I would like to also point out that a couple of mitigating factors are currently at play, which can help alleviate the adverse impact of capital flow surge. First, the new investment cycle in Thailand may have taken off, led by both the private sector and large public infrastructure  2  BIS central bankers’ speeches  projects. Many of these projects have high imported contents, and stand to gain from an exchange rate appreciation. Spells of baht appreciation thus provide an incentive for many firms to implement a long-overdue technological upgrading and import more capital goods in an environment where labor is scarce and no longer cheap. In turn, these imports can help slow down the pace of appreciation and mitigate the adverse effects on export industry. Furthermore, corporations that have expanded their operations overseas or plan to do so will also benefit from stronger baht which can help, to some extent, reduce the overall impact of baht appreciation on their businesses. With cooperation from all sides, including policymakers and private sector alike, Thailand could seize this opportunity to strengthen the fundamentals of the economy further, and reap long-term benefits that are likely to be greater than short-term costs of adjustment. Second, it is often overlooked that under flexible exchange rate, adjustments in the currency’s value themselves can be an effective buffer for capital flow volatility. In a wellfunctioning market, a currency that is overvalued relative to its fundamentals would be subject to market discipline that helps slow down further appreciation.
The government’s update of the stability programme published this week rightly provides for such a control of public expenditure once the recovery is firmly established (0.7% growth per year from 2023 on average), although this is somewhat higher than 0.5% per year, and incorporates a more  optimistic view on potential growth than our own forecast (1.35% vs. 1.1%). What is more important in this regard however is not the exact number but that the established targets are effectively met. The level to be fixed – and then respected –, is a matter for democratic debate, not for central banks. This is a demanding but attainable goal: many of our European neighbours have achieved it. ** In conclusion, the Covid crisis has completely warranted a very supportive fiscal policy. But the gradual exit from this crisis should be a crucial opportunity for us Europeans to respond to one core question: how to maintain the right use of the fiscal tool while ensuring the sustainability of our debt, in order to be able to finance our common social model for coming generations. Accommodative monetary policy obviously helps, but it cannot be taken for granted eternally. To draw an analogy from the sphere of climate change, we should avoid a « tragedy on the horizon ». Thomas Paine, an English-born political philosopher and citizen of the world, once said: “If there must be trouble, let it be in my day that my child may have peace.iii” This is exactly what we should aim at in the next decade.