pongpen ruengvirayudh : thailand ’ s economic challenges and role of monetary policy luncheon speech by ms pongpen ruengvirayudh, deputy governor of the bank of thailand, at the embassy of the kingdom of the netherlands, bangkok, 1 march 2013. * * * ladies and gentlemen, i would like to thank the netherlands embassy for inviting me to give a luncheon speech on this occasion. thailand and the netherlands have a long - standing cultural and economic relationship, dating back as far as 1605, when the dutch east india company set up a trading post in our old capital, ayutthaya. today, the netherlands is thailand ’ s third biggest trading partner within europe, accounting for 12. 8 percent of total trade volume between the continent and thailand. in terms of foreign direct investment, the netherlands is one of the most prominent european investors, with presence spanning key sectors from banking, chemicals, electronics, to wholesale and retail trade. it is my hope that our two nations will continue to mutually benefit from their strong economic bind for many generations to come. i would like to focus my talk today on the recent economic developments, and the role of monetary policy in addressing some of the present challenges facing the thai economy. as some of you may already know, monetary policy in thailand is decided by a committee ( mpc ) consisting of seven members and four of them are experts from outside the bank of thailand. each of the mpc votes independently to decide on the policy interest rate every six weeks, or so. the mpc generally agrees on the overall economic outlook and areas of challenges, although views about the balance of risks and the appropriate policy response can differ. my discussion today should therefore be taken as a representation of my own view as an mpc member, and needs not reflect the opinions of all other voting members. economic outlook ladies and gentlemen, last year was in many ways a year of transition. the economy had to recover from the devastating floods that took a heavy toll in late 2011, and at the same time deal with the fragile global economy. throughout the year, incoming economic data have nonetheless been a series of positive surprises. the recovery gradually gained traction and became increasingly self - sustaining. production constraints eased and domestic demand was back on track, thanks to the economy ’ s sound underlying fundamentals. meanwhile, monetary policy continued to be accommodative and supportive to growth. fiscal spending through flood - relief and stimulus measures also played an important role in

estimate the equilibrium exchange rate. both the methodologies and the results of the bank's study were shared with local and foreign experts, from the ecb and from fellow national central banks in the eu and in north america. subject to the caveat referred to above, these experts generally share our conclusion that there is no unequivocal indication of a significant misalignment in the exchange rate. if our eu counterparts in the erm ii - related decision - making process also share these views, one would, therefore, expect malta to join erm ii with a central parity rate which broadly corresponds to the current exchange rate level. some commentators have cautioned against what in their view is a hasty approach to euro adoption. how would you respond? a judgment as to whether the path to euro adoption is hasty or otherwise can only be made in relation to the economic principles which underlie the criteria and conditions attached to participation in emu. this is precisely the approach taken in the treaty, which contains indicators for measuring the degree of economic preparedness of a country, as also in our own study. the obligation to participate in erm ii for a minimum period of two years serves that purpose. the underlying premise is that once a country reaches the point at which it can derive the considerable, undeniable benefits of monetary union, it should do so. in the case of a small, open economy which must support an independent currency in a fully liberalised trade and capital environment, these benefits must also be evaluated in the light of the costs and risks - which are not negligible - of delaying participation. the report presented to cabinet builds on that approach. it evaluates malta's suitability and readiness on the basis of a set of economic criteria which correspond to those which the eu will apply when assessing malta's eligibility. as is the case with erm ii, the timing of entry in the euro area will also have to be agreed in a multilateral setting, based on an assessment which is conducted periodically by the european commission and the ecb, subsequently published in the form a convergence report. it is, therefore, unimaginable that malta's entry in the euro area would be endorsed unless the eu institutions and the member states are confident that malta genuinely meets all the criteria and has achieved the necessary convergence commensurate with a smooth participation in emu and with its ability to derive the expected benefits. indeed, prior to the assessment that was conducted by the