prices. and, in the case of thailand, with little incentive to invest in research and development to raise the products ’ value and enhance human capital, the average growth of labor productivity3 had trended down from the 1990s to 2000s. ladies and gentlemen, this brings me to my third part on the lessons from the asian financial crisis. i would like to offer three reflections that may not necessarily pertain to europe but may provide food for thought for policymakers. first, conventional policy prescriptions may not be appropriate for unusual circumstances and there is no one - size - fits - all solution. asia was a case in point of ill - timed austerity measures. public sector debt in thailand then was less than 15 % of gdp ; yet the policy prescription for thailand was to tighten fiscal policy and maintain tight monetary policy, resulting in ( interbank ) interest rate rising from 10 % at the beginning of 1997 to over 20 % at the end of 1997. with large private external debt beyond the ability of the country to service, a way out should have been debt restructuring with international creditors to give the country a breathing space and avoid the painful shock from the sharp reversal in capital. this was made possible only in the case of korea which has helped the country recover from the crisis and was able to bring down interest rate much faster than other crisis countries. the case of indonesia further led the imf to reform towards more careful and focused policy prescription. the abrupt close - down of indonesian commercial banks under the imf program added to a sense of panic, which led to a broad - based bank run. moreover, the conditionalities did not focus on the more critical macroeconomic adjustments which were directly related to the problems of the crisis but also included unrelated changes such as requirement to abolish import restrictions on all new and used ships. secondly, policymakers must be ready to take away the punch bowl. in the past we used to talk about monetary policy being on the alert to take away the punch bowl. this crisis has proven that public policy in general need to observe this principle as well. fiscal policy must guard against falling into the populist trap. financial supervisors also need to be vigilant and watch out for signs of excessive credit creation, and act pre - emptively for the cost of cleaning up the crisis far outweigh the brief euphoria and exuberance of the moment. central bank must maintain independence and credibility in order to voice and conduct appropriate policies that may not be

m r pridiyathorn devakula : upon acceptance of the award for central banker of the year - asia 2006 statement by mr m r pridiyathorn devakula, governor of the bank of thailand, at the banker magazine luncheon seminar, bangkok, 1 february 2006. * * * distinguished guests, ladies and gentlemen, back in june 2001, when i landed at the job of governor of the bank of thailand, i was fairly confident that i would be able to do well in the area of bank supervision, given the considerable exposure i ’ ve had as a commercial banker. i also had some ideas on how to move forward the resolution of npl and return banks to profitability. but i was a banker and not an economist by profession. my expertise in business administration made me a bit uneasy on matters concerning monetary policy, as i felt that i did not have enough macroeconomic background to master the monetary policy issues. however, i was really fortunate to have a highly competent monetary policy committee as well as bot staff to support me in this area. indeed the depth of knowledge and the quality of analysis provided by bot staff are materials which i can always rely on. all i have to do during the past 4½ years is to pay close attention to their presentation, data analysis and proposals. the analysis of bot staff is intellectually rigorous yet very clear in their message, enabling me to fully grasp the issues, and the monetary policy committee to make appropriate decisions. however, in a country where the functioning of financial market mechanism is not fully efficient, there is an important role for public communication to help enhance the effectiveness of monetary policy. public understanding of monetary policy would lead to desirable change of market behaviour and adjustment process. effective communication would also enable financial market participants to anticipate the direction of monetary policy, thereby enhancing the transmission mechanism of monetary policy. it is in this area that i feel i could contribute. series of efforts have been made to improve bank of thailand ’ s public communication and i believe nowadays the public is more receptive to monetary policy, while financial market participants could correctly anticipate the direction of monetary policy and adjust their behaviour accordingly. because this award is based on the work in the monetary policy area, i therefore humbly accept this award - not only for myself, but also on behalf of the monetary policy committee as well as the staff of the bank of thailand. and as mr. caplen mentioned earlier on, the thai banking sector also deserves congrat