External debt is now only 60% of GDP compared to 90% at its peak. Financial institution performance in Thailand has also strengthened considerably. Last year the banking system recorded an operating profit of 0.68 % on assets, boosted by both improved interest income and fee-based income. The transfer of non performing loans to the government owned, Thai Asset Management Corporation, has reduced the NPL ratio in the banking system to 11.5%. With less need for provisioning, the average BIS ratio of the Thai banks now stands at approximately 13% at the end of March this year. BIS Review 44/2002  1  Last week the Thai authority also finalized the measures to deal with losses from the financial sector intervention. The government will fiscalize the losses by issuing bonds to cover them in full. The servicing of the interest rates will be entirely from the government budget. The retirement of the principals will be borne by the central bank. But it will be paid out of the central bank's future yearly profits which would be earned mostly from the international reserves and would normally be paid over to the government in its yearly appropriation of the profits anyway. Thus the scheme will not affect the Bank of Thailand's ability to formulate monetary policy in the future. The scheme also makes more clear the path of fiscal deficit in Thailand.
Add to this that monetary policy interest rates are at their all-time lows, with which the capacity of central banks to increase the stimulus is also limited. In short, the tools traditionally used to boost growth have little room for maneuver in the developed world. Another source of risks that is being increasingly debated is the possibility of developed economies, especially the U.S., enduring a long time of slow growth. Excessive private debts, particularly of households, and public debt, combined with weak labor markets, are determinants of this assessment. This could shape a similar situation to that of Japan after the bursting of its housing bubble in the late 1980s, which gave way to a period of stagnation that has seen no end. Although we believe this to be an unlikely scenario, its consequences on the global economy could be severe. Amidst these conditions, emerging economies continue to grow strongly. The risks of overheating we saw only a few months back have diminished, partly because of the very action of the adopted economic policies and, especially, of monetary measures. There are still risks, however. For one, it is obvious that if developed economies continue to lag, the external demand facing the emerging world will fall, hurting their growth potential. Although in the current scenario some dynamism and a certain degree of decoupling are expected, this cannot go on indefinitely. Given the weakness of domestic demands in developed countries, they rely on their exports to grow and to resolve their global imbalances.