m r pridiyathorn devakula : thailand's monetary policy - its obstacles and challenges an address by mr m r pridiyathorn devakula, governor of the bank of thailand, at the seminar on " where does thailand stand now? " bangkok post – tradex economic forum bangkok, 26 september 2001. * * * your excellencies, distinguished guests, ladies and gentlemen, the tragic terrorist attack in the united states, and the repercussion on the financial markets all around the world, reinforced what we already witnessed in the 1997 asian crisis – that the financial world has become closely inter - twined, globalised and integrated. disturbances in one market readily spread to and affect all the others. this is the kind of challenge facing policymakers in setting monetary policy these days. past achievements ladies and gentlemen, let me briefly review the economic developments. thailand has faced a number of difficulties and fought hard in the last four years. we have gone through unprecedented adjustments and improvements on both economic and financial reforms. the thai economy has gradually recovered. the growth rate of gdp, which was a contraction close to 11 % in 1998, has now been maintained in a positive territory for more than two years ; 4. 2 % in 1999, 4. 4 % 2000 and would highly likely be positive again this year, even though at lower percentage of growth. macroeconomic and financial stability has been restored. inflation has also been stable at a low level of 1. 4 % in august, whilst foreign reserves have also regained the healthy level at 32. 6 billion us $ at end of 2000 and have been maintained at that level up to now. total external debt has declined from 109 billion us $ at end of 1997 to 73 billion us $ now. political environment no longer appears as an obstacle towards the recovery path. as far as the financial sector is concerned, sovereign and commercial banks credit ratings have been stable. prudential and supervision standards such as rules on loan classification, and asset valuation have steadily moved towards international standards. commercial banks have also progressively recovered, with an increase in capital adequacy ratio reaching over 14 percent. thai banks'earning performance showed a steady improvement, with a net operating profit of 7 billion baht during the first half of 2001, a significant improvement from 3. 6 billion baht for the whole of last year. debt restructuring also progressed well, with the npl ratio dropping from a high 45 % at the end of 1998 to 39 % in

##ness of the world economy, volatility and short - term fickleness of marketplace are unavoidable. the wise thing to do is to understand the nature of this global interconnectedness, enhance risk management at both the macro and micro levels to mitigate negative impact that it may bring upon, all the while maximizing opportunities that it can immensely provide. it is conceivable that, in this highly integrated world, information and confidence are very important in influencing actions. just as how “ shifts in beliefs ” can go a long way to create extreme market reactions and volatility, on a positive side i trust that a successful “ anchoring of confidence ” in our “ shared beliefs ” of asean ’ s strength and future will encourage actions and commitments that will bring sustained prosperity for all. thank you. and happy birthday to the nation. bis central bankers ’ speeches