compliance Programs. (3Q-4Q FY01) * Develop Internal Case Studies in industries whose structure or performance seems to depart seriously from workably competitive conditions, prepared without the invocation of the TCC's investigative power but from publicly available data and voluntary interviews, which is then published and debated in relevant fora is likely to provide early warning signals of inappropriate practices with respect to what the TCC may wish subsequently to take formal investigative and subsequently to take formal investigative and enforcement initiatives unless the parties involved voluntarily agree to modify these practices. Such case studies may also serve to reveal the impact of other governmental or trade policies that are antithetical to effective competition in the industry in question and provide a basis for a policy advocacy role for the competition agency within government. (3Q-4Q FY01) V.C TRADE POLICY 1. Modernizing the import regime Objectives: Sectors such as motor vehicles, petro- Thailand has been actively liberalizing its foreign * TA is being provided to Develop Import chemicals, agri-food, and textiles remain protected, trade system. In 1998 applied MFN tariffs Valuation Information System for the Customs either through taxes or non-automatic import averaged 18%, compared with 23% in 1995. Tariff Department with adequate international licensing mechanisms. Also, a complex system of surcharges introduced during the crisis have been pricing data sources to support expediting the specific duties and exemptions remains in place. eliminated. clearance of goods and deterring under- This system reduces transparency and generates * MOF to complete a comprehensive review of valuation practices as it adopts the WTO economic distortions. The GOT program aims at the tariffs system and present an adjusted valuation code in January 2000 (ongoing with promoting competition and innovation by schedule which incorporates new tariff expected completion date: 4QFYO1, the World accelerating trade liberalization in the context of reductions under the ASEAN Free Trade Bank EMAL). WTO and AFTA agreements. Agreement (AFTA) (I Q FY0 1). * MOC and MOF will identify mechanisms to 55 Thai Reform Program l Implementation Benchmarks Capacity Building simplify the current system of exemptions and specific duties (IQ FYO01). 2. Modernizing customs Objectives: The government program aims at Since 1997, the authorities have initiated a customs * TA is being provided to develop an increasing transparency and levels of efficiency of modernization reform program. Considerable implementable Customs Master Plan for the customs regime to reduce logistic costs and progress has been made. Amendments have been Administrative Reform (ongoing with promote competitiveness. In the short-run the introduced to the Customs Act to implement the expected completion date: 2QFYO 1, the World focus would be on the implementation of existing WTO Agreement on Customs Valuation, and to Bank EMAL). action plans and administrative reform. allow for the electronic submission of claims and the implementation of an ex-post auditing system based on importers and exporters customs records. The Management Information System is ready for operation. * Guidelines and regulations to support the implementation of the new Customs Act will be approved and the regulations and infrastructure for electronic submission of claims will have been put in place (IQ FY01). * The Customs Department will have prepared a Human Resources Action Plan. This plan will outline the major reforms in terms of organizational structure and human resources management required for effective policy making and service delivery (2Q FY01). V.D FOREIGN INVESTMENT REGIME 1. Promotingforeign direct investment Objective: To stimulate private sector * Thai Board of Investment has developed * Technical assistance is being provided through development in Thailand by promoting and comprehensive investment promotion strategy training of BOI staff in key skills, e.g., strategy facilitating foreign direct investment. that was approved by the cabinet in August development, image building, investor 2000. targeting, investor servicing, market research * High potential sectors are targeted and (ongoing, MIGA PHRD). promotional efforts launched (IQ FY01) * Site visits by potential investors (3Q FYOI). 