While we cannot rule out another surge in oil prices, the possibility of that happening is at the moment not very large. Furthermore, given a high base, the relative impact of a price increase will be smaller this time around. A potential factor to support Thailand’s medium-term expansion will be a pickup in private investment, expected in the second half of this year. Although Thailand’s investment share of GDP has expanded gradually since the economic recovery, it remains well below pre-1997 level and thus room for more investment. At the same time, the capacity utilization rate has steadily climbed up to the point that, if left to their own accords, firms will soon need to make new investments in order to meet demand. Facilitating the pickup of private investment growth will be bank’s improved ability and willingness to lend as the banking sector’s NPLs are expected to decline to a low single digit this year. This further strengthening of banks’ balance sheets will allow banks to lend at lower carrying costs. Furthermore, the ongoing preparation for the sector-wide adoption of Basel II at the end of 2008 will help ensure the quality of the new private credits. An additional economic stimulus will come from the fiscal side. With a strong fiscal position, the Thai government this fiscal year has opted for the use of a budget deficit to support economic growth. Key infrastructure investment projects include the expansion of mass transit network in Bangkok, water resource management, and an integrated logistic system.

Recognizing that inflation targeting is not a panacea, the Monetary Policy Committee has supplemented the framework with a regular monitoring and assessment of seven key areas of financial imbalances, where buildup may threaten the macroeconomy and price stability. These seven areas are the country’s external position, the real estate sector, bank credit, household and corporate financial positions, the financial market, and the fiscal position of the Government. Ladies and Gentlemen, despite all these reform efforts and the stronger foundation the Thai economy now has, we have to remain vigilant. Today, the change of pace in the global economic environment is simply unprecedented. Some of these changes, if left unchecked, may have significant implications on a country. While the new global dynamics represents an opportunity for a country like Thailand to leap forward, it also entails increasing risk of economic instability. The evolving complexity of the global economy means that conventional thinking and approaches to deal with economic problems may, at times, need to be adapted. The 1997 crisis highlighted this point. Back then, the conventional wisdom for a crisis-ridden country is to adopt restrictive monetary and fiscal policies. As we all now know, overtightened stance aggravated the already fragile situation and created many unnecessary pains. Only when the crisis contagion spread to several countries was it evident that such measure was a wrong medicine for Asia, which ultimately led to the abandonment of some of these measures. Today we are faced with the major problems of global imbalances and large and volatile capital flows.