In other countries, such as in Albania, where EU bank subsidiaries relied heavily in domestic retail funding (domestic deposits), the reduction of lending occurred without the corresponding reduction of liabilities. This led to an outflow of domestic funding sources towards EU economies. In both cases, the phenomenon illustrates the reduction of banks exposure to risk, i.e. the derisking process, driven by financial pressures from the parent banks, which they tried to mitigate in part through their business strategy in non-EU host countries. This phenomenon was largely exacerbated by macroprudential decisions and regulatory incentives undertaken at the EU level. Requirements of the European Banking Authority (EBA) for additional capital on large internationally active banks prompted these EU-based banks to adopt restrictive measures on their activity in the periphery “to save” regulatory capital, under conditions when raising additional capital would be too costly or even impossible in the market. To illustrate the magnitude of the reduction of exposure, I will bring an example from Albania. Last year, the largest EU-based bank operating in our country decided to contribute to meeting the group’s required capitalization levels through reducing its exposure to the Albanian government securities by almost 3% of the GDP, within a very short period of time. Apparently, a more coordinated approach to implementing these requirements, implying the presence of non-EU host countries at an early stage of macroprudential decision making at the EU level, would contribute to a less painful absorption of the subsequent effects in our countries’ financial systems.
Our discussion will revolve around the critical decisions on policy considerations for economic development and the way forward. 4. Sharing lessons about economic development leads naturally into a discussion about the development experiences of Thailand. Thailand’s rapid growth between the late 1970s and 1997 was the result of the structural transformation. We moved from primary production to industrial production, mostly manufacturing and high-value agricultural products. The combination of (1) processed agricultural products, (2) import substitution industrialization, and (3) export promotion was the principal feature of economic development. 5. Moving up global production chains elevated Thailand’s per capita income of $ in the early 1960s to nearly $ after 1997. More importantly, the process has resulted in the dramatic fall in poverty and improved the living conditions of the Thai people. The rate of poverty had been reduced from 57 per cent in early 1960s to around 24 per cent in 1981 and to 8 percent in recent years. Thailand’s economic development story has thus attracted broad interest from policy makers, multilateral agencies and academics. 6. As in most transformed economies, economic transformation can be associated with rising income inequality and depletion of resources. In 1970s, the average household income in Bangkok was 2.6 times larger than the rural area, then in 1998, increased to 3.4 times. And, during the transformation period, Thailand’s forest cover rapidly depleted by nearly half. Thus, we shouldn’t discard these in our desire to achieve sustainable and equitable growth, since this can lead to the deterioration of social solidarity and ecology.