56 Thai Reform Program Implementation Benchmarks Capacity Building 2. Cost effectiveness Objectives: The economic crisis has revealed * Related government agencies such as Ministry * Technical assistance is being provided to study fundamental weaknesses in the country's industrial of Industry (MOID), BOI, NESDB are the costs of land freight (ongoing with structure. The cost structure is one of the major reviewing major policies to enhance the expected completion date: 2QFYO1, the World constraints that have hindered the competitiveness capability of Thailand's industrial sector. Bank EMAL). of Thai industries. Therefore, the government aims * NESDB will review and disseminate the * Capacity building program has been provided to improve the cost effectiveness of the industry. information on cost structure of Thai industry to study the cost structure of major industries including the transportation cost structure to (ongoing with expected completion date: line ministries and the private sector so that 2QFYO 1, the World Bank EMAL). necessary policy reforms can be achieved (IQ * TA is being provided to study sectoral FY01). competitiveness and industrial restructuring in * BOI is investigating the competitiveness of textile, steel, and plastic industries (ongoing three particular sectors: plastic, textile, and with expected completion date: 2QFYOI, steel. The results of these studies will be used PHRD). to review the incentive framework. V.E SMALI & MEDIUM SCALE ENTERPRISES (SMEs) Provide legal and institutionalframeworkfor the development of SMEs Objectives: The competitiveness of Small and Thailand has taken a number of steps to strengthen * GTZ's projects on Quality Management in Medium Scale Enterprises (SMEs), which accounts SMEs. The SMEs Promotion Act, providing the Supporting Industries (QMS) and Promotion for a large portion of total economic activities, is basis for coordinating and implementing SMEs of Advisory Services to Enhance Competitive crucial for the long-term sustainable development support activities by various RTG agencies, was Production Technology and Processes in of Thailand. The objective is to enhance the long- enacted in February 2000. The Institute of SMEs Industry. These projects will be term competitiveness of SMEs as an integral part Development (ISMED) has been established to be complementary to the existing landscape of of the whole economy. the core institution of a countrywide network projects that support economic development offering management, technology, and training and employment generation. However, the services to SMEs. projects will contribute to more * The SMEs Promotion Office will be comprehensiveness, cohesiveness and established to prepare the operating plan, effectiveness of the German contribution in guidelines and procedures for the management this increasingly important area (ongoing). of the SMEs Fund to be established under the * JICA has been providing significant assistance Act (IQ FY01). in the development of SMEs. Programs * The SMEs Development Master Plan for include policy advise, SME diagnostic system manufacturing, prepared by the SMEs establishment, strengthening the functions of Promotion Office was adopted by the SME SME finance-specific institution, Promotion Committee (chaired by the Prime establishment of a new credit guarantee Minister) in September 2000. facility, promotion of support industries, and 57 Thai Reform Program Implementation Benchmarks Capacity Building * The SMEs Development Master Plan for trade regional economic development focusing on and services is expected to be adopted by 3Q SMEs (ongoing). FY0 1. * TA is needed to support related agencies * The SMEs Promotion Office will disseminate including training programs in various areas information regarding SMEs support services, such as SMEs supply-chain management, IT SMEs financing facilities as well as associated literacy, and market development through e- rules and regulations (IQ FY0 1). commerce. * Action Plan for manufacturing sector is being * TA is needed to strengthen science and coordinated by MOI and will be handed over technology capabilities of SMEs (Funding to the SME Promotion Office for funding from available from World Bank/EMAL) the SME Promotion Fund (100 millions baht * ADB has participated in the SME Investment allocated for FY01). Fund is expected to be and Restructuring Fund (SIRF) aiming to disbursed in 3Q FY01. provide financial assistance (equity capital) and advisory services to the SME sector. The fund has been approved but not yet operational. The WBOB in cooperation with Ministry of Industry and UNIDO organized a workshop on issues related to the competitiveness of SMEs designed to bring together key stakeholders to discuss ongoing and future activities, share experiences, and identify emerging issues, challenges, and potential solutions (completed in IQ FYO1). * The Kenan Institute Asia's Business Advisory Center is providing specific consulting, training, and problem analysis for Thai SMEs. 58 Chapter 3: Partnership Matrix Country Development Partnership for Competitiveness Partnership Table TASKS TOTAL COST (US$) FUNDS COMMITTED (US$) FUNDING GAP (US$) 1. MAINTAINING SOUND MACROECONOMIC 4,335,000 4,335,000 0 MANAGEMENT 11. STRENGTHENING FINACIAL AND CORPORATE 20,997,613 20,497,613 500,000 REFORM 111. STRENGTHENING THE KNOWLEDGE ECONOMY 8,475,052 6,455,052 2,020,000 