bandid nijathaworn : update on the thai economy luncheon address by mr bandid nijathaworn, deputy governor of the bank of thailand, at the rotary club of bangkok south ( rcbs ), bangkok, 20 november 2009. * * * good afternoon, first, let me thank the rotary club of bangkok south ( rcbs ) for the invitation, and especially i want to thank peter williams for a very warm introduction. it is an honor to be speaking to you today, and my topic this afternoon is updating on the thai economy. as you are all aware, this year has been an exceptionally challenging year economically, not just for thailand but also for most other economies. this year the global financial crisis, which has been with us since august 2007, continues to impart negative impact on economic activities, employment, and access to financing worldwide. the good news is that things are looking up. there are better news coming from the advanced economies, suggesting that economic situations are improving and financial markets are stabilizing. in asia and the pacific, signs of recovery are also strong and lead those in the rest of the world. on the homefront, recent economic data for thailand are also more positive and indicate that the economy is slowly returning to growth after a sharp contraction we saw late last year and in the first quarter of this year. my talk today is to update you on the recent economic and financial developments, and to share with you our assessment of the prospect for next year, including the challenge for policy. let me begin first with the global economy. recent economic data, especially of the last few months, point to a picture of greater stabilization and more consistent signs of recovery in the global economy. the severity of the early economic contractions has eased while the levels of economic activities are gaining traction on a worldwide basis. in most major economies, final demand is showing signs of strengthening along with improvements in consumer confidence and business sentiment. more importantly, although the financial system in the advanced economies has not returned to normalcy, financial conditions have improved markedly with lower market volatility, reduced risk premia, and the unfreezing of interbank and other short - term funding markets. these positive developments have led to a view that the worst of the global crisis is now behind us, and forecasts of economic growth have been revised upwards for this year and next year. on the financial front, reflecting these recent developments, appetite for risky assets has returned, leading to

road. at this juncture, it is important that we do not turn the corner to complacency but rather face the challenge of how to sustain or even raise growth slightly without creating problems in the long run. i have three challenges for us to think about. first, the government has emphasized the importance of balancing between external reliance and domestic strength in order to mitigate the problem of over - dependence on the possibly volatile external demand. the government ’ s dual track policy aims to maintain global links between thailand and her external markets while also creating a strong and broad - based domestic demand especially at the grass - roots level. the merit of programs that reach out to the grass roots like the village fund and the people ’ s bank is to help relax some of the financial constraints on low - income families which have had limited access to formal financial services. on the upside, more opportunities are being granted to the underprivileged, with long - term benefits hopefully realized in the form of greater ability to earn and consume. however, overdoing some of these programs may induce households to assume too much risk and accumulate debt beyond their ability to service. that will eventually give rise to loan defaults and a burden on the government ’ s budget. at present, thailand ’ s household debt is still considered low compared to other emerging countries. at the end of 2002, the ratio of thailand ’ s household debt to gdp is only 27 percent, significantly lower than the ratios observed in other asian economies. moreover, this debt accumulation has taken place along with a steady increase in household income and asset, thus mitigating the risk of excessive debt burden. while the debt issue does not look to be serious for now, a build - up of household debt stock could imply that private consumption would likely to become more sensitive to interest rate changes. this would have a direct implication on monetary policy because even a small change in the policy rate could now have a large impact on gdp when households are highly leveraged. it is therefore prudent for us to monitor household debt closely and ensure that the rise in household leverage is manageable. the second challenge is posed by the slow recovery of commercial bank credits. despite some positive development, it is clear that credit expansion has not kept up with economic growth, and the intermediary process between depositors and investors is still clogged up. while it is true that many companies can now resort to other means of financing such as issuing debentures or drawing from