The progress made in the reform of the prudential regulation of banks needs to be accompanied by further reflection about the functioning of the financial system as a whole and the different ways of improving the management of liquidity risks. That is why, as a complement to the regulatory responses, banks need to take immediate action straightaway regarding their internal risk management policies, which play a crucial role both in terms of liabilities and assets. I would like to say a few words about this. 1. On the liabilities side  •  First of all, it seems to me important to not wait for the final calibration of the new rules to gradually increase the duration of bank liabilities. The management of maturity gaps, which is the primary responsibility of treasurers and ALM managers, cannot only be dictated by regulation; it also needs to be adapted to the risk profile of each institution. In the current context, we can only encourage banks to increase the proportion of medium- and long-term liabilities issued on the markets, so as to be less dependent on more volatile sources of funding. They should also reduce as far as possible their short-term vulnerability vis-à-vis unsecured market funding, notably in foreign currencies. •  Second, the treatment given to customer deposits in the one-month liquidity ratio could justify a form of reintermediation of money market funds and increased competition in banks’ deposit-taking. We are monitoring these developments very closely.
Almost all NPLs of government banks have been transferred to AMCs, and all multi-creditor NPLs of private commercial banks have been transferred to the TAMC. And we will speed up our effort to clear them out. However, please be informed that when similar financial crises occurred in the US in 1982, the US economy was not in as bad a shape as Thailand has experienced in the past four years. At that time, Japan, Europe and the Middle-Eastern economies were strong and contributed certain capital flows into the US economy. But now, under current world economic conditions, where every country has its own problems to solve, we know well that we cannot expect foreign investors to help us clear this NPL mess, so we have to help ourselves. I do not see why we cannot do it. And we will do it. Back to the economic forecast for next year. One important source of growth in 2002 will be fiscal spending, and the projected central government deficit of 224 billion baht or 4.4 percent of GDP strikes a good balance between improving the economic infrastructure, raising external competitiveness, and fostering economic recovery. It is very important, however, that the fiscal stimulus program meets its spending target. 2  BIS Review 99/2001  Safeguarding the recovery would require timely as well as effective disbursements of the 58 billion baht emergency spending plan.