IV. MODERNIZING INFRASTRUCTURE 6,515,000 4,465,000 2,050,000 REGULATORY FRAMEWORK AND SOE REFORM V. STRENGTHENING THE BUSINESS ENVIRONMENT 39,139,982 38,939,982 200,000 Total 79,462,647 74,692,647 4,770,000 59 DONOR COFINANCING TASKS World Bank ADB USAID France Germany Japan (PHRD) EU (ASEM) AUSAID PPIAF Funding Gap 1. Maintaining 3,735,000 600,000 Sound Macro- economic Management 11. Strengthening 4,910,000 7,500,000 5,272,243 2,280,370 391,000 144,000 500,000 Financial and Corporate Reform 111. Strengthening 770,000 505,052 4,500,000 680,000 2,020,000 the Knowledge Economy IV. Modernizing 1,440,000 250,000 850,000 1,100,000 825,000 2,050,000 Infrastructure Regulatory Framework and SOE Reform V. Strengthening 1,803,000 25,000,000 4,176,982 6,100,000 1,540,000 320,000 200,000 the Business Environment Total 12,658,000 33,100,000 9,954,277 250,000 11,450,000 5,600,370 711,000 144,000 825,000 4,770,000 60 THAILAND Country Development Partnership for Competitiveness Partnership Table Tasks Estimated Cost Source of Fund (FY01) (FY01) 1. MAINTAINING SOUND MACROECONOMIC MANAGEMENT I.Mlodernizing macroeconomtic nmanagement Technical Assistance (TA) to develop Automated Audit Selection System, Tax Identification Number System (PINTHIP), and 1,000,000 World Transaction Control Log and Accounting system for the Revenue Department (ongoing with expected completion date I Q Bank/EMAL FY02). TA to modernize and enhance the effectiveness of the Excise Department (ongoing with expected completion date IQ FY02). 1,000,000 World Bankl/EMAL TA to provide IT enhancenment for the Treasury Department (ongoing with expected completion date I Q FY02). 500,000 World Bank/EMAL 2. AModernizing Public Debt Management Advisory services to PDMO on Project Implementation Management, Information Technology, Sovereign Debt and Risk 590.000 World Bank/FSIAL Management (2Q FY01). Human resource development activities, including workshops. training programs, and study tours (2Q FY01). 145,000 World Bank/FSIAL Advisory services on Systems Project Management, Legal and Regulatory aspects on Sovereign Debt Management; Risk 500,000 World Bank/FSIAL Management and Sovereign Debt Management System (starting between the 3Q and 4Q FY0 1). Asian Development Bank (ADB) has provided Technical Assistance to strengthen the capacity of PDMO (ongoing). 600,000 ADB TOTAL FOR 1. MAINTAINING SOUND MACROECONOMIC MANAGEMENT 4,335,000 TOTAL FUNDING WITH IDENTIFIED SOURCES 4,335,000 FUINDING G;AP 0 __ ______ 11. STRENGTHENING FINANCIAL AND CORPORATE REFORM IL1A FINANCIAL SECTOR REFORM A, Mana!Ing Problem Institutions 1. Restructuring and recapitalization of the corefitancial institutions The Bank will deliver a "Strategic Reassessment of Financial Sector and Corporate Debt Restructuring in Thailand", in order to N/A Bank Budget assist the authorities and to stimulate dialogue with the private sector (ongoing). Advisory services for the BOT to develop a model which (1) estimates recapitalization needs based on different assumptions N/A Bank Budget and (2) monitors financial performance of financial institutions. Training the BOT examiners to use the model and make the consolidated estimate of recapitalization needs (ongoing). Advisory Services on the implementation of FIDF-owned AMCs (I Q/2Q FY01). 200,000 PHRD Miyazawa TF026 153 61 Advisory Services to assist the KTB "good bank" with strengthening risk management, treasury, asset/liability management and 270,000 PHRD Miyazawa performance accounting, in preparation for eventual conversion to commercially-based corporate govemance and private TF026153 ownership (IQ-4Q FYO1). Subtotal 470,000 B. Strcngtheninjgthe Financial Structure l. Fornmulating a med term strtfr thefinana sector The Bank will organize a series of roundtable discussions and conferences, including market participants and the Thai 90,000 ASEM TF021683 authorities, to reassess clearing of NPLs; competitiveness for Thai firms, lenders and borrowers in the new economy; and improving investor interest in Thai securities (ongoing). Subtotal 90,000 2. Developing capital markets Removal of Tax Impediments to Bond and Derivatives Market Development: Advisory services. (completed IQ FYO1). 54,000 ASEM TF021683 Real Time Delivery vs. Payments Settlement System Project (Phase 11): Advisory services to define business requirements and 117,000 ASEM TF021683 set system specifications for Bahtnet 2 (completed IQ FYO1). Establishment of Thai Securities Institute: the project includes curriculum development, training, and software development. 