BIS Review 41/2010  3  As for dealing with consequences of capital inflows, we see the current managed float exchange rate regime as appropriate and beneficial to the Thai economy. We will continue to let the level of exchange rate be determined by market forces, but make sure that it is not too volatile to the extent that it will be too difficult for the private sector to adjust to. And to give the private sector greater flexibility to manage foreign exchange risks, last month we further relaxed restrictions on Thai direct investment abroad and on the unwinding of foreign exchange hedges. These moves, which are parts of our ongoing capital account liberalization plan, will also make our capital flows situation more balanced, by facilitating two-way foreign exchange flows. On the fiscal front, you will agree that fiscal policy is one of the key instruments to support the economy during the difficult times when private sector growth engines have been impaired. However, the stimulus packages that the government announced last year, have been done on the assumption that Thailand will face the most severe global recession in the last 60 years. But as it turned out, the global crisis was not as severe as thought. Given that our economy is on the robust recovery path, the need for stimulus may be less. And the government should also find the way to normalize the fiscal policy stance at an appropriate time.
Any deviation would cause problems on the other policy measures, in particular the monetary policy and such a deviation may lead to change the direction and path ahead. If I may reiterate, fiscal support is very critical for monetary policy to be effective. It is therefore clear that the 2007 budget is a forward looking stage setting document which not only has extended the fiscal policy measures to assist sustainable growth in a number of ways but also provides a way forward through a well focused policy coordination. Although a temporary deviation from the path ahead may not be crucial, it is essential to closely monitor the program, (preferably on a monthly or quarterly basis) to ensure that all actors get back on the track during a shorter period and ensure that all are moving towards the right direction. 4  BIS Review 7/2007