Prasarn Trairatvorakul: From here to there – transition in emerging markets Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, delivered in the Thailand@Harvard Series, Harvard Kennedy School, Boston, Massachusetts, 7 October 2013. *  *  *  Distinguished guests, ladies and gentlemen, It is a pleasure for me to be back here at Harvard and to have a chance to contribute to the Thailand@Harvard series. Boston has certainly changed a lot since I graduated over 30 years ago. But the warmth and sense of intellectual purpose that I still feel here makes it all seem like yesterday. And by that I don’t necessarily mean the stress of studying for my general exam! Later this week I will be attending the Annual Meetings of the IMF and the World Bank. Undoubtedly one of the key issues that will be discussed is the recent growth slowdown in many emerging market economies. Certainly, among market commentators and in policy circles, the medium-term growth prospects for China, India, Brazil and other emerging economies have become the talk of the town. And it will be the focus of my remarks today. What happens in emerging markets matter. Together, they account for more than half of world GDP.1 Since the early 2000s, when Jim O’Neill at Goldman Sachs coined the acronym BRIC for Brazil, Russia, India and China, emerging markets have powered global economic growth. By mid-2009, these economies were growing 7 percentage points faster than the G7 economies and contributed around two-thirds of world output growth.
But at the September meeting the Executive Board’s assessment was that there would not be any more raises and that the interest rate might need to be cut during 2009. The decision was reached by a narrow majority. Three members of the Executive Board supported the decision, while three were against it, and the Governor’s casting vote was decisive. I was part of the minority who wished to hold the repo rate unchanged at the September meeting and to see a slightly faster reduction in the rate in the future. The main reasons put forward by the majority for raising the interest rate were that inflation had continued to rise and was far above the target, that inflation expectations remained high and that cost pressures had increased. The majority assessment was that it was necessary to raise the repo rate to prevent the increases in energy and food prices from spreading to other areas. The reasons for lowering the interest rate path included the fall in the oil price and other commodity prices over the summer. Another reason was that growth had slowed down more than expected, both in Sweden and abroad. The turmoil in the financial markets was of course also included in the picture. BIS Review 119/2008  5  My own assessment I personally had entered a reservation as early as July against the forecast that it would be necessary to raise the repo rate a couple more times during the autumn.