200,000 Need for capacity The goal is comprehensive training and certification of securities market professionals, and increased awareness among building /TA prospective retail investors. A TOR has been drafted. The project is planned for 2000-2003 (between TSI and a bilateral donor). Initial study of options for architecture of secondary bond market, including development of an action plan which enhances the 40,000 ASEM secondary market architecture, including trading (exchange vs. OTC), settlement (government and corporate bonds) and hedging (primarily interest rate derivatives) (3Q FYOI-- Planned but no current commitment or funding available). Specialized assistance to implement action plan in trading, settlement and hedging (FY01 - FY02 -- No current commitment or 300,000 Need for capacity funding available). (Preliminary FY02) building /TA Kenan Institute Asia with funding from USAID is supporting a project for the U.S.Bond Market Association to provide 100,000 USAID technical assistance to the Thai Bond Dealing Center. The project aims at developing bond market standards in Thailand to build trust, accountability and confidence in the market Kenan Institute Asia with funding from USAID is providing technical assistance and training to improve the Stock Exchange of 10,000 USAID Thailand's knowledge of derivatives and systems to offer derivatives products Kenan Institute Asia with funding from USAID is providing support to the Thailand Securities Institutes (TSI) of the Stock 60,000 USAID Exchange of Thailand (SET) to organize, develop, and deliver economics education programs for Thai youth and to promote Thai capital markets. Kenan Institute Asia with funding from USAID is providing support to the Thai Credit Bureau to promote the concept and the 100,000 USAID use of credit bureaus in Thailand to the public, industry, and government. Subtotal 681,000 3. Modernizing speciallzedfinancial institutlons (SFIs) Advisory services to assist with implementation of action plans (3Q FY 01). 144,000 AusAid Advisory services on institutional strengthening of GHB : credit risk management (underway); mortgage insurance; treasury, 222,670 PHRD Miyazawa asset/liability management, processes and systems (2Q FYOI through 4Q FY01). TF026153 62 Advisory services and systems procurement for the new Thai National Real Estate Center (started Sept 2000 and underway). 800,000 World Bank/FSIAL Series of studies and advisory services on supervision of SFls. Phase 1: Comparative Study (completed) Phase II1: Development of a time bound plan (ongoing) _ _ ____ 90,000 ASEM TF021683 Phase III: Drafting implementing legislation and regulation (TOR completed) (FY02 -- planned but no current commitment 100,000 Need for capacity or funding) building /TA Advisory Services on Home Ownership Assistance Project (underway - 2Q FY01 through end of FY01). 180,000 World Bank/FSIAL ADB has provided TA to assist the Restructuring of Specialized Financial Institutions including Industrial Finance Corporation 7,500,000 ADB of Thailand (IFCT), Small Industry Finance Corporation (SIFC), and Small Industry Credit Guarantee Corporation (SICGC) (ongoing). Subtotal %9036,670 C. Enhancingth!e Regulatory and SupervisoMyReg.ime 1. Introducing a comprehensive supervision framework Further advisory services and workshops will support implementation, including regulatory changes required to supervise 15,000 PHRD I TF020138 financial conglomerates (completed 2Q FY01). Subtotal 15O000 2. Strengthening supervisiont and regulation offlnancial institutions Specialized training of examiners in specific aspects of risk focused supervision including Market Risk, Credit Risk, IT Risk, 60,000 PHRD I TF020138 Operation Risk and Strategic Risk, and implementation of the new on-site manual (ongoing, to be completed 3/01). Assistance in off-site supervision (Development of data management department) (underway; to be completed 3Q FY01). 15,000 PHRD I TF020138 Preparation of guidelines on external audit of commercial banks consistent with international standards (FY02-- funding not 75,000 Need for capacity available). (FY02) building /TA Advisory services for the SEC on supervision of electronic data processing (EDP) capabilities of securities intermediaries (3Q 143,000 PHRD Miyazawa FY01 -- funding not available). TF026153 Advisory services for the SEC to set international standards for methodology and certification of property valuation in Thailand 200,000 Need for capacity (TORs are being drafted) (FYO1-FY02 -- funding not available). building /TA A second assessment of BOT's supervision capacity according to the BIS core principles will be conducted once the draft 40,000 Need for capacity Financial Institutions Law, Central Bank Act and appurtenant regulations are enacted (FY02 -- funding not available). (FY02) building /TA Kenan Institute Asia with funding from USAID is providing a series of bank specific training programs focusing on risk 2,485,587 USAID management, credit management, corporate governance and internal control. Subtotal 2,903,587 3. Introducing deposid insurance scheme Advisory services for a study of deposit dynamics in Thailand (to be completed 2Q FY01). 