Under the theme “Moving Thailand towards the next decade,” this year’s symposium organized by the Bank of Thailand discussed several important policy issues, including how to unleash a new wave of investment, develop the financial system and strengthen public policies in order to cope with challenges posed by new economic and financial landscape. Connecting these separate issues, the common message is that Thai policymakers need to take a longer-term view, by focusing on strengthening economic structure and policy framework, and making proper alteration to ensure that economic growth and our prosperity can be sustained throughout the next decade.
Looking toward the next decade, the challenges that lie ahead highlight the importance of having strong economic fundamentals. Greater trade and financial interconnectedness, while creating opportunities, will also bring intensified global competition, risks to financial stability, as well as various types of shocks that are increasingly complex. To benefit from the opportunities presented while minimizing the adverse impact of associated risks, a number of important steps must be taken. Three of these have been discussed in the symposium.
The first is to rebalance the source of growth and encourage a greater share of domestic demand. The ratio of domestic demand to GDP in Thailand has been relatively low compared with both regional and advanced nations while the past crisis has demonstrated that excessive reliance on external demand can leave the economies overly exposed. Moreover, sustaining growth via external demand will likely become increasingly difficult as global trade competition intensifies. A more balanced growth would foster the economy’s resiliency by lessening the exposure to the global economy and insulating it against foreign shocks. In this context, the focus should be on encouraging private investment which remains low and is much needed to trigger a surge in productivity.
The second is to strengthen the domestic financial system, and enhance its efficiency in channeling funds from savers to borrowers. Policy makers should facilitate the accessibility of funds by the SMEs which constitute a large part of the economy, as well as encourage more competition to reduce transaction and operation costs. Meanwhile the overall resiliency of the financial system must also be promoted, as it is a crucial prerequisite for the economic stability. The danger of pro-cyclicality, excessive risk-taking and formation of bubbles need to recognized, and their mechanisms understood. In light of this, a monetary policy framework with integrated macro-prudential measures, designed to limit the degree of procyclicality in financial sector, would be useful.
Third, and most importantly, the ultimate driver of long-term economic prosperity must rest upon the dynamism and vigor of the private sector. Public policies should not be the predominant driving force for economic advancement and can only play the secondary role of providing a stable economic and financial environment, as well as a strong social and legal infrastructure, within which private businesses can thrive. But, to achieve sustainable growth, businesses must be ready to adapt to new challenges and to continuously improve efficiency in the face of changes. One priority is to improve competitiveness of the businesses, by moving towards a more innovation-based economy, where products enjoy higher profit margins due to better qualities. Such transition will enable the economy to step up the ladder of economic development. Meanwhile, the government should provide incentives for businesses to adjust or, at the very least, be cognizant of policies that may hinder private sector adjustments and introduce distortions. Around us, Malaysia and Singapore are two good examples of countries that aim to promote innovative and knowledge-based economy with coherent and well-integrated policy framework.
To close, the inherent strength of the private sector, along with more balanced growth and sound financial system, would keep Thailand standing sustainably on the global stage with resiliency in the face of upcoming risks and uncertainties.
The opinions expressed in this article are the author’s own and do not necessarily reflect the official opinion of the Bank of Thailand.