After the shock, the Governor of the Bank of Thailand points out a solution: increase the value of existing industries and stop selling dreams and chasing numbers.
"It's not me who can say which achievements are impressive. It's up to outsiders to evaluate past performance. But both I and the BoT are trying our best, even though some results may be dissatisfying. Some issues require time. If we were to compare the BoT to a doctor, the economy would be a patient with a chronic illness that's difficult to treat. Patients may want a quick cure, but that's not the case. And changing doctors doesn't necessarily mean the illness will be cured if the patient doesn't adapt."
Five years of challenges for Dr. Sethaput Suthiwatnarueput, Governor of the Bank of Thailand, who must maintain stability under pressure from the "shock" situation affecting the economy, pointing out that the Thai economy is worse than GDP figures, signaling a "Wake-up Call" to urge Thailand to face reality and stop using fancy policy concepts to chase GDP figures.
October 1, 2563, marks the first day that Dr. Sethaput Suthiwatnarueput officially assumed the position of the 24th Governor of the Bank of Thailand (BOT), and September 30, 2568, will mark the 5th anniversary of his term in this position.
5 years in the position of "Governor of the Bank of Thailand"
Ears must listen, heart must be still.
Editorial department bank finance led by Santi Wiriyarangsarit, Editor-in-Chief Got a special interview Dr. Setthaput Suthiwatnarueput Governor of the Bank of Thailand Before the end of his term as Governor of the Bank of Thailand on September 30, 2568
Dr. Sethaput discussed his work over the past five years, stating that he has faced numerous challenges as a central banker, requiring both a holistic and long-term view. He added that sometimes, when trying to please people for short-term gains but with long-term negative consequences, he would not do so. However, no matter what he does, it's normal for some people to be dissatisfied.
If asked what work he feels proud or satisfied with, it would be every job he has done. And not just himself, but the people at the Bank of Thailand. He's dedicated and attentive, not just looking out for personal gain or any particular group, but rather looking at the whole picture, the community, and the long-term. While some may be dissatisfied, it's a source of pride in fulfilling the duties a central bank should perform.
"It's not me who can say which achievements are impressive. It's up to outsiders to evaluate past performance. But both I and the Bank of Thailand are trying our best, even though some results may be dissatisfying. Some issues require time. If we were to compare the Bank of Thailand to a doctor, the economy would be a patient with a chronic illness that's difficult to treat. Patients may want a quick cure, but that's not the case. And changing doctors doesn't necessarily mean the illness will be cured if the patient doesn't adapt."
Dr. Sethaput stated that during his tenure as Governor of the Bank of Thailand, one of the key factors supporting his work has been opening up spaces for comprehensive listening and exchanging opinions with diverse groups of people. He believes that knowledge and information are not limited to one person, and this helps to ensure comprehensive and accurate decision-making.
Another key process is internal meetings within the BoT to thoroughly analyze data. Teamwork facilitates feedback and cross-checking, fostering confidence in decision-making. Sharing ideas helps ensure that actions are based on sound data and thorough listening, even though decisions sometimes face criticism.
"The "ivory tower" narrative that the BoT is often talked about, I'm not disputing it. The BoT is an academic organization, and some people think that way. However, the BoT prioritizes field visits and meetings with over 700 entrepreneurs in each region annually, engaging in close dialogue and exchanges. You can't just rely on numbers; you need to engage with them, using your ears, eyes, and heart. While we may not be completely down-to-earth, we're certainly not living in an ivory tower."
The BoT also prioritizes policy review and adjustments to suit changing circumstances, taking into account a balance between listening, analytical thinking, and prudence. This avoids decisions based solely on majority opinion or limited data, ensuring a clear picture and accurate long-term goals.
"The BoT's duty is to observe the big picture and the long term. There must be a balance between the voices heard and the eyes that see the data. Listening only to the loud noises, drowning out other sounds, is not good. We must remain calm, not just listening to the loud voices. We must also observe the data carefully."
Dr. Sethaput added that while the image of a lack of coordination between monetary and fiscal policies has been viewed as too much of a drama, the reality is far from it. This is because collaboration between the Bank of Thailand, the Ministry of Finance, and other government agencies continues. Concerns about the lack of coordination may simply reflect differences in policy perspectives, but when considering and making policy decisions, the overall economy and fiscal policy are taken into account.
