2  BIS central bankers’ speeches  This cyclical narrative does not obviate the fact that important structural impediments do exist and need to be addressed. According to the latest Global Competitiveness Report, Thailand compares less favourably in terms of capacity to innovate, quality of workforce, and infrastructure. Labor market efficiency has fallen 42 places in less than four years, against the backdrop of labor shortage that could worsen as the society ages. Improving education and labor market reform are therefore critical as a foundation for innovationdriven development. The integration of manufacturing sector into the global supply chain needs to be a more dynamic and forward-looking process. The old days of easy wins are bygones. Knowledge and vision are necessary preconditions for innovation-led growth. The current government’s reform agenda indeed places a great focus on providing the right incentives and environment for the private sector to undertake the next big leap of improving their productivity and innovative capacity. But the ultimate success will hinge on the private sector rising to these challenges and following through with their actions and ingenuity. Third pillar: strengthening the economy & development Ladies and gentlemen, Let me now turn to the final pillar, that of strengthening the structure of the economy towards a sustainable long-term economic development. I have touched upon several real sector issues that could pose challenge to Thailand’s prosperity. But there are also important financial sector areas that are no less important, despite the immediate consequences being less evident.

Financial development, indeed, is an integral part of economic development. The relatively small financial market in Thailand means that largescale cross-border activities, especially mergers and acquisition, cannot take place without adversely affecting financial market volatility. Promoting deeper financial market would help facilitate more long-term direct investment that is needed for the economy to upgrade its technological capability. Financial development also entails broader banking and payment issues. For example, diversifying the sources of financing and reducing the degree of dependence on banks, would help the financial system better absorb shocks and improve efficiency of funding. Upgrading the financial infrastructure and payment system is necessary for the economy to reap full benefits from regional trade integration in the new digital age. Implementing financial development is not a straightforward task, and among other things, it is complicated by the need to ensure financial stability. Bigger financial system can increase the system’s fragility, which if left unchecked, could undermine economic development efforts. Financial innovation, in some instances, could encourage risk-taking activity that raises rather than reduces market inefficiencies. These considerations mean that financial development must be accompanied by a robust policy framework that places financial stability as a high priority. This is indeed the practice followed by the Bank of Thailand. Monetary policy On that note, let me briefly discuss the role of the Bank of Thailand in this new environment. Our key contribution to the long-term economic development efforts is to provide a stable macroeconomic and financial backdrop, so that the prosperity can be attained without interruptions.