As global competition intensifies, Thailand can neither simply keep growing on the back of capital accumulation nor dwell on massive production of low value-added goods. Desirable product features such as high quality and consistency are needed to sustain export competitiveness, and to maintain linkage to the global arena with clear focus on market awareness and adaptability. Recently, there have been positive signs in some industries such as jewelry, garments, and food, where production technology has been upgraded to increase competitiveness of these industries and to move them up the value chain. Unfortunately, while such developments are encouraging, they have not been adequately spread out to other industries. By the time these adjustments are completed, it may have been too late, probably rendering losses in a number of industries. What we need now is a national agenda that comprehensively looks at competitiveness of all parts of the real sector. Industries that can no longer compete in the world market will have to be gradually phased out. Other industries that depict competitive edge and growth potential in the global arena will warrant further plans to upgrade technology, increase added values, and develop marketing strategies. These plans will have to be implemented through a concerted national effort so as to ensure better resource allocation along with greater value creation. Reforming the real sector would however need to be complemented by strengthening of the financial sector. A notable example of such a strategy is the establishment of the Thai Asset Management Corporation or TAMC.

The existing regulatory framework was simply inadequate to detect and prevent the brewing problems. At one level, inadequate follow-up framework made it difficult to track where the funds were going. But the heart of the problem lay in the loose supervision and examination system in place. Regulatory waivers were common. And the culture evolved to one that encouraged or condoned excessive risk-taking behavior. Compounding the problem were Thailand’s underdeveloped capital markets. The absence of what Alan Greenspan termed a “spare tire” of finance made bank lending the dominant source of corporate financing. Consequently, viable businesses were trapped in the breaking down of the banking sector’s intermediary role with no way out, and the crisis spiraled into a devastating credit crunch. The most significant implication drawn from this lesson is thus a strong financial sector is essential for a country to sail through financial storms. It is perhaps not a coincidence that Singapore and Hong Kong fared better than many other Asian countries during the 1997 crisis, for their financial systems were, and still are, relatively deeper than the rest. A strong financial sector serves as an absorber for external shocks while a weak and inefficient financial sector aggravates the depth of the problem and prolongs the recovery process. Beyond the “hardware” of the physical and financial infrastructure, the “software” of the ethical issues governing the running of the system is also critical. Tales of businesses being endowed with extraordinary treatments from bankers through their cross-holding relationship are probably still fresh in everyone’s mind.