The work of the central bank and the government is therefore not about receiving direct orders, but rather about exchanging ideas. Differing opinions are considered somewhat normal, as each wears different hats. The government has its own challenges, and the central bank has its own responsibilities. A difference in perspective doesn't mean we can't communicate, as the common goal is to achieve stability, growth, and a better quality of life for Thais. However, there may be differences in short-term and long-term perspectives.
"If the central bank were a doctor, patients might want something that would quickly heal, but if it has side effects, they might not be able to provide it. If they're in pain and want a steroid injection, it might help, but the side effects are numerous. It's definitely not good in the long run. This can lead to different perspectives, and it can become like a soap opera. But I want to be a documentary, not a soap opera."
As for the handover of work to the new Governor of the BoT, preparations have been made and it is expected that it will take approximately 3-4 weeks for each department to report to the new Governor for the handover.
“We have done it systematically. What I would like to entrust to the new governor, I can entrust directly, without having to send it through the media.”
The role of the Governor of the Bank of Thailand
Maintaining balance in a crisis
Dr. Sethaput discussed his five-year mission, emphasizing three key areas of ongoing work: 5. Maintaining the stability of the economic and financial system to overcome various crises; 3. Laying a strong financial foundation for future growth, including infrastructure and overseeing the financial landscape; and 1. Ensuring that debtors and users of financial services receive appropriate care.
As the Bank of Thailand's primary responsibility for maintaining financial stability has been facing various challenges in the past, policymaking must be flexible and adaptable to the situation.
Early in his tenure as Governor of the Bank of Thailand, Dr. Sethaput faced the COVID-19 crisis, the first significant shock to the Thai economy. The COVID-6 pandemic caused GDP to contract by approximately 2540%, a crisis unlike anything experienced in 19. The problems at that time primarily affected large businesses, while the COVID-XNUMX crisis has impacted individuals and all sectors, as the Thai economy relies heavily on the service and tourism sectors, resulting in widespread impacts without tourists.
In the face of COVID-19, the Bank of Thailand (BOT) has been compelled to implement effective measures to overcome the crisis. This includes a monetary policy cut to a record low of 0.5%, and a soft loan program, a financial measure designed to help inject capital into the economy. While initially criticized for its feasibility, 99% of the 250,000 billion baht budget has been disbursed.
The design process of the measure involved listening to the opinions of all stakeholders. At the same time, emphasis was placed on managing existing debt through debt suspension under the asset and debt suspension and accelerated debt restructuring measures, as it is well-known that debt suspension can alleviate the burden on debtors.
Following the COVID-19 outbreak, the Thai economy faced a second shock: the Russia-Ukraine war, which sent Thai inflation soaring to 2%, nearly the highest in the region. At the time, the Bank of Thailand was under intense pressure to raise interest rates to control the rapidly rising inflation, as several countries had already raised rates by as much as 7.9% each time.
At that time, the Bank of Thailand (BOT) carefully analyzed the situation and assessed that inflation in Thailand differed from other countries. It was expected that inflation would not continue to rise, but would gradually decline in the short term. Therefore, a rapid interest rate hike was not appropriate, as the Thai economy was slow to recover from the impact of COVID-19. Thailand, which has been severely affected and is one of the slowest to recover, did not want to raise interest rates too quickly.
Ultimately, the BoT pursued a gradual interest rate hike policy, avoiding the rapid rate hikes seen in some countries. The rate gradually increased to 2.5%, and inflation quickly declined and returned to the target range. This decision was based on data, factual analysis, and listening to the opinions of many parties. At the time, inflation was largely driven by supply-side shocks, particularly oil prices. Given that inflation expectations had not risen significantly, inflationary pressures were expected to gradually ease.
"At that time, the BoT faced considerable criticism for misdiagnosing the problem. However, we saw that Thailand's situation was unique. Although inflation was higher than elsewhere, we thought it would return. Raising interest rates too quickly would create problems. Ultimately, we were right on this point. We must give credit to the analysis team, as other countries tend to raise interest rates high to prevent inflation. However, our challenge at the time was to keep inflation at a suitable or neutral level, meaning not stepping on the brakes but not the accelerator. Therefore, we gradually raised interest rates. This is the basis for our argument that a policy interest rate of 2.5% would be appropriate."
However, the Thai economy, particularly consumer income, has been recovering at a relatively slow rate due to structural problems. This has resulted in slower-than-expected economic and income recovery. Subsequently, economic stability policies have been implemented, including a three-fold reduction in the policy interest rate from 2.5% to 3%.
Dr. Sethaput stated