68,000 PHRD I TF020138 Advisory services on organizational design and development of manuals for key functions of a Deposit Insurance Agency (4Q 200,000 PHRD Miyazawa FY01). Public Information to facilitate transition to Deposit Insurance (IQ FY02). 75,000 PHRD Miyazawa TF026153 Study tour: establishment of deposit insurance agency (4Q FY01). _ To be determined PHRD Miyazawa Subtotal 343,000 63 4. Strengthening Supervision of Insurance Compaonies Advisory services to review current legal framework, supervisory regulations and institutional strengthening of the Dol 139,700 PHRD Miyazawa (underway). TF026 153 Subtotal 139,700 TOTAL FOR II.A FINANCIAL SECTOR REFORM 13,678,957 TOTAL FUNDING WITH IDENTIFIED SOURCES 13,178,957 FUNDING GAP 500,000 FINANCING NEED FOR FY02 415,000 IL.B CORPORATE RESTRUCTURING A. Strengtherling the Legal Framework 1. Itproving legislatidveframeworkfor debt collection and security enforcement Technical assistance to provide appropriate legislative and institutional framework for secured lending and collateral registration 25,000 World Bank/FSIAL system - a part of the Economic Law Reform Project (2Q FY0 1). Technical assistance to strengthen the institutional capacity of the debt collection regime - a part of the Economic Law Reform 30,000 World Bank/FSIAL Project (2Q FY01). Capacity building program to assist MOJ and MOC in developing the implementation plan to establish the Office of the 50,000 World BankIFSIAL Collateral Registration, including the identification of the organization structure, human resource requirements, IT and technical requirements - a part of the Economic Law Reform Project (IQ FY0 1). Subtotal 105,000 2. improving the legislative atd institutionalframeworksfor corporate bankruptcies and business reorganizations Technical assistance for the MOJ "Legal Expert Committee" to carry out the review of the Bankruptcy Act - a part of the 25,000 World Bank/FSIAL Economic Law Reform Project (completed IQ FyO0). Technical assistance to Thailand Legal Development Project - Enhancement of public participation activities in the legislative 500,000 World Bank/FSIAL development process (2Q FY01). Technical assistance to Thailand Legal Development Project - Judicial Reforms (on-going, to be completed by June 2001). 200,000 World Bank/FSIAL Central Bankruptcy Court IT/MIS Development Project (lst quarter FY01). To assist CBC in identifying the needs and develop 100,000 World Bank/FSIAL strategic plan to enhance the IT capability to efficiently support the increased court filings and judgement processes.(IQ FY01) Kenan Institute Asia with funding from USAID is supporting a project for the American Bankruptcy Institute (ABI) to provide 100,000 USAID technical assistance to the Thai Central Bankruptcy Court (CBC) in training and establishing systems to deal under the revised laws with the backlog or corporate bankruptcies. This is in coordination with the World Bank. Subtotal 925,000 64 B. Strengthening the Restructuring Proeess and E:nabling Environment RI. Introducing greater flexibility fr state-owned0banks to take fosses an debt restrutcturig ________ Technical Assistance to FIDF to (]) Develop the Principles and Guidelines for Valuation of Debt Restructuring by State Banks; 62,000 PHRD (2) Develop Industry Database to be used as a benchmark for financial forecasts that state-owned banks can use as reference in restructuring loans; (3) Train the state-owned banks and AMCs in the roll-out phase (Project completed by Ql FY 01). Subtotal 62,000 _______________6 2. Removing tax disintentives to corporate restructuring_ Technical assistance to Thailand Legal Development Project -- Judicial reforms (ongoing to be completed 3Q FY01) 15.000 PHRD TF 025735 Corporate Restructuring Kenan Institute Asia with funding from USAID is supporting a study to examine the impact of Thailand's present tax structure 60,000 USAID on the financial and capital markets from both the economic and administrative aspects. Subtotal 75,000 3. Facilitating infornation sharing among creditors on debt service performance by individual companies Need for advisory and technical assistance support to the two credit bureaus. Estimate not Need for capacity available building /TA Subtotal Estimate not available 4. Enforcing voluntary debt restructuring agreements (DCA /ICA /SA)_ Technical assistance to CDRAC to provide Debt Restructuring Advisors: Corporate Finance and Restructuring Experts to 300,000 PHRD Miyazawa facilitate the voluntary restructuring process monitored by CDRAC (to be completed by March 2001). TF 026153 Technical assistance to CDRAC to (l) Train the creditors, debtors, and regulators to better understand the voluntary agreements 495,000 PHRD Miyazawa and sustainable usage of the agreements over the long term; (2) Communicate to the public the benefits of debt restructuring TF 026153 and the voluntary debt restructuring agreements (ongoing). Subtotal 795,000 TOTAL FOR II.B CORPORATE