M R Chatu Mongol Sonakul: Corporate challenges in the new millennium
Speech by M R Chatu Mongol Sonakul, Governor of the Bank of Thailand, at the Annual Business
Awards Gala Dinner of the Netherlands-Thai Chamber of Commerce held in Bangkok, 17 May 2001.
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Your Excellencies,
Distinguished Guests,
Ladies and Gentlemen,
First, let me thank Mr. Jan de Kam, President of the Netherlands-Thai Chamber of Commerce for
inviting me to give the Keynote Address for this Annual Business Awards Gala Dinner, an occasion
that exemplifies the co-operative relationship between the Netherlands and Thailand that dated back
through time since 1602.
At the time, the Dutch East India Company had already begun trading with the southern part of Siam
through their main trading station in Batavia, Indonesia. Several years later, it opened its Ayutthaya
trading post and became very influential during the reign of King Prasat-Thong. And indeed, one of the
best historical accounts of the Ayutthaya Dynasty was written by a director of the Dutch East India
Company in Siam, Mr. Jeremias van Vliet.
Now in 2001, our co-operative relationship continues. Many prominent corporations of the Netherlands
remain their presence in Thailand, including Philips, Shell (Royal Dutch), Unilever, Heineken, and ABN
AMRO, only to name a few.
By now, it is generally accepted that the tide of globalization is here to stay. So, we must heartily
embrace the process and take the best opportunities offered by the integration of the global
communities while limit the potential adverse consequences that come along with the process. To do
this, we must reexamine ourselves to review our weaknesses and our strengths. After all, there was
an old Chinese saying: "If you know the enemy and know yourself, you need not fear the result of a
hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a
defeat. If you know neither the enemy nor yourself, you will succumb in every battle."
Thailand learned her first-hand lessons the hard way and had opportunities to reexamine herself in
detail in the past couple years. Several weaknesses were identified. Prominent in the list is, of course,
we do not fully know our enemies. This has already been partially remedied by simply being part of the
game, staying competitive in the world market, and actively participating in the new knowledge-based
economy. Thai Ministry of Commerce now has 48 representative offices around the world. And in my
case, the Bank of Thailand constantly sends our staffs to work at other public and private
organizations, both inside and outside the country.
But still, at the core of all of these, we need to make sure that our corporate sector gets back on its
feet. Sustainable growth at its full potential requires that there must be a corporate reform that
emphasizes flexible and transparent organization, sound corporate governance, and increased
economic value-added through moving up the technological ladders. By so doing, we will be ready for
the intensified battles of globalization. And these will be our Corporate Challenges in the New
Millennium.
So far, Thailand has made much progress in corporate restructuring. As of March 2001, more than
380,000 cases of debt restructuring have been completed, involving the credit outstanding of 2.1
trillion baht. Yet, we must not stop there. The true challenge of corporate reform remains to be tackled,
should we want a vibrant and resilient corporate sector to emerge from the crisis. We have to move
beyond the financial side of the corporations, move beyond the balance sheet cleaning up, and start to
address the real issues that will determine the long-term competitiveness of the corporate sector and
thus consolidate the economic recovery achieved thus far.
I will not have time to cover all of the important issues of corporate reform, but let me mention a few.
Corporate governance will be one of the major themes of an on-going corporate reform around the
world in the years to come. By good governance, I mean transparency, competitiveness, and good
internal management, which include the relationship between the board of directors and managers as
well as issues such as shareholder rights, management oversight, and information disclosures.
To illustrate my points, let me use the work that the Bank of Thailand has been engaging with the
financial institutions during the past couple of years. We have provided guidelines to improve
corporate governance within the Thai financial sector to complement the on-going change within the
corporate sector. Bank directors are now required to have no more than 3 directorships in other
profitseeking institutions, so that they will have more time to carry out the required duties, as directors
should do. Before, 82 directors did not qualify, but 60 of those have now complied. And for the rest,
arrangements were made for them to observe the guideline.
To improve internal management, we ask major shareholders not to vote for the independent directors
so that minority shareholders are better represented on the board. Audit committees are now a
requirement and many banks now have nomination and compensation committees to reduce the
power of the major shareholders. Most also have risk management committee or, at least, asset and
liability management committee.
To further increase transparency, commercial banks now have to announce at the end of each month
their NPL level, penalties and fines imposed by the authorities, as well as the amount of their related
lending. By year-end, we will launch the Director's Handbook for the financial community and further
encouraging increased transparency of appointment and compensations.
Of course, we cannot change others without changing ourselves at the Bank of Thailand. Our
reorganization strategy focuses on four aspects, namely organizational structure and work process,
human resource management, decision-making process, and database and information technology.
Our hierarchical structure has now been reduced from a total of seven layers to four. Authorities and
responsibilities are being further delegated toward a lower level to the operating officers in charge.
This helps reduce the previously lengthy approval process and increase our flexibility.
New departments have been established to better cope with the rapidly changing economy and the
rising information need of the organization. These include the Data Management Group, the
Information and Public Relation Group, the Planning Group who conducts a bank-wide risk
assessment as well as a new Department of Risk Management and Information Technology
Examination, who monitor risk profile and risk management at the financial institutions.
In addition, our business processes are now more client-oriented with a new website, new voice-mail,
and new central point of contacts being offered as services to our stakeholders.
Both the Netherlands and Thailand are small open economies in the world market. To survive the tide
of globalization, we both need a well thought out strategies. We have to choose our battleground and
cooperate with friends around the world. To do this, local strength has to be further strengthened while
lessons and technologies must be learnt from others. Here, international co-operations through jointed
ventures, through foreign direct investment, or through international trade will play major roles in our
successes.
On this front, Thailand has done remarkably well, registering a substantial increase in net inflow of
foreign direct investment in the four years following the crisis despite the overall net capital outflow
due to debt repayment within the banking sector. Foreign direct investment (to the non-bank sector)
increased from an average around 1.4 billion US dollars during 1992-1996 to 3.4 billion US dollars
during 1997-2000.
Though much work is required on the corporate sector in the march toward modernization of the Thai
economy, the government and the central bank also have vital roles in maintaining stable economic
environment and providing the required infrastructures to allow the private sector to drive forward to
create wealth and prosperity.
Several long-term plans have been made in the past couple years.
On the macroeconomic front, the Bank of Thailand has adopted Inflation Targeting as a framework of
our monetary policy since May 2000. It may be a little too early to claim our success, but the results
thus far have been encouraging. Long-term interest rates of the interpolated 14-year government
bonds were reduced from 8.3 percent at the beginning of 2000 to currently at 6.1 percent. Inflation
remained subdued and will stay within the target range during the next two years. The maturity of state
enterprise debentures offered in the market increased from a maximum of 7-year in 1998 up to 20
years in 2000, reflecting greater confidence on the long-term economic stability.
On the financial system level, we are drafting a new Financial System Master Plan in cooperation with
stakeholders and representatives from other regulators within Thailand such as the SEC as well as the
Department of Insurance. This will provide a new and vibrant financial system whose survival will be
judged by the value added it creates and delivers to the clients. And these will ensure adequate
provision of financial services as required by the new economic environment.
As for the current economic policy, we are not yet out of the crisis. The economy recovered from a
10.8 percent contraction in 1998 and posed a 4.2 percent and 4.3 percent in 1999 and 2000,
respectively. Nevertheless, the global slowdown, particularly from our main trading partners such as
the US and Japan who account for roughly 35 percent of our exports, have complicated our tasks.
Here, it is the lack of confidence in the overall economic conditions that is the main problem that
prevents the resumption of business lending.
Earlier this week, the government announced its plans to put in place additional fiscal stimulus for the
fiscal year 2002, as well as programs to stimulate domestic spending. These include new measures to
utilize excess liquidity in the banking sector to further enhance economic activities, to increase
investment through a matching fund, as well as to retrain the workforce. These should provide the
much-needed economic stimulus to the corporate sector.
Prosperity of our nations rests on the hard work of the corporations, for what really matters in the long
run is your productivity. Corporates must strive to improve their competitiveness, increase their
economic value added, move up the technological ladders, and stay innovative. All of these cannot be
achieved without true corporate reform.
For those of you who love to play soccer, good government policies are like good players in the
backfield. We can help defend the goalie - the stability of the country; send the ball up to you who are
in the front field. But, if you do not try hard to score on the behalf of our countries, then who will?
So, I wish to congratulate those who win the award today. They have set the examples of what the
Netherlands and Thailand need in order to prosper in the new millennium.
Thank you for your attention..