First, I would like to draw your attention to the benefits and challenges of globalization from the perspective and actual experience of Thailand. Second, I want to identify the main challenges of globalization and how to meet them. And last, I would like to conclude with a discussion of how Thailand should position itself in order to reap the benefits of globalization while avoiding its pitfalls in the long run First, I wish to emphasize that globalization brings both opportunities and challenges to small open economies. Thailand is no stranger to this reality and successive administrations have shown strong commitment to supporting the progress of global economic integration. Nevertheless, we should also put the issue of benefits and challenges of financial and economic globalization into a proper perspective. I would like to do this by examining the experience of Thailand during the past two decades. Over the past twenty years, it is an undeniable fact that globalization has brought substantial gains to Thailand. The evidence is all around us. International trade and investment have boomed. Thai exports expanded by over 11 percent per year during the same period. Our large and vibrant export sector sends goods all over the world. And, in turn, Thai consumers enjoy goods from all corners of the globe. On the investment side, healthy joint ventures and foreign investment abound. Interaction at the person-to-person level has also grown, underlying the fundamental importance of the sharing of knowledge and skills between nations.

The decision entails  BIS Review 64/2007  3  a tough trade-off between lower interest rates that boost the economy today but invite inflation tomorrow. Tightening interest rates burden households today but pre-empt inflation tomorrow. In the most recent episode of high oil prices in 2004-2006, the Monetary Policy Committee’s decision to tighten interest rates to maintain price stability was crucial for sustaining economic stability and growth in the current period. Inflation has been well contained and its persistence pre-empted. Last year, consumer price inflation came down from a peak of 6 percent in the second quarter, to 3.3 percent in the last quarter. In the first quarter of this year, headline inflation registered 2.4 percent. Ladies and Gentlemen, My third and final point is that Thailand must enhance its ability to compete through productivity improvement to continue reaping the benefits of globalization. The challenges of globalization are constantly changing. To meet these challenges from without, it is critical that the Thai economy build strength from within: by continuously improving the flexibility and efficiency of its firms, the resiliency of its households, and the competitiveness of its business environment. In this respect, public policy must engage in financial and real sector reforms and policies that promote a stable macroeconomic environment and a competitive private sector. Looking ahead, our financial and legal infrastructures will continue to be strengthened particularly through the introduction of a number of legislations and amendments. The new Financial Institutions Act and the Deposit Insurance Act are in the pipeline.