Moreover, the study finds that measures such as attracting foreign workers and raising the retirement age from 60 to 65 have only small impact at boosting the economy’s long-term growth and that the key to maintaining high growth rate lies in enhancing productivity growth rather than trying to squeeze out more hours from the aging population. While improvement in educational and skill attainment of the labor force and de-bottlenecking of inefficient sectors such as improvement in the logistic system and water management for irrigation are most obvious policies, financial deepening must not be neglected. It is the efficiency of resource allocation which includes funds and capital that enhances economic productivity, hence, raising the economy’s long-term growth potential. This is the focus of the rest of my talk to which I now turn. Ladies and Gentlemen, As you know, the fundamental function of financial markets and intermediaries is to channel funds from those who have a surplus of savings to those who have a deficit. If financial markets are functioning efficiently, they contribute to an optimal allocation of resources, reduce the cost of capital, and allow for risk-sharing and risk-diversification. Well-developed and efficient financial markets contribute to higher productivity growth because they are better at channeling capital from sectors in decline to those with growth opportunities, in a  BIS Review 118/2008  3  process of Schumpeterian “creative destruction” that ultimately drives economic growth.
This formal process of close coordination would help ensure that monetary policy is aligned with the country’s overall economic policy direction. More importantly, it will also contribute to a greater understanding of the public at large of the fact that the only long-term role for monetary policy is in creating an environment of price stability which would help support sustainable economic growth. In addition to the mandated responsibility of maintaining price stability, the BOT has also taken a direct role to further develop Thailand’s capital market and its infrastructure via our involvement in the National Capital Market Development Committee and the Domestic Bond Market Development Sub-committee which were set up to coordinate capital market development efforts among government agencies as well as the private sector. With regard to equity market development, beginning in 2002, we have taken a step-by-step approach in opening up outward portfolio investment, by first allowing institutional investors, such as mutual funds and insurance companies, to invest abroad. This year, as Thai investors have become more familiar with diversifying risks abroad and with financial instruments in more developed markets, we have now allowed Thai individuals to invest abroad through local securities company. Through this initiative, not only local investors and professionals in the capital market industry would have a better understanding of the link between the local market and the global market, as well as risk management strategy, it would help contribute to higher standards and practice in the local capital market in the long run.