By: Eugenia Lotova

Having established foreign missions in the 10 other Southeast Asian countries, it seems increasingly likely that the small nation of Timor Leste will become the eleventh member of the 625 million, $2.8 trillion economy of the Association of Southeast Asian Nations (ASEAN). Timor Leste submitted its application for membership in 2006, but a lack of support amongst member nations made the alliance improbable. Today it remains the only country in Southeast Asia not taking part in the association, but it has taken several steps towards meeting the membership requirements. It gained the support of several Southeast Asian nations, particularly Indonesia—its former colonizer. If Timor Leste does in fact join ASEAN, it is likely to see rapid development and will undoubtably present exciting opportunities for investment.

Currently the country relies heavily on its oil and gas exports, but it is quickly running out of reserves and needs to diversify the economy. Timor Leste’s GDP is largely made up of the industrial sector (77 percent), with agriculture only composing 5.9 percent. The industrial production growth rate was 6 percent in 2015 and saw a 4.1 percent GDP growth in 2015, a drop from earlier years due to a decrease in oil and gas prices.

While the country shows potential outside of the oil and gas industry, a lack of basic infrastructure and shortage of skilled labor presents a major problem for growth. According to the World Economic Forum Global Competitiveness Report, Timor Leste ranks 133rd out of 143 countries in infrastructure and 117^th in primary education. Nonetheless, Timor Leste has been stable politically and joining ASEAN would allow it to tap into the collective experience and capital pools of its more advanced neighbors.

By: Dezan Shira & Associates 
Editor: Aysha Nesbitt

Vietnam is on its way to being the largest beneficiary of the Trans-Pacific Partnership (TPP). The agreement will produce greater access to foreign markets and foreign direct investment for Vietnam through the reduction of 18,000 tariff lines on industrial and agricultural products. However, in order to gain access to these reductions, Vietnam is expected to comply with labor standards outlined in the agreement as well as specific commitments made under the US-VN Plan for Enhancement of Trade and Labor Relations.

TPP Labor Standards

A predictable portion of the TPP’s labor standards require Vietnam to abolish forced or compulsory labor, including child labor. The country must also actively discourage the importation of goods from sources where products are in whole or partially produced by forced labor. In order to ensure this policy is strictly followed, Vietnam will be required to establish a labor council of government representatives who will monitor the implementation of the labor reforms.

Once the TPP comes to fruition, the council will be responsible for reviewing and accessing the reforms at the end of the first year and every two following. Other reforms that Vietnam must establish are acceptable conditions of work pertaining to minimum wage, hours of work, as well as safety and health conditions. Each province in Vietnam will be responsible for implementing, regulating, and maintaining these reforms to the satisfactory degree.

By: Dezan Shira & Associates
Editor: Maxfield Brown

Thailand – Business Collateral Act

Starting on July 2, 2016, small and medium sized enterprises in Thailand will be provided greater access to loans within the Kingdom. As part of the Business Collateral Act, passed in November of 2015, the scope of currently available credit lines will be broadened while at the same time ensuring those providing loans with the ability mitigate increased risk exposure.

For businesses currently seeking financing, restrictions on collateral within Thailand have been a serious impediment to the acquisition of funding. Under existing laws, the only collateral options available include mortgaging under very limited circumstances or a pledge system that surrenders assets to the lender during the duration of repayment.

A major component of BCA is its expansion of collateral options to allow for companies to make better use of their assets during repayment and to give businesses a greater variety of collateral options. The chart below contrasts the current and upcoming policies:While the BCA is sure to increase the availability of capital to growing businesses throughout the country, Dezan Shira & Associates would like to draw investors’ attention to a number of restrictions, penalties, and compliance requirements that have been placed on the financing process:

• Receiving Collateral: Financial institutions are the only actors permitted to receive collateral under the BAC.
• Business Collateral Agreements: Required for all collateral arrangements. All Agreements must be registered with the Business Collateral Registration Office.
• Preferential Claims: Pursuant to Business Collateral Agreements, those providing loans and receiving collateral shall have preferential claim over these assets. Claims will remain valid even if the assets in question have been transferred to a third party.
• Violations: any divulgence of confidential information, withholding of facts, or provision of false statements will be classified as a violation of the BCA. Punishments for these offenses can include fines and jail time of up to three years.

By: Alexander Chipman Koty

As Philippine president-elect Rodrigo Duterte prepares to take office on June 30, investors and business people both at home and abroad are wary of how the audacious politician will impact the country’s booming economy. Under President Aquino, the Philippines enacted several liberal macroeconomic reforms and experienced an average GDP growth rate of 6.2 percent, leading the Oxford Business Group to name the country the best economy in South East Asia. However, widespread anger over elitism, corruption, inequality, and crime catapulted the controversial politician to the country’s highest office despite little explanation of his economic policies.

Duterte has made international headlines for his crude and seemingly off-the-cuff anti-establishment remarks, while drawing anxiety from some corners due to his uncompromising tough on crime approach and implicit support for extrajudicial vigilante killings, giving him the monickers “Duterte Harry” and “The Punisher”. His populist campaigning, self-description as a socialist, lack of commitment to the rule of law, and remarks that he does not know much about economics or care about the stock market have unnerved investors who fear a reversal of the previous administration’s liberal economic reforms.

To allay these anxieties, Duterte recently announced an eight-point economic plan setting out his agenda to maintain the Philippines’ vigorous growth. The plan addresses rural development, tax reform, corruption, education, tourism, ease of doing business, foreign investment, and public-private partnerships.

Despite Duterte’s fiery and unpredictable rhetoric, he appears set to continue former president Benigno Aquino’s reforms and further open up the Philippines to foreign investment. While Duterte’s presidency promises to be eventful and campaign pledges may not ultimately be wholly fulfilled, investors can take solace in his reassurances to the business community and commitment to attracting foreign investment.

Law and Order

Duterte’s principal campaign promise to strengthen law and order features prominently in his economic plans. Duterte contends that eliminating gangs and organized crime will reassure investors wary of entering the Philippines due to concerns over their own personal safety. He touts his experience as mayor of Davao, where rampant lawlessness once earned the city the designation the “Nicaragua of Asia”, but now boasts the lowest crime rates in the country and strong foreign investment.

In addition to expunging urban crime, Duterte has pledged to quell ongoing conflicts and insurgencies with Islamist and Communist rebels in the South, principally on the island of Mindanao. While Duterte is notoriously ruthless on crime, even admitting to killing criminals himself, he has signaled his openness to enter peace talks with rebels. If successful, he plans to promote the area – the Philippines’ second largest island and home to over 20 million people – for tourism, agriculture, and infrastructure investment.