impose the reserve requirement was a difficult one as it entailed a painful tradeoff between investor sentiment and export sector competitiveness as well as economic stability. in the end, cost - benefit analysis led us to choose the latter given the importance of export sector stability to the overall economy. indeed, during the first three quarters of 2006, net exports accounted for 5. 1 per cent out of 5. 3 per cent gdp growth in total. losing export sector stability will result in economic instability. as a small open economy, thailand relies a great deal on international trade. let me be clear that the reserve requirement was designed to preserve economic stability and to give time for the export sector, which includes many sme operations, to adjust. the reserve requirement was not designed to maintain a certain exchange - rate level. as such, the reserve requirement is not a permanent measure ; it is temporary. in addition, the intended benefits of measures such as these will tend to decrease as people find ways to circumvent the regulation over time. therefore, after the appreciation momentum was broken, we gradually adjusted the measure to add flexibility without compromising the original objective of maintaining baht stability. now, firms borrowing from abroad can either set aside the required reserves or fully hedge their loans. similar flexibility will be extended to other types of inflows in due course. capital outflows will be further liberalized while a better database of capital flows is being built. this leads me to my third and final point : how to deal with the challenge of global dynamism in the medium term. the critical challenge for the thai economy is how to continuously improve its flexibility, efficiency, and competitiveness amid ever - changing global economic conditions and structure. in this respect, we need to engage in financial and real sector reforms and policies that promote a sound and stable macroeconomic environment. to mention a few examples, our financial and legal infrastructures will continue to be strengthened particularly through amendments and the introduction of a number of legislations such as the new financial institutions act and the deposit insurance act. the financial sector master plan ( fsmp ) will move into its second phase, with the review of the plan and an emphasis on increased competition and consideration on potential entry of new players to further enhance financial efficiency and resiliency. the real sector must also work continuously to improve productivity. sustained economic growth cannot happen without productivity growth. to this end, significant real sector reforms have been made to raise real sector productivity, promote transparency

tarisa watanagase : the thai economy – challenges and prospects speech by dr tarisa watanagase, governor of the bank of thailand, at the european heads of mission luncheon, residence of the ambassador of the federal republic of germany, bangkok, 21 february 2007. * * * ambassador brummer, your excellencies, ladies and gentlemen, at the outset, i would like to thank ambassador brummer for inviting me to speak at this luncheon. it gives me great pleasure to share my views on thailand's economic prospects with all of you. this talk is most timely for these are difficult times for thailand. in the past year, thailand under major political developments. we saw mass street protests against the previous administration, a military coup and the annulment of the 1997 constitution. the present government has promised an election and a new constitution but, as year - end bombings painfully show, political uncertainties remain. economic uncertainty has also increased. in the past few months we saw rapid baht appreciation and declining consumer confidence. the threat of a disorderly unwinding of global imbalances still persists. in addition, the implementation of the reserve requirement and the introduction of the amended foreign business act proved to be unpleasant surprises to investors and the global community. these are indeed difficult times. and difficult times require difficult choices to be made. some of you may be concerned that thailand may not be able to weather all these challenges. some of you may fear that thailand is turning her back on globalization. i believe that these fears and concerns are unfounded and that thailand will persevere. our outlook for the thai economy in the medium term is positive. our forecasts show the thai economy growing by 4 - 5 percent in 2007 and by 4 - 5. 5 percent in 2008. these are respectable growth estimates for thailand in light of the challenges and our focus on growth with stability. in the rest of my talk, i will address in detail the challenges and prospects for the thai economy going forward. this brings me to the first of my three key points. the first key point is that the thai economy is no stranger to difficult challenges. and we have always persevered in each instance. in 1997, we had the asian crisis and undertook painful reforms ; in 2001, the global economic downturn adversely impacted the thai economy ; and in the past two years, we had the tsunami, sars, the avian flu, southern unrest, political uncertainty