The difference today is that the surplus this time has contributed to excessive borrowing in many western countries rather than to a debt crisis in Latin America. But the theme remains largely the same: Plenty of  2  BIS Review 149/2010  money to lend, excessive optimism among lenders and borrowers and inadequate controls and supervision – this is usually a sure recipe for a crisis. Global challenges So much for the causes of the financial crisis. What about its consequences? One obvious consequence has been that many countries have needed to use fiscal policy to support the bank sector and to maintain demand in the economy. As tax revenue has fallen as demand has weakened so much, this has led to large budget deficits and rapidly growing government debt. One might say that the debt problem has been transferred from the private sector to the public sector. So to return to my earlier discussion of the debt crisis in the early 1980s, one can perhaps say that the result of the international imbalances was once again a form of public debt crisis. All in all, this means that the global economy is now facing at least three major challenges: Firstly, the regulations for the financial system need to be tightened, and supervision needs to be more effective. The aim is, of course, to increase stability and resilience in the financial system and reduce the risk of future crises.
This positive trajectory reflects a number of key fundamental strengths in the Thai economy. First, our human capital remains intact and strong. Thailand’s flexible and skilled workforce will continue to provide a solid foundation for businesses to flourish and expand. Second, the corporate sector boasts healthy balance sheets from accumulated savings and profits, enabling them to rebuild and invest. Third, the banking sector is strong and well-placed to provide the financing necessary to sustain the investment cycle. Finally, Thailand is well positioned geographically to serve as a supply-chain hub for many industries and to reap the benefits of an expanding as well as more integrated Asian economic block. As alluded to earlier, the process of regional integration will provide Thailand with enormous opportunities to expand our role in the region through increased trade in goods and services. Realizing these opportunities will not be easy, nor will they be automatic. The key impetus falls on structural reforms that lift Thailand’s international competitiveness. Considerable adjustment and transformation of our economy will be required. Factors of production will have to be reallocated to activities that offer the most promising way forward. Government policies and laws will have to be updated and changed to best facilitate such structural adjustments, all the while making sure that the burden of adjustment on those who stand to lose is bearable. The pursuit of economic growth should not be absolute, but inclusive. As should be apparent, such challenges cannot possibly be completely met in the short-term, let alone in 2012.