Pongpen Ruengvirayudh: Thailand’s economic challenges and role of monetary policy Luncheon speech by Ms Pongpen Ruengvirayudh, Deputy Governor of the Bank of Thailand, at the Embassy of the Kingdom of the Netherlands, Bangkok, 1 March 2013. *  *  *  Ladies and Gentlemen, I would like to thank the Netherlands Embassy for inviting me to give a luncheon speech on this occasion. Thailand and the Netherlands have a long-standing cultural and economic relationship, dating back as far as 1605, when the Dutch East India Company set up a trading post in our old capital, Ayutthaya. Today, the Netherlands is Thailand’s third biggest trading partner within Europe, accounting for 12.8 percent of total trade volume between the continent and Thailand. In terms of foreign direct investment, the Netherlands is one of the most prominent European investors, with presence spanning key sectors from banking, chemicals, electronics, to wholesale and retail trade. It is my hope that our two nations will continue to mutually benefit from their strong economic bind for many generations to come. I would like to focus my talk today on the recent economic developments, and the role of monetary policy in addressing some of the present challenges facing the Thai economy. As some of you may already know, monetary policy in Thailand is decided by a committee (MPC) consisting of seven members and four of them are experts from outside the Bank of Thailand. Each of the MPC votes independently to decide on the policy interest rate every six weeks, or so.
This will, in turn, help raise the comfort level and can usefully avoid potential policy missteps and create policy synergies that eventually foster confidence of investors. This is the kind of trust that no amount of legal text, conditions precedent, or covenants can match, but is developed through the friendship and goodwill among friends within the region. Countries in the same region tend to possess better understanding and coordination, and therefore, policies and initiatives at the regional level can be more effective and timely. Second, while the Asian financial crisis was a wake up call for Asia on the need for regional liquidity facility, Asian countries need to consider making such facility sufficiently large and effective with timely disbursement in light of the current global crisis. During the Asian financial crisis, more than 75% of the IMF’s financial package for Thailand came from the funding within the region. The present global situation has also reconfirmed the vision set for the by the Chiang Mai Initiative (CMI) that Asia needs to have its own regional liquidity facility to protect itself from contagion, be it caused within the region or from outside. It is therefore timely that coordination and cooperation among countries be further strengthened to ensure that prompt remedial actions can be put in place in light of the ongoing global financial crisis.