BOT governor calls for more integration to gain from AEC
June 13, 2014 00:00 By Erich Parpart
Coup no issue; challenges lie in ridding weaknesses, increasing competitiveness
The Bank of Thailand believes that the National Council for Peace and Order’s economic road map should be reasonable and that the Greater Mekong Subregion (GMS) should be more integrated to benefit fully from the Asean Economic Community (AEC).
“Thailand has many road maps and people who know the country well understand that an economic road map is not that important. The important thing that will bring back confidence is to make decisions and policies that are reasonable along with the benefit of the whole society in mind,” BOT Governor Prasarn Trairatvorakul said yesterday.
The NCPO plans to draw up an economic road map to show that it is committed to what to do economically but the rice-pledging scheme and first-car policies are examples of what should be avoided, he told a forum run by the Euromoney Conferences.
After the coup, many economic indicators are improving. The currency is stable and long-term interest rates for bonds are stable, while rating companies remain confident in the country’s economy.
There is also no problem of outflows and in the past week foreigners have been net buyers in the stock market.
“The coup is not an issue for the short term but the country’s challenge is still to find ways to get rid of our weaknesses and increase the country’s competitiveness in the long term,” Prasarn said.
The current monetary policy is still adequate for the economy at this time, while there is no problem of fund flows within the system and financial institutions are strong enough to take care of themselves.
The economy in the second half should be better than the first half from an increase in consumer confidence, but high household debt will still pose a strain on purchasing power and domestic consumption, he said.
Increases in government spending and the planned state budget for 2015 will also help the economy in the second half and will be more apparent next year, while private investment will follow.
“Economic growth in 2014 will not be high but it will not retract, and if there are no ‘accidents’, growth in 2015 will be more promising,” he said.
The GMS has a lot of potential and will benefit from the increased regional integration through the AEC but there are challenges that the countries in this region have to work together to achieve, which is cooperation.
“Each country in this sub-region has different expertise and we should use these differences to our advantage by sharing such expertise with other countries. We should not see everything as a competition,” he said.
Resources in the GMS would be better utilised if countries did not regard neighbours as competitors but rather as partners in the regional production network.
Countries in the sub-region should explore new opportunities to create industry clusters in the region by taking on the region’s diverse comparative advantages and specialisation, Prasarn said.
With integrated markets being forged under the AEC, the GMS will greatly benefit through a more interconnected production base, tariff reductions, trade-logistics facilitation and payment-system linkages, but the countries have to share resources and expertise to capitalise on the region’s growth, he said.
Countries in the GMS – especially Cambodia, Laos, Myanmar, Thailand and Vietnam – have to invest in the development of infrastructure to enjoy the full benefits of the AEC since the region lacks well-developed road and rail networks.
“Development in infrastructure will make the whole region more closely interconnected, so investment in any of the GMS countries stands to benefit the rest,” he said.
One of the challenges for investment in infrastructure is project financing because such projects cannot be efficiently realised without proper funding mechanisms, Prasarn said.
There is a need to match the huge regional savings with the much-needed investment in infrastructure, and to match this huge demand for funds, Asean along with China, Japan and South Korea has put in place several initiatives.
According to the Asian Development Bank, regional savings will reach US$8 trillion (Bt260 trillion) over the next decade.
The central bank governor said two initiatives that need to be done were the Asean Infrastructure Fund, which pools regional savings into funds for investment in infrastructure projects, and the Asian Bond Markets Initiative, which develops and deepens regional bond markets so they can tap regional savings.