One point on which I don’t agree with Franco Bruni’s analysis concerns his judgement on changing the objective of monetary policy after the failure of Lehman Brothers on 15 September 2008. Bruni writes: “…the objective became only that of saving the credit system from the collapse. This last change of objective is of great conceptual and political importance, it has a significance that could prove to be, so to speak, historic. And yet it has never been officially declared, particularly by the ECB”. The proof that he provides for the above remarks is the decision to reduce interest rates from 2% to 1.5% in March this year, a step which, in his opinion, was not justified by the trend of the economy, but by the problems facing Europe’s banking system. There is a misunderstanding here that needs to be quickly clarified, also in view of the ensuing discussion on macro-prudential supervision and on the powers of the central banks in question. From the outset of the crisis in August 2007, the ECB has pursued a policy of separation between, on the one hand, the interest rate decisions, based solely on the priority objective of price stability and, on the other hand, the decisions concerning the instruments used to pump liquidity into the system in order to tackle the difficulties being encountered by the market.
Its consequences are still being felt today and the focus of policymakers has, therefore, shifted to the immediate task of giving the economy a quick resuscitation and lifting it out of the short-term slump. After the crisis, foreign direct investments from the eurozone have dropped significantly. However, despite the weakness back home, the UK’s net FDI to Thailand still managed to register a positive number of approximately 48 million USD for the first three quarters of 2009. It is, therefore, to our mutual benefit for the BCCT to have a good understanding of the outlook and challenges for the Thai economy from a policymaking standpoint. This will be the mission of my speech today and I would like to proceed in the following sequence: First, I would like to start by giving you an update on the current economic development; second, I would attempt to draw an outlook for the Thai economy for the year 2010; and third, I will outline the key challenges that await the Thai economy going forward. Ladies and Gentlemen, As you all know, the Thai economy was hard-hit by a sharp drop in the external demand caused by this global financial crisis. The spillovers from the large decline in exports were far-reaching and affected all sectors of the domestic economy, with the manufacturing sector being hardest hit. Consequently, sentiment turned gloomy as more workers started to lose their jobs. To make matter worse, the escalation of internal political tensions adversely affected private consumption and investment.