RESTRUCTURING 1,962,000 TOTAL FUNDING WITH IDENTIFIED SOURCES 1,962,000 FUNDING GAP 0 IIC LEGAL AND JUDICIALDEVELOPMENT 1. Butild institutional capacity to undertake comprehensive reforms of economic laws Technical assistance will be provided to all three institutional levels: The National Steering Committee, the Secretariat Office, 3,000,000 World Bank/ and the Working Groups, to build institutional capacity, access international expertise, carry out strategic implementations, and FSIAL monitor the reform progress (October 2000 - September 2003). TOTAL FOR II.C LEGAL AND JUDICIAL DEVELOPMENT 3,000,000 TOTAL FUNDING WITH IDENTIFIED SOURCES 3,000,000 FUNDING GAP 0 TOTAL FOR ll STRENGTHENING FINANCIAL AND CORPORATE REFORM 15,725,370_ 65 TOTAL FUNDING WITH IDENTIFIED SOURCES 15,225,370 FUNDING GAP 500,000 Ill, STRENGTHENIN THE KNOWLEDG-E ECONOMY---- III.A INFORMATION TECHNOLOGY 1. .4ioS .75= 1. Esablishl0 :f w t a highleve Inoml teholg strteg an imtee telo team 00:u : Knowledge services for managing the development of the national strategy including a policy seminar for the senior Civil 100,000 PHRD Proposal Servants. TA is needed to provide E-Government Investment Analysis. 120,000 IDF Proposal TA is needed to study the establishment of IT Investment Promotion Office. 50,000 IDF Proposal TA is needed to provide Impact Monitoring and Evaluation. 50,000 IDF Proposal Subtotal 320,000 ECRC has conducted nationwide training programs for the business sector and has developed an information dissemination and N/A Government diffusion strategy (ongoing). contribution TA is needed to formulate e-commerce policy. 200,000 PHRD Technical assistance is needed to establish an e-commerce institute to advance the e-commerce strategy. 280,000 PHRD The U.S. Chamber of Commerce is providing training and creating electronic communities for the Small and Medium-sized 505,052 USAID Enterprises in Thailand and leveraging the Internet as one component of the partnering process between Thai SMEs and U.S. firms Subtotal 985,052 Technical assistance is needed to develop the e-govemment strategy and undertaking agency-level capacity assessments. 500,000 PHRD Proposal Project preparation support is being provided for developing projects to create e-government, train IT personnel and establish an 600,000 PHRD Proposal IT infrastructure in rural areas (ongoing). Subtotal 1,100,000 III.B SKILL DEVELOPMENT *GTZ's the DVT (the Dual Vocational Training)-Project team advises the Department of Vocational Education (DoVE) on 4,500,000 GTZ development of the DVT system. And the TGI (Thai-German Institute) project was established with the objective for TGI to support the transfer of modern production technologies to Thai manufacturing industries. Subtotal 4,500,000 III.C SCIENCE AND TECHNOLOGY CAPABILITY -_-_-. -- 1. Modernize the strategic and Institutiol otframework TA is being provided to a study entitled "Enhancing Policy and Institutional Support for Industrial Technology Development." 100,000 PHRD (ongoing with expected completion date: 2Q FY01). Following this study and its dissemination in a public woTkshop, additional support for the creation of an implementation 50,000 Need for capacity strategy is needed. building / TA The new technology development strategy has substantial implications for the role of several institutions. The transformation of 450,000 Need for capacity those institutions to new roles will require additional support. building / TA 66 Industrial survey phase 11 (ongoing with expected completion date: 3Q FYO01). 770,000 Wo~rld~ Bhank/EMAL Evaluation of sectoral technical institutes (ongoing with expected completion date: 2Q FYO01). 100,000 PHRD 2. Strengthening incentivesfor technology development Technical assistance is needed to design of performnance-based budgeting and evaluation systems for technology support 100,000 Need for capacity systems (planned). building / TA 3. Align university policy with long-term human capital and technology development needs The Millennium Science Initiative will hold a workshop of a high-qua]ity research system through university autonomy. N/A Need for capacity (planned for 3QFYO 1). building / TA Subtotal 1,570,000 TOTAL FOR III. STRENGTHENING THE KNOWLEDGE ECONOMY 8,475,052 TOTAL FUNDING WITH IDENTIFIED SOURCES 6,455,052 FUNDING GAP 2,020,000 IV. MODERNIZING INFRASTRUCTURE REGULATORY FRAMEWORK AND SOE REFORM 1. Strengthening regulatoryframework and legislation for priatiazation Telecommunication Telecom license preparation and institutional strengthening (ongoing with expected completion date: 4Q FY01). 300,000 Public Private Infrastructure Advisory Facility (PPIAF) Radio Spectrum Management and Organizational Development of National Telecommunications Corporation (ongoing with 200,000 PPIAF expected completion date: 2Q FY02) Postal Reform - Private Participation in Postal Services Phase I Regulatory Framework (under preparation with expected Phase 1: 100,000 Need for capacity completion date: 2Q FY02). building / TA Subtotal 600,000 TrEansor Air transport Detailed Regulatory Framework Study and Legislative Drafting (planned). 