Public finances are also perceived to be sound, where risks are relatively low and liquidity is high. Given that our external vulnerability remains low, although additional borrowing by the government will contribute to an increase in the current account deficit, risks on the external front and the implications of additional public sector borrowing will remain low and limited. Even though we have been hit hard and harder than other countries and that our recovery is likely to take longer and be more uneven, the resilient economy is there. The downside risks of seeing a sharp decline stemming from weaknesses on the balance of payment front, the banking front, or the public finance front thus remain quite limited. Page 3 of 9  Part 2: The Bank of Thailand’s Response to The Crisis Let me now turn to the second part of my remarks, which is what we, at the Bank of Thailand, have been doing. To summarize very briefly, the Bank of Thailand has taken a flexible and pragmatic approach to addressing the crisis. We are willing to do, have been willing to do, and remain willing to do what it takes to get us out of this crisis. The statement, which we have been using internally, is to say that all reasonable policy options are on the table to respond to this unmitigated crisis that we are facing now. First and foremost, we have tried to ensure that financial conditions remain accommodative to support and facilitate the recovery.
All the theories of the ruble exchange rate pegged to a certain ruble price of oil originated from considerations of budget balance and concerns that the central bank would intentionally generate inflation to finance budget liabilities. That is the Bank of Russia was suspected of being ready to give up inflation targeting for the sake of budget replenishment. It took us many months to persuade the market of the opposite. Does Russia have a potential to build up government debt? Yes, it does, in theory, since our country may boast one of the lowest levels of government debt. Consequently, the development of the government debt market could be conducive to the development of the financial system as a whole. Anyway I would proceed from the conservative assessments of the maximum possible debt burden on the Russian economy, which does not pose a threat to macroeconomic stability, say, no more than 25–30% of GDP. Anyway examples from the Russian history show that the real interest rates the Russian budget has to pay, should the government debt exceed 35–40%, became exorbitant and accelerated the debt spiral. Among the negative outcome of government debt growth I may also call the ousting of corporate and private borrowers by the state. By the way, the maximum permissible debt burden is higher in the countries witnessing persistently low inflation and persistently low inflation expectations. The long-term real interest rates in these countries are lower, which means that debt burden limits are higher.