Regional political analysts say Bangkok, Phnom Penh relations are the worst they have been in several years

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Thailand-Cambodia Tensions Rise over Appointment of Fugitive Thai Official

Concerns are already rising that big foreign manufacturers, faced with financial problems in their home countries and declining regional demand for their products, could permanently shutter their Thailand-based facilities. Those worries intensified earlier this month when Japanese automotive and motorcycle producer Suzuki announced plans to close its Thailand operations. Ailing US auto giant General Motors’ local affiliate also raised eyebrows when it requested and was declined a 3 billion baht loan from Thailand’s Ministry of Industry for a diesel engine project.

With average factory usage rates mired at 60%, demand for new capital expenditure bank loans will likely be muted throughout 2009. Industrial output was down 7.7% in November and fell another 18% in December. UBS noted in a recent report that the decline in manufacturing over the second half of last year was steeper than the entire fall during the worst 18 month period of the 1997-98 financial crisis.
While Thailand exported itself out of crisis after the 1997-98 collapse, current global economic turmoil – including a near collapse in global trade – has significantly narrowed potential paths to recovery. Economists contend that a small trade-geared economy like Thailand can only marginally replace the revenues and jobs lost from falling exports by stimulating more domestic demand-led economic growth.

The same protest group occupied Government House for nearly three months beginning last August, effectively crippling the workings of two different Thaksin-affiliated governments. A modicum of stability has returned with the formation of Abhisit’s coalition government, which is believed to have military backing and has prioritized restoring foreign confidence.
Investor confidence has not yet fully recovered from the military appointed administration’s surprise move in December 2006 to impose and then retract capital controls on foreign equity, bond and currency transactions. A nationalistic motion the following year to amend the Foreign Business Act spooked Japanese investors, many of whom have their Thailand operations structured in a way legislators aimed to ban.

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