100,000 Need for capacity building / TA Maritime Transport Detail Regulatory Framework Study (planned). 250,000 FRANCE Express Transport Privatization (TOR under preparation 2Q FY01). 250,000 World Bank/EMAL Roads Sector Regulatory Framework Study and Legislative drafting (planned). 100,000 Need for capacity building / TA BMTA commercialization (ongoing with expected completion date: 3Q FY01) 250,000 GTZ Railroad Sector Regulatory Framework Study and Legislative Drafting (planned with expected completion date: 3Q FY02). 200,000 World Bank/EMAL State Railways of Thailand Restructuring Study (ongoing with expected completion date: IQ FY01). 640,000 World Bank/EMAL Restructuring and Privatization of State Railways Thailand (planned with expected completion date: 3Q FY02). 1,000,000 Need for capacity building / TA 67 Subtotal 2,790,000 _ Water and Waste Water Water Privatization and Regulatory Study (ongoing with expected completion date 2Q FY01). 1,100,000 PHRD TF Private Sector Participation in Waste Water (completed IQ FY01). _ 75,000 PPIAF TA is needed to implement water privatization and sector restructuring (planned with expected completion date: 4Q FY02). 500,000 Need for capacity building / TA Solid Waste Management -pilot in Municipality of Phitsanulok 300,000 GTZ* Subtotal 1,975,000 2. Improve organizational structurefor privatization and build capacity Evaluation of Corporatization plans for Telecommunication, Transport and Energy SOEs (ongoing with expected completion 500,000 $300,000 from date: 4Q FY02). GTZ $200,000 is needed for capacity building / TA Institutional Strengthening of Office of State Enterprise (ongoing with expected completion date: 4Q FY02). 250,000 PPIAF, GTZ Regulatory training -Phase I (ongoing with expected completion date: IQ FY02). 350,000 World Bank/EMAL Regulatory Training Project Phase-Il (need for capacity building) N/A Need for capacity building / TA Continuation of Thai language public information programs on privatization including internet distribution of reform policies 50,000 Need for capacity (need for capacity building) building / TA Subtotal 1,150,000 TOTAL FOR IV. MODERNIZING INFRASTRUCTURE REGULATORY FRAMEWORK AND SOE REFORM 6,515,000 TOTAL FUNDING WITH IDENTIFIED SOURCES 4,465,000 FUNDING GAP 2,050,000 V. STENGTHENG TE B NESS EV IROM ENT l - * ------ V.A COPRATrEGOVERNAVNCE:2 0 Tech3nical assistance to improve accounting and auditing standards and practices and strengthen ICAAT. 343,000 World Bank/ IDF - TF 27174 Capacity building program to support establishment of the Thailand Financial Accounting Standards Board and improve 750,000 PHRD TF 25858 accounting standards. Kenan Institute Asia with funding from USAID is supporting the Institute for Certified Auditors and Accountants of Thailand 100,000 USAID (ICAAT) to develop accounting instructional aids including video tapes, computer programs and teacher's manuals to use in higher education with assistance from a US counterpart university. Kenan Institute Asia with funding from USAID is supporting the Association for Investment Management and Research 20,000 USAID (AIMR) and the Securities Analysts Association (SAA) in promoting a "code of ethics" for the Thai corporate sector by translating and adapting the AIMR's manual for the Thai environment. 2. Improve the quality and relability of kefinancial information provided by publ crporats to regulators, shareholders, and -the g eral public 68 Advisory service in the preparation of the new supervisory regulations on accounting and disclosure for financial institutions 95,000 PHRD- TF 20138 (completed). 3. Improve accoauirabi/y of board of directors, management, and sharekolder rights ofpublik companies Capacity building program to strengthen the Institute of Directors. 320,000 ASEM - TF 24686 The Asia Foundation is assisting the National Counter Corruption Commission in the study of key issues and the strengthening 500,000 USAID of its staff. King Prajadhipok's Institute is leading a consortirum to train citizens in their rights and responsibilities under the new 500,000 USAID constitution. Advisory service to improve corporate governance practices in financial institutions. 115,000 PHRD- TF 20138 Subtotal 1,623,000 TOTAL FOR V.A CORPORATE GOVERNANCE 1,623,000 TOTAL FUNDING WITH IDENTIFIED SOURCES 1,623,000 FUNDING GAP 0 V.B COMPETITION POLICY f. Building capacity to implement conpeltlion policy and regulations AusAID and ACCC provided TA to access further capacity building needs to effective implement the new law (completed IQ N/A AusAID FY01). TA was provided to support the preparation of guideline to implement the new competition law (completed IQ FY01). 