They are the gains that we must continue to preserve. Second, the increased emphasis of monetary policy towards external stability so far has not put undue pressure on key domestic interest rates. They remain broadly accommodating. This is because of the large liquidity overhang in the banking system. I believe interest rates at the current levels are appropriate and consistent with the need to support the recovery of domestic demand, provide incentives for corporate debt restructuring, and maintain the economy’s cost competitiveness. And third, in addressing the issues of growth with stability, we must look for a proper coordination of fiscal and monetary policies. At this time, fiscal policies will have a dominant role in reviving the weaknesses in domestic demand. The Government has been cautious to balance fiscal stimulus measures within the context of longer-term fiscal sustainability. The role of monetary policy is to ensure the continuity of macroeconomic and financial stability. Ladies and gentlemen, One of the key concerns over Thailand’s long-term fiscal sustainability has been the issue of how the Government will find solutions to the remaining cost of financial restructuring. The cost, which includes the remaining uncovered losses up to now plus the contingent losses for the next three years, is currently estimated at 774 billion baht or about 17.2 billion US Dollar. On this issue, yesterday, the Thai authorities announced a plan which would constitute a comprehensive solution to this problem.
The investment-saving gap moved to surpluses averaging 10 percent of GDP in the first three years after the crisis, from the pre-crisis deficits average of 7 percent of GDP before 1997. Such magnitude of change is indicative of the depth of the adjustment Thailand had to go through. Although the initial imbalance in the lead up to the crisis was not small, the adjustment was amplified partly by the wave of contagion effect in the early years of the crisis which brought pressure on the capital account, the exchange rate, and growth. Now, while we can look back to the last two years of growth of around 4 percent, signs of fragility still abound, with important issues remaining to be resolved. This includes the continued reform of the banking sector and the resolution of the costs of financial sector restructuring. The main fragility in the recovery process at this time is the weakness in domestic demand. The problem is compounded by the slow growth in bank credit and the weak corporate balance sheets, particularly the non-export sector. Unfortunately, the current external environment does not bode well for the recovery, going forward. The global slowdown is posing strains on Thailand’s export, and is adding pressure to the current account and external stability. Official GDP forecast this year is around 2.0-2.5 percent. Given the change in external environment, this year will be more a time for consolidation than for expansion.