Prasarn Trairatvorakul: Connecting Thailand to the new investment frontiers – contribution of monetary and financial policies Speech by Dr Prasarn Trairatvorakul, Governor of the Bank of Thailand, at “Thailand Focus 2013 – connecting to new investment frontiers”, Bangkok, 28 August 2013. *  *  *  Good morning, Distinguished Guests; Ladies and Gentlemen, I would like to thank the Stock Exchange of Thailand and Phatra Security and Bank of America Merrill Lynch as co-organizers for the invitation to address our distinguished audience on the topical issue of “Connecting Thailand to the New Investment Frontiers”. I also would like to extend a very warm welcome to our foreign guests and to thank you for your continued interests in Thailand and the region. Today I would like to discuss the roles of monetary and financial policies in supporting the Thai economy as we prepare ourselves for the new investment frontiers. Economic outlook and headwinds from volatility in global financial markets As you know, much has happened recently with events taking a complete 180 degree turn from the beginning of the year. It did not seem long ago when the EMEs were the fascination and destination of choice for international investors. But since May, global market sentiments have turned with the expectation of a scale back of the Fed’s asset purchases. This coincided with the concern over regional slowdown, initially starting with China, but lately moving to other South and South East Asian economies.
The US is of course the biggest export market in the world but total US imports account for only 3% of global GDP. Many other countries – especially in Emerging Asia – are trading among themselves without a nexus to the US. These trading linkages will grow over time as demand in these economies grows with a rising middle class, urbanisation, and investment in infrastructure. All the same, a prolonged period of trade tensions is not good for the global economy. The more serious casualty is perhaps not trade but investment. Corporates may scale back investment amidst uncertainty. This will reduce the productive capacity for future growth, delay technological upgrading, and compromise productivity growth. This is why the best response to unilateral trade restrictions is to push ahead with further trade liberalisation among other willing parties instead of retaliation and escalation. If countries do not retaliate against tariffs imposed by the US, the cost to their own 1/3  BIS central bankers' speeches  economies is likely to be contained. And a mutually damaging trade war would be averted. And this is what Emerging Asia is doing – liberalising trade within the region and with others. TPP-11 or Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) This will reduce barriers across economies with a GDP of $ trillion, roughly 13.5% of the world economy. It is expected to be ratified early next year. And five to six more countries have expressed interest in joining the CPTPP.