100,000 PHRD Technical assistance is needed to strengthen the institutional framework and capacity of the implementing agency. 100,000 Need for capacity Ibuilding / TA *GTZ's project on Intellectual Property System Development with the Department of Intellectual Property (DIP) as the 1,600,000 GTZ implementing agency. DIP's mission is to register patent, trademark, service mark, certification mark, collective mark and licensing of intellectual property rights; to develop systems, patterns and means to protect intellectual property; to promote effective use of intellectual property and technology information for the purposes of education, research, development and commercialization; and to study, analyze and recommend policies on intellectual property to the Royal Thai Government (ongoing) The Kenan Institute Asia and the Ministry of Labor and Social Welfare are organizing a series of workshops and training 95,861 USAID programs on voluntary labor codes to strengthen the ability of Ministry's officials, private sector managers, and labor representatives so that they understand and utilize these codes. 2. Competilou law-polcy etforcemnt - TA is needed to strengthen voluntary and non-voluntary compliance in accordance with the implementation program. 50,000 Need for capacity _________________ building / TA TOTAL FOR V.B COMPETITION POLICY 1,945,861 TOTAL FUNDING WITH IDENTIFIED SOURCES 1,795,861 FUNDING GAP 150,000 V.C TRADE POLICY L Noderuittg fIe Import regime TA is being provided to Develop Import Valuation Information System for the Customs Department (on going with expected 350,000 World completion date 4Q FY01) Bank/EMAL 69 2. Modernizn customs TA is being provided to develop an implementable Customs Master Plan for Administrative Reform (ongoing with expected 510,000 World completion date: 2QFY01I) Bank/EMAL TOTAL FOR V.C TRADE POLICY 860,000 TOTAL FUNDING WITH IDENTIFIED SOURCES 860,000 FUNDING GAP 0 V.D FOREIGN INVESTMENT REGIME 1. Promoting Foreign Direct Investment Technical assistance is being provided through training of BOI staff in key skills, e.g., strategy development, image building, 200,000 MIGA/PHRD investor targeting, investor servicing, market research (ongoing) Subtotal 200,000 TA has been provided to study the costs of land freight (ongoing with expected completion date: 2QFYO 1) 200,000 World Bank/EMAL TA has been provided to study the cost structure of major industries (ongoing with expected completion date: 2QFYO I) 200,000 World Bank/EMAL TA has been provided to study sectoral competitiveness and industrial restructuring in textile, steel, and plastic industries 280,000 PHRD (ongoing with expected completion date: 2QFYO1) Subtotal 680,000 TOTAL FOR V.D FOREIGN INVESTMENT REGIME 880,000 TOTAL FUNDING WITH IDENTIFIED SOURCES 880,000 FUNDING GAP 0 fV .-E SMALL & MEDIUM S00000$4CALE ENT ERPR$ISES (ES) _' Provide legal and institutionalframeworkfor the development of SMEs TA is needed to support related agencies including training programs in various areas such as SMEs supply-chain management, 50,000 Need for capacity IT literacy, and market development through e-commerce. building / TA TA is needed to strengthen science and technology capabilities of SMEs 200,000 World Bank/EMAL *GTZ's projects on Quality Management in Supporting Industries (QMS) and Promotion of Advisory Services to Enhance 4,500,000 GTZ Competitive Production Technology and Processes in Industry. These projects will be complementary to the existing landscape of projects that support economic development and employment generation. However, the projects will contribute to more comprehensiveness, cohesiveness and effectiveness of the German contribution in this increasingly important area. **JICA has been providing significant assistance in the development of SMEs. Programs include policy advice, SME diagnostic N/A JICA with system establishment, strengthening the functions of SME finance-specific institution, establishment of a new credit guarantee cooperation with facility, promotion of support industries, and regional economic development focusing on SMEs. JETRO and JODC ADB has participated in the SME Investment and Restructuring Fund (SIRF) aiming to provide financial assistance (equity 25,000,000 ADB capital) and advisory services to the SME sector. The fund has been approved but not yet operational. The Kenan Institute Asia's Business Advisory Center is providing specific consulting, training, and problem analysis for Thai 2,359,000 USAID SMEs 70 Subtotal 32,109,000 TOTAL FOR V.E SMEs 32,109,000 TOTAL FUNDING WITH IDENTIFIED SOURCES 32,059,000 FUNDING GAP 50,000 TOTAL FOR V. STRENGTHENING THE BUSINESS ENVIRONMENT 39,139,982 TOTAL FUNDING WITH IDENTIFIED SOURCES 38,939,982 FUNDING GAP 200,000 GRAND TOTAL 79,462,647 TOTAL FUNDING WITH IDENTIFIED SOURCES 74,692,647 FUNDING GAP 4,770,000 Remark: * are projects of GTZ; ** are projects of JICA 71