A key challenge confronting macroeconomic policy in Thailand is to safeguard the pace of recovery while maintaining macroeconomic stability and financial discipline, and at the same time continuing with the essential reforms. Past records Before moving on to discuss the challenges facing Thai monetary policy, I would like to review some of the notable progress of the last few years. There have been gains that should further be expanded. Macroeconomic and financial stability has been restored. Inflation remains low and stable. Thailand’s international reserve position is healthy. Surpluses in the external current account of these few years have been matched almost entirely by falls in external debt, especially short-term debt. Such reversed flows have been instrumental in avoiding a real currency appreciation and loss of competitiveness. BIS Review 70/2001  1  The surplus on the external current account is expected to continue this year, although at a somewhat lower level. This would allow the debt stock to fall further as scheduled repayments are made. About 50 percent of the existing non-bank private debt stock represents debt contracted after the crisis, including some rollovers which were done under new contract. This means that private sector in Thailand currently has no difficulties in gaining access to the international financial markets. Reflecting this, the spreads of Thai Government bond yields over US Treasuries have narrowed while Thailand’s sovereignty credit ratings remain stable. The financial system has now stabilized, but much work still lies ahead.
·  Going forward, we must improve our financial architecture to raise efficiency and ensure nationwide access to financial services. ·  In term of market competition, the opening up of our banking system has accelerated the transfer of technical knowledge and ensured competition for our domestic financial institutions. ·  In term of market structure, the new Financial Institutions Bill – currently at the Senate and is expected to be passed in the course of this year – will provide a legal and formal framework that accommodates the establishment of financial conglomerates. Financial institutions will be allowed to offer varieties of financial services such as insurance or securities through their subsidiaries. Though this is still a step away from universal banking model where all financial services will be offered under one entity but the draft law is flexible enough to make room for such eventuality, and in the meantime boost competition. ·  Among the major milestone in the law are: consolidated supervision of financial conglomerates, unified legal framework for both banks and finance companies, and prompt corrective actions for weak financial institutions. ·  As for the availability of our financial services and product qualities, our recent survey of financial product availability within Thailand indicated that market participants are keen to expand product range, thus structural impediments obstructing them need to be dealt with.