BANGKOK—Thailand's newly-minted central bank governor said
Monday that the country's economy is entering a difficult
transition, and that he stands ready to tailor the bank's policies
to support more growth while strictly managing price pressures.
"Stability is key. During a transition period we have to make
sure stability is key," Veerathai Santiprabhob told The Wall Street
Journal in his first interview with international media since
becoming the Bank of Thailand's governor in September.
At the same time, Mr. Veerathai said weak inflation means the
Bank of Thailand has more leeway to help buoy the country's
troubled economy as it grapples with a host of challenges, from
slowing demand in China to tensions in the Middle East to
Thailand's struggle to regain its former status as one of the
world's most attractive locations for foreign manufacturers.
"Our primary mandate is domestic monetary stability," Mr.
Veerathai, 46 years old, said. "But when we are not subject to
strong pressure on prices, we can be more accommodative to other
considerations, but it doesn't mean that we want to forego price
stability, which is our core mandate."
Thailand, once one of the world's fastest-growing emerging
economies and hub for global names such as Toyota Motor Corp. and
Ford Motor Co., has struggled to recover from the impact of
devastating floods in 2011 that shut down much of its industrial
output. Combined with lower prices for agricultural exports and the
rise of new competitors for investment, notably Vietnam, this has
knocked the wind of its economy's sails.
Exports, an important driver of Thailand's economy, fell 7.4% on
year in November, and by 5.5% over the first 11 months of the year.
Exports contracted in both 2013 and 2014, and an overall decline is
certain this year too. The Bank of Thailand forecasts growth to
remain flat in 2016, and last week cut its economic growth target
for next year to 3.5% from 3.7%, compared with this year's forecast
of 2.8% growth.
Economists say Thailand's political upheavals, which culminated
in a military coup last year, have added another layer of
uncertainty that has complicated the country's attempts to regain
its old luster and dented local confidence, too.
The Bank of Thailand's Monetary Policy Committee twice cut its
main policy rate in 2015, down to 1.5%, to support borrowing and
investment, and Mr. Veerathai on Monday said the committee could
again cut rates in the coming months if the situation
warranted.
The big question mark in 2016, he said, was the extent to which
demand in China will slow as its economic planners attempt to steer
its economy toward a more consumer-based model.
"China is a major world economy and the transition there could
definitely have a strong impact on countries like Thailand," Mr.
Veerathai said. "We stand ready to be more accommodative if need
be."
Thailand's own domestic problems present another problem.
Mr. Veerathai, a former economist with the International
Monetary Fund who has also served as a policy researcher at
Thailand's finance ministry and as chief strategy officer at the
Stock Exchange of Thailand, said he was concerned about the danger
of an uneven economic recovery. He said that while urban areas,
particularly Bangkok, may perform relatively well in the coming
months, he and other economic policy makers are worried about how
depressed commodity prices, especially those of rubber, are hurting
rural communities.
He also pointed out how changing demographics are beginning to
weigh on the country. Thailand is one of the world's poorest
countries to face the phenomenon of aging, with the average woman
now giving birth to 1.6 children, about the same as China and less
than the 2.1 children that statisticians regard as being adequate
to maintain a country's population.
Thailand's workforce is beginning to contract as a result,
creating pressure to improve productivity if the country is to
continue to grow, Mr. Veerathai said.
The ruling junta recently introduced new measures including tax
incentives to bring more research and development-oriented
investment to the country to help address the problem. It is also
attempting improve efficiency at the country's state-owned
enterprises, which together invest more money each year than the
entire national government.
Meanwhile, Mr. Veerathai says there are some signs that some of
the worst might be over for Thailand's economy, at least in the
short term. Private consumption in October, the latest month for
which data is available, rose 2.2% on year, while private
investment grew by 1.5%.
Moreover, long-delayed government investments in major
infrastructure projects might be realized in 2016, providing some
fresh impetus to support growth. Some smaller ones have already
been bid out.
"We will have to keep our eye on this," Mr. Veerathai said, to
make sure they provide a sufficient boost to keep the economy
growing.
Write to James Hookway at james.hookway@wsj.com and Nopparat
Chaichalearmmongkol at nopparat.chaichalearmmongkol@wsj.com
(END) Dow Jones Newswires
December 28, 2015 07:45 ET (12:45 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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