To grow out of the crisis and survive the shocks from outside, Thailand must look within and unleash domestic engines of growth. Long-term investment in productive infrastructure is one key engine of growth. Another is domestic structural change spurred by two drivers of change in the region. The first driver of change is growth in China and the attendant rise of the Chinese middle class and demand for a broader range of imported goods and services. Chinese exports will also grow in sophistication. The second driver of change is trade liberalization in the region – such as free trade agreements with China and India as well as the ASEAN Economic Community, or  2  BIS central bankers’ speeches  AEC. AEC, in particular, goes beyond free trade and also has the potential to foster not only goods and services integration but also cross-border labor and investment flows. Because of the sheer size of these markets – China, India and AEC – the regional pattern of production will change considerably to cater to new demands while leveraging on new comparative advantages and supply chain synergies. Uncompetitive firms have to either upgrade themselves, or close down and free up labor resources to more competitive firms. This reallocation process implies that the country makes better use of labor resources and achieves higher productivity. Ongoing financial sector reform will also build financial sector resiliency. Thailand’s Financial Sector Master Plan, now in its second phase, continues, and focuses on liberalization through increased competition, raising efficiency, and strengthening the financial infrastructure.

Prasarn Trairatvorakul: Thailand’s financial challenges in global capital markets Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at the Thailand Focus 2012 “Positioning Thailand for the next growth phase”, Bangkok, 29 August 2012. *  *  *  It’s an honor to speak before you today at the Thailand Focus conference. This morning you heard Finance Minister Kittiratt Na Ranong speak on Thailand’s competitiveness and fiscal policy. Later on in the conference, other distinguished speakers will discuss Thailand’s investment opportunities in greater detail. To complement the picture, I will speak on monetary policy to complete your views on the investment opportunities and prospects of the Thai economy. As international investors, I believe you need to have a firm understanding of the country’s policy direction – something that is sorely needed in the current uncertain global economic environment. So today I will share with you my thinking on the monetary policy options going forward in light of my assessment of the global economy and the risks to the Thai economy. The organizer of this conference, President Charamporn, has kindly asked me to talk about “Financial Challenges in Global Capital Markets”. This is an especially relevant topic because, this year, the key challenge for Thailand is the challenge of weathering the financial and economic turmoil from the euro crisis. More than one year ago, I had the honor of giving a talk here. Some of you who were in attendance may recall that I labeled 2011 “the year of rebalancing” for monetary policy.