Prasarn Trairatvorakul: Bank of Thailand's policy direction in 2012
Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Bank of
Thailand, Bangkok, 27 January 2012.
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Good afternoon, honorable guests and members of the press,
2012 is a special year because it is the Bank of Thailand's (BOT) 70th anniversary, a mark of
extensive experience for an institution. Faced with numerous challenges to monetary policy
and financial institutions policy implementation, the BOT has through the past 70 years
upheld the institutional value that our policies must be based on sound principles, yet
embracing enough flexibility to accommodate the changing environment. Our ultimate goal is
to promote Thailand's long-term economic and financial stability.
Our policy direction in 2012 will continue to reaffirm our long-held determination to strengthen
the country's economic resiliency and the well-being of the Thai people. Notwithstanding
short-term economic obstacles that have weighed on current sentiments, the Thai economy's
main challenge has remained the same since my address last year. This major challenge is
how we all can become more proactive since idleness during a time of rising competition
could easily cause us to fall behind. As such, all parties should always be ready to improve
oneself and to prepare for uncertainties that may occur in the future. In this same spirit, the
BOT has modified our strategy to fit the changing environment and is willing to work with all
parties to ensure that the Thai economy can continually expand in line with its potential.
Policy implementation in 2011
Looking back at 2011, the BOT implemented our monetary policy to ensure stability against
the backdrop of robust economic expansion in the first three quarters of the year. Thus, we
continued to normalize the policy rate, as I had stated in last year's policy statement. After
the economy was hit hard by the flood crisis amid the stagnating global economy in the final
quarter, the BOT policy was adapted to the changing circumstances, evidenced by the
Monetary Policy Committee's (MPC) decision to lower the policy rate in the last meeting of
the year.
Throughout last year, the BOT also paid particular attention to policies that facilitate
businesses in normal times and in crisis times. These included policies that ensure the
exchange rate movements consistent with the underlying economic fundamentals and that its
volatility remained manageable by Thai businesses. Moreover, our policy on financial sector
regulation and supervision has ensured that Thai financial institutions maintain their status as
a credible and efficient financial intermediary and able to meet private sector demands.
These efforts included encouraging financial institutions to rationalize their transaction fees
structure, introducing digital cheque-imaging system, and relaxing certain measures related
to financial institutions to alleviate financial burdens of flood-affected victims.
Economic conditions and challenges for 2012
The path towards the future is not a smooth one. Ongoing challenges from the past and new
challenges will increase obstacles for the Thai economy. Domestic issues still remain an
important hurdle while emerging external issues have created new challenges. These
challenges are inherent parts of the mega trends, which include the crisis facing western
economies and advancing regional economic integration.
Currently, Thailand appears to be at a transitional gateway of these mega-trends, where the
future looks blurry. The persistent economic slowdown plaguing the advanced economies of
United States and Europe leading up to sovereign debt crisis and continued financial system
stresses do not yet have a clear resolution in place. Many observers, however, view that
after this transitional gateway, Asia will be under the spotlight with China as the new leader,
leading the economic expansion for other countries in the region. Despite this optimism,
countries in Asia cannot afford to relax, sit back, and enjoy the ride, as economic volatility
could arise intermittently via trade and financial channels from western economies. The
degree of such impact depends on how well each economy is prepared for the potential
disruption.
Another aspect of the transitional gateway is the ASEAN Economic Community (AEC) in
2015. This regional integration will bring not only changes in the regional investment and
trade landscape, but also changes in people's attitude as an ASEAN citizen where travel and
contact will become more frequent. Nonetheless, we should not view AEC as the final
destination, but rather a stepping stone towards enhancing economic resiliency in the region
by creating a single ASEAN market and production base. This would help foster value-added
characteristics of the Thai economy and increase opportunities for our people, businesses,
and everything else that will bring about a better standard of living for all.
The two mega-trends I have outlined, when combined with the flood crisis at the end of last
year, mean that Thailand needs to quickly upgrade infrastructure to improve
competitiveness. In particular, public investment in effective natural resources management
system and improved governance of public administration will serve as an important driving
force for sustainable economic growth.
Evolution of economic activities in line with the changing environment
While the immediate obstacles may have changed, the overall challenges that have
remained require all parties to formulate a strategic framework and policy space, to enable
the Thai economy to stride pass the transitional gateway smoothly.
For the public sector, the implementation of policy that promotes investment and enhances
competitiveness effectively relating to infrastructure, education, and governance such as
reducing corruption and improving political resiliency would be an important impetus to boost
Thailand's position in the competitiveness race. This is because public investment attracts
further investment from both private investors and foreign investors, the so-called
crowdingin effect.
For the private sector, the search for new markets, improvements of production efficiencies,
creation of value-added goods and services, and effective risk management are things that
the private sector can do to prepare for new challenges. I also encourage the private sector
to learn more about the complexity and risks of various financial products to be able to use
them effectively for their businesses. This will help businesses to reduce cost and increase
competitiveness, as well as allow the financial sector to play a bigger supporting role for the
real sector.
For the financial sector, strengthening internal organization and promoting financial system
efficiency will be the main factors that allow financial institutions to become more competitive.
This will also increase the efficiency of business transactions as well as confidence in the
financial system.
Policy address
Like all policymakers, the BOT faces not only the challenge of policy making but also that of
communicating the policy choice to the general public. It is often the case that there is a gap
between public expectation of near-term results and what the BOT aims to deliver: a firm
foundation for the long-term, the results of which may not be seen for years to come. Upon
assessing the changing global environment, risks and social dynamics together, the BOT
remains resolute in our commitment to preserve Thailand's economic resiliency and
sustainable growth path. This can only be possible through a common vision among all
stakeholders, for that would allow for policy integration and the creation of financial
environment that would foster equitable progress and welfare.
Monetary policy and exchange rate policy
With regard to the implementation of monetary policy, the BOT will continue to safeguard
economic stability mindful of the economic cycle, especially the risks arising from global
economy. This year, inflationary risks look to moderate from last year. Therefore, monetary
policy can shift focus to the promotion of private sector's growth and ability to cope with
elevated uncertainties as a result of more volatile global environment.
At the same time, exchange rate management will remain adhered to the principle of flexible
movement in line with economic fundamentals. Along with that, the BOT will continue to push
forward the "Capital Account Liberalization Master Plan" to allow Thai entrepreneurs and
retail investors more flexibility to manage overseas investment. It is hoped that, under this
master plan, foreign exchange regulations will be streamlined to help reduce the cost for Thai
investment abroad as well as develop domestic financial markets. Initiatives on promoting
outbound investment will include expanding investor types and ceiling limits, relaxing existing
rules and regulations, and increasing flexibility for risk management. Nevertheless, the BOT
will maintain adequate safety valves in line with varying emergency scenarios. In this regard,
we expect to organize a public hearing on the "Capital Account Liberalization Master Plan" to
gather inputs from all key stakeholders.
Financial institutions policy
For financial institutions policy, the BOT aims to increase the competitiveness of financial
institutions while ensuring continued systemic soundness, promoting efficient risk
management, and ensuring their desirable role as effective financial intermediaries.
To increase the competitiveness of financial institutions, the BOT seeks to improve the
financial system infrastructure, such as developing the payment systems to promote efficient
business dealings and to prepare for cross-border transactions involving regional currencies.
We also work toward raising the standard of Thai financial institutions to become Qualified
ASEAN Banks (QAB), which is a standard used within the region to allow qualified financial
institutions to expand their business within the region. The BOT has already formulated
action plans for all of these aforementioned initiatives, and plan to accelerate implementation
in tandem with Asia's growth and regional economic integration.
Ensuring financial institutions' role as effective financial intermediaries will help promote
inclusive growth, which would lessen unequal access to financial services. To this end, the
BOT will ensure that financial institutions provide quality financial services that meet various
needs at a fair price especially for risk hedging instruments.
Along with greater provision of financial services, better consumer protection to create
financial immunity for financial services users also tops our priority. To help consumers
understand available products to better choose one that suits their needs, the BOT has set
up the Financial Consumer Protection Center (FCPC). This center currently provides
onetouch service through the hotline number 1213. The center also offers financial education to
the public.
Conclusion
I would like to reiterate that the Bank of Thailand's policy direction for 2012 will focus on
making the Thai economy more resilient and improve the people's standard of living. For us
to achieve this goal, the BOT will adhere to our economic and financial stability mandates
while reaching out to other public policy dimensions to promote a common vision of all
policymakers to achieve a more competitive Thai economy. This common vision must
however reflect the desired policy result based on real needs of the people. Through
outreach and humility, we will also engage more with our stakeholders in pursuit of
Thailand's sustainable economic wellbeing so that Thailand can cross the transitional
gateway and stand on the world stage with strength and stability.