A key challenge confronting macroeconomic policy in Thailand is to safeguard the pace of recovery while maintaining macroeconomic stability and financial discipline, and at the same time continuing with the essential reforms. Past records Before moving on to discuss the challenges facing Thai monetary policy, I would like to review some of the notable progress of the last few years. There have been gains that should further be expanded. Macroeconomic and financial stability has been restored. Inflation remains low and stable. Thailand’s international reserve position is healthy. Surpluses in the external current account of these few years have been matched almost entirely by falls in external debt, especially short-term debt. Such reversed flows have been instrumental in avoiding a real currency appreciation and loss of competitiveness. BIS Review 70/2001  1  The surplus on the external current account is expected to continue this year, although at a somewhat lower level. This would allow the debt stock to fall further as scheduled repayments are made. About 50 percent of the existing non-bank private debt stock represents debt contracted after the crisis, including some rollovers which were done under new contract. This means that private sector in Thailand currently has no difficulties in gaining access to the international financial markets. Reflecting this, the spreads of Thai Government bond yields over US Treasuries have narrowed while Thailand’s sovereignty credit ratings remain stable. The financial system has now stabilized, but much work still lies ahead.
Further innovations are needed if the sector is to come to terms with the new business models that Andrew Bailey and others have mentioned today. For example, innovations in the way banks are organised that are consistent with orderly resolutions. Separately, and as noted in a number of panels today, asset managers also need to innovate to adapt to the new realities of market liquidity. The increase in the scale of the asset management sector since the crisis has been notable, as has been the emergence of investment funds that offer daily liquidity while investing in securities that only appear liquid. The Bank, the Financial Conduct Authority and the Financial Stability Board are keenly aware of these risks, and we are working to resolve them in an orderly manner. The area of market liquidity is one place where there may be duplicative regulations and scope for adjustment. Market participants should rest assured we have made adjustments in the past where we have gotten things wrong. We adjusted the liquidity coverage ratio. President Draghi noted the joint work between the Bank and the European Central Bank to change securitisation – an example of fixing something we had not gotten exactly right. We will continue to adjust our market operations. Let me move towards the conclusion of my conclusion. The point about reform and review being a continual effort came through in spades. David Kynaston noted that there have been four big bursts of reform in the last 150 years.