Tarisa Watanagase: Securing Thailand’s future with capital market development and the role of the Bank of Thailand Keynote address by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the Thailand Focus 2008, Bangkok, 17 September 2008. *  *  *  Excellencies, Distinguished Participants, Ladies and Gentlemen, Good morning, I would like to begin by thanking the Stock Exchange of Thailand for inviting me to deliver a keynote address at this year’s Thailand Focus. This annual forum, traditionally opened by the Prime Minister of Thailand, has firmly established itself as the event of the year where domestic and foreign investors meet and interact with Thailand’s top policymakers and leading listed companies. It is thus not only my great pleasure but also my great honor to be here. Ladies and Gentlemen, Given the turbulent time we are in at the moment, I am very pleased at the number and the composition of this year’s turnout. Glancing through the list of prospective attendees, I saw participants from Asia, Australia, Europe and North America, representing a large spectrum of investors. This is despite the fact that a number of invited fund managers were forced to cancel their trips due to the declared state of emergency that was lifted on Sunday. Moreover, I see that many of you have been long-time investors in the Thai stock market. All of these are quite reassuring, for they reflect your continued faith in the Thai economy.
Having efficient resource allocation is particularly important now for the Thai economy, given the ongoing structural shift in relative prices of commodities and asset prices which render some businesses obsolete while opening up many other new opportunities. Indeed, the vast body of research over the past decade strongly suggests that improvements in financial developments precede and contribute to economic performance. In other words, the widespread desire to see an effectively functioning financial system is warranted by its clear causal link to growth, macroeconomic stability, and poverty reduction. As for the specific form of financial market development, it is also well accepted by policymakers that economies that have well-developed banking sectors and capital markets are advantageous to others that rely mostly on only one type of the financial markets. Indeed, banks and capital markets are complements, and not substitutes. For some industries at certain times of their development, capital market-based financing is advantageous. For example, financing through stock markets is optimal for industries where there are continuous technological advances and where there is little consensus on how firms should be valued or managed. The stock market checks whether the manager's view of the firm's production is a sensible one. For other industries, bank-based financing is preferable. This holds in particular for industries which face strong information asymmetries. Financing through financial intermediaries is an effective solution to adverse selection and moral hazard problems that exist between lenders and borrowers.