Nevertheless, there is much that the government can do to facilitate financial-market development by clearing the way, particularly where this involves markets of a regional nature. Three areas of work in which the HKMA – with various partners – is taking an active role are worth citing here. The first involves the gradual introduction and expansion of renminbi business within Hong Kong, which requires primarily co-operation between the Mainland and Hong Kong authorities at various levels, including both political and technical. The second example is our collaboration with other central banks in the region, under the auspices of EMEAP, on the Asian Bond Fund, which is intended not just to encourage business in the debt market, but also to stimulate regulatory reforms in economies in the region. The third example is our work in encouraging the development of Islamic finance in Hong Kong, through ensuring a level playing field, stimulating interest in Hong Kong among Islamic countries, encouraging product development, and raising market awareness within Hong Kong, particularly through the educational work of the Treasury Markets Association. All of this work looks both to the past and to the future for inspiration. Looking to the past, we have the still-recent experience of the Asian financial crisis, one element of which was the undeveloped state of some of our financial markets, in particular the debt market. Many of the market-development initiatives on which we have been working have been intended to address these deficiencies.
With a promising recovery prospect, minding the future risks to financial stability and being equipped with stability tools tested and refined over time, the monetary policy committee will carefully weigh the tradeoff between short-term gains and longer-term risks and ensure that the economy will be provided with enough financial ease to recover sustainably to its potential. Ladies and Gentlemen, Apart from the deviation from potential I mentioned earlier, the current economy shows symptoms that potential growth, which depends on labor, productivity and infrastructure development, may have reached its limit. At this stage of our discussion, let me refer to some prominent symptoms. Thai labor supply has started to gradually decrease due to the trend of aging society. Research has shown that increasing labor supply by increasing retirement age and reliance on foreign labor will not be sufficient. Since we must accept the aging workforce trend, we must rely on increasing productivity and efficiency through structural changes to lift growth potential, a task which requires supply-side policies. Thailand’s productivity growth has declined since the Asian Financial Crisis due to the misallocation of labor, government policy, and low capital investment, leading to supply constraints. Productivity can be increased by matching labor to valuable production. Labor in Thailand still has potential to move from the current concentration in agriculture, which was distorted by government policy, to more productive sectors like electrical appliance and capital machinery.