Leader of Thailand’s Central Bank Considers Challenges for Emerging Markets

When Governor Veerathai Santiprabhob of the Bank of Thailand visited SIPA on October 5 to discuss “Challenges for Monetary Policy Conduct of Emerging Market Central Banks,” he began his talk by equating China’s growth with that of the global economy.

“Wen Jiabao once described China’s growth performance as ‘unstable, unbalanced, uncoordinated, and unsustainable,’” Santiprabhob said. “This seems like an apt description of the global economy.”

He went on to cite the decline of world trade, rise of the service sector, and maintenance of unconventional monetary policy measures as factors contributing to the precarious state of the global economy.

Santiprabhob said these developments have over-sensitized financial markets to monetary policy while making “inflation and output less responsive to monetary policy.”

As a result, he said, “the monetary trade-off has become between inflation and growth on one hand and financial stability on the other.”

He suggested three ways that central banks can best address this dilemma: greater policy coordination, adoption of a monetary policy framework that systematically accounts for financial stability, and an expanded policy tool set.

“This will help keep the economy on an even keel,” Santiprabhob said.

While Santiprabhob acknowledged that communication and timing will be a major challenge in successfully implementing these types of reforms, he underscored that the redesign of central bank mandates can address these issues.

Santiprabhob also discussed what he called Thailand’s ensnarement in the middle-income trap, suggesting that the country can no longer rely on its old economic model. The government must instead introduce reforms that are more conducive to doing business, such as encouraging investment on a competitive market basis.

Educational reform, he added, is also essential.

Santiprabhob ended the talk with a plea to the audience: “The onus of our generation is to ensure that our search for a new monetary policy framework leads us to a better place, rather than to more of the same.”

— Serina Bellamy MIA ’17

Read text of speech and additional coverage at CGEG

Pictured (from left): Takatoshi Ito, Veerathai Santiprabhob, Patricia Mosser