Bank of Thailand governor Veerathai Santiprabhob took the helm of the central bank in October 2015, 15 months after a military coup brought prime minister Prayuth Chan-ocha to power. Although condemned by Western democracies, the coup has brought a lull to 10 years of unprecedented political instability in the country, and an opportunity to address some of the economic challenges Thailand faces.
Mr Veerathai, a classic Thai technocrat with a PhD in economics from Harvard University and working experience at the International Monetary Fund, the Thai finance ministry and the privately owned Siam Commercial Bank, is playing a key role in formulating economic reforms and legislation that will set the framework for Thailand’s future “sustainable and inclusive growth” once the country returns to electoral democracy next year.
Q: Thailand’s referendum of August 7 on the country’s new constitution won a 61% vote in its favour, which was higher than expected. What does the referendum’s outcome mean for the Thai economy and the reforms currently under way?
A: The referendum result has provided better clarity on how Thai politics will evolve over the next year, and perhaps in the medium term as well. Before the referendum, people wondered how and when the election would be held. Consequently, the referendum result provides a clearer political direction, which helps the private sector to plan its business activites. Also, the number of people voting for the draft charter means that the majority support the political path as stipulated. This signals another dimension of political stability.
Q: Bank of Thailand has forecast 3.1% economic growth this year, driven mainly by public investments and tourism. Why has the government seemingly given up on consumer-driven growth?
A: Looking back at the past decade, we invested much effort to stimulate consumption, [which we have combined] with some populist policies. What has been lacking in Thailand is on the investment side. In particular, public investment had been delayed during the period of political difficulties a few years ago. That is why the current government has focused on boosting investment, public and private alike. Lately there have been a number of legal reforms to make it easier for doing business in Thailand. The intention is to ensure that we have proper and business-friendly regulatory frameworks to handle not only short-term but also long-term challenges.
Q: Deputy prime minister Somkid Jatusripitak is trying to direct private investments towards higher value-added sectors. Is this the right path forward for Thailand?
A: Thailand needs to focus more on what Mr Somkid is pushing for, which is to ensure that our productions move up the value chain, which would raise both productivity as well as income. Household income and consumption would then be boosted. On the other hand, it will not be sustainable if we are going to push consumption by merely injecting credit without improving productivity.
Q: After the UK's vote to leave the EU, the Thai baht appreciated due to inflows of foreign capital. With the Bank of England and US Federal Reserve keeping interest rates low, is Thailand facing financial instability?
A: As in other emerging market countries, [these events] have had implications on Thailand economy, but we are quite resilient owing to our buffers. To begin with, international reserves have been high, about 3.4 times our short-term debt. Also, last year’s current account surplus of 8.5% of gross domestic product [GDP] was very high. We expect a 9% GDP current account surplus this year. Next, the Thai financial sector is very sound. Even though non-performing loans, which are currently about 2.7%, continue to go up, the Thai banking sector looks very sound, reflected by the high capital adequacy ratio, profitability and level of reserves. Our domestic financial system also has very good buffers.
Q: You have been a key player in this government’s reform efforts. What is the long-term goal of these reforms?
A: Our goal is to have sustainable and inclusive growth. Many reform measures currently being pushed aim to improve governance, a key factor for sustainability and inclusiveness as well.
Veerathai Santiprabhobis the governor of the Bank of Thailand.
