THAILAND’S ECONOMIC PROGRESS
The economic development process in which commercial banks and the Bank of Thailand have played a part has yielded satisfactory results. In the past twelve year cycle, the gross national product, an indicator of economic growth, has almost tripled, increasing from about 42 billion baht in 1957 to about 112 billion baht in 1969. It is true that the price level has risen somewhat during this period. But even when figures have been adjusted to account for price increases, it is still apparent that the annual growth rate of the Thai economy from 1960 to 1966 averaged 7.6 percent, which is considered high compared with other developed and developing countries.
The aforementioned progress is evident in every sector: manufacturing, construction, and transportation. Even in agriculture where the growth rate is lower than other sectors, it is still noticeable that in during the past cycle, we have been able to export a greater variety of agricultural products. At the beginning of the period, our principal export commodities were few in number. At that time, nobody paid attention to maize, kenaf, or tapioca. The production of these commodities was insignificant and their exports amounted to only about 200 million baht, less than 5 percent of total exports. At present, the combined value of these three commodities is about baht 3.300 billion, over 20 percent of total exports.
Although imports have increased rapidly in the past twelve years, as is normal in a country going through the development process and with an industrial policy encouraging the import of machinery and raw materials, Thailand’s international reserves have increased from US $302 million in 1958 to US $922 million by the end of 1968. In spite of a balance of payments deficit in 1969, our reserves are still at a level of US $874 million, equivalent to eight and a half months of imports at the current rate or approximately three times the total outstanding government external debt.
The increase in our international reserves and growth in commercial banking have enhanced our credit-worthiness among foreigners and foreign banks, and resulted in a large inflow of foreign investments. Overseas credits received by our commercial banks have increased rapidly from a level of US $30 million at the end of 1958 to US $240 million at the end of 1969.
Ladies and gentlemen, I have not presented these facts just to be boastful. But I cannot help thinking that in the past cycle, the Thai Bankers Association and the Bank of Thailand have been quite skilful and we have used those skills reasonably, for the public good. Of course, we know full well that you and I have made mistakes, and I am convinced that we all intend to correct these to the best of our abilities, so that we can carry on with our work, with righteousness, following the rule of law, and render service to the people and government.
PREVENTIVE MEASURES IN 1969
During 1969, developments abroad made it necessary for the Bank of Thailand to increase its cash reserve requirements, raise its loan rate, and raise U.S. dollar intervention rates for the Exchange Equalization Fund.
The past two years were turbulent in the international monetary system. Advanced countries faced with problems of inflation resorted to monetary restrictions where budget and fiscal measures could not bring about necessary corrective action. Meanwhile, countries that had been losing foreign exchange also had to increase bank rates. Consequently, interest rates in world money markets were unusually high.
In Thailand, a drought affected production and exports deteriorated. The commercial banking system as a whole enjoyed high liquidity, with interest rates in the world market high. It was normal that money should flow from where the interest rate was low to where it was high. It is the Bank of Thailand’s responsibility to prevent this outflow. Therefore it became necessary to take measures to put out the fire before it spread. Several commercial bankers already understand why the move was taken. I would like to take this opportunity to explain the intention of the Bank of Thailand to those who are still in the dark.
To encourage development, it is the Bank of Thailand’s policy to attempt to bring down the interest rate in the long run. Therefore, even if it is necessary at some points to use measures that are not consistent with this objective, the Bank of Thailand has avoided touching high priority activities. For example, the annual rate of rediscount for bills arising from exports and industry is maintained at the original 5 percent. The Bank has tried to expand facilities for these activities even further, so that they will never be hindered by lack of finance. Credit for agriculture provided through the Bank for Agriculture and Agricultural Cooperatives is still subject to an annual rate of 7 percent.
The Bank of Thailand is always looking for opportunities to reduce the interest rate and expand credit according to our original policy. Whenever we can do this without harmful consequences, we shall do so immediately.
PROBLEMS, PRESENT AND FUTURE
Progress in the financial system of Thailand in the recent past has understandably presented problems to commercial banks. New types of financial institutions have come into being. Their operations partly complement those of commercial banks, but partly compete with them in attracting funds. It is true that at present, these institutions are not under strict government regulations like commercial banks, but the degree of competition from this source has not reached serious limits. The government and the Bank of Thailand are fully aware of the problem; they have therefore tried to seek appropriate measures to deal with these new financial institutions, to see that their operations are in line with national economic interest, with proper safeguards for the investing public as well as ensuring fairness to commercial banks and other financial institutions. We have certainly not neglected the problem and our efforts should bear results soon. Commercial banks and Bank of Thailand will then mutually consult upon the matter, as has been our usual practice.
The problems worrying many of us at present are those of balance of payments and trade. You will agree with me that whatever happens, the lasting solution to the problem depends upon the Thai people’s ability to produce. Thus, the responsibility of commercial banks and the Bank of Thailand is clear: we must do our best to promote Thailand’s production and exports, especially in the field of agriculture. Meanwhile, we must not neglect industry. The next two to three years are crucial. We must spare no effort in helping the government solve the problems of production and export.
Respectfully, I would like to offer a further comment: probably all of us fully intend to promote production and export to the best of our abilities. But for commercial banks to do that effectively, they must first of all be stable. Therefore, abiding by the law and following sound banking practice are integral parts of national development. Let us create stability in each of our banks and we shall be able to effectively help the nation solve its problems. Any bank which is not up to standard in this respect should make amends. In this way, we will be able to work for the common good.
Ladies and gentlemen, with awareness of the good we have done in the past cycle and realization of our responsibility towards the future of Thailand, let us all firmly resolve to do more good. We will join together in doing good and beautiful deeds for the benefit of the Thai people in the next cycle. In 1982, we shall meet again at the Annual Banquet of the Thai Bankers Association, and then the governor of the Bank of Thailand can make a speech for the occasion and say without reservation that throughout our lives, we have always worked for the common good.
The Minister of Finance once quoted one of Buddha’s sayings: “All things are transient.” Who will be governor in 1982, we do not know. Who will be governor in 1971, we are not certain. We are certain that for better or worse, the Bank of Thailand will stand by, and work with, the Thai Bankers Association to promote the progress of Thailand: financially, materially, and morally.
Every year in the past, I used to ask guests to drink to the health and happiness of members of the Thai Bankers Association. This year, with your permission, I would like to break tradition and ask both guests and members of the Thai Bankers Association, that is, all of you present, to please stand and drink to the prosperity of the Thai Bankers Association and progress and development of the Thai economy.
Extract from an address to the Thai Bankers Association,
11 February 1970.