Bandid Nijathaworn: Where is global finance heading? Speech by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at the Conference entitled, “Where is Global Finance Heading? The Stake of Emerging Economies in the International Financial System”, organised by Central Bank of Peru and Reinventing Bretton Woods Committee, Cusco, Peru, July 13-14, 2009. *  *  *  Thank you Chair First, let me thank the Central Bank of Peru and Reinventing Bretton Woods Committee for the invitation. It is an honour to be speaking to you today. The topic of this first session is “Time of upheaval: Where global finance is heading?”. This is definitely an important question given the current crisis is now almost two years old and is still evolving. Judging from the implications that the crisis has had so far on the world economy and financial markets, this is truly the first crisis of globalization. The crisis shows that financial upheaval can happen in any country, regardless of whether it is large or small, emerging or developed, and once happens, it can impart huge externalities on the rest of the world given the globalized nature of the world’s trade and payment systems. But more importantly, the crisis points to the weakness in the configuration of policies and financial regulation in the period leading up to the crisis that led to excessive risk-taking in the intermediation of global savings and investment across economies.
At this time, consistent with developments elsewhere, more positive signs in the real economy are also beginning to emerge in Asia, and this has led to a view that conditions for recovery look more promising in Asia, given the lesser impact on the region’s economic fundamentals and the banking sector. I find this view quite plausible. This is because, in the case of Asian financial crisis, it was also the countries that did not have a serious financial sector problem or external vulnerabilities that were able to recover relatively more quickly. On this note, let me digress to the issue of decoupling. If we divide the dynamic of financial crisis into three phases, namely, first the shock of the news phase when everything is on a downturn, to the second phase of market stabilization, and the third phase of economic  2  BIS Review 92/2009  recovery, it is clear from what has happened so far that, on the downturn, it is a recoupling story both for the real economy and for finance. The downturn has been quite synchronized because of the globalized nature of the world’s production, trade, and financial investment. Nonetheless, for the market stabilization and the economic recovery phases, I see decoupling in the timing and in the pace of recovery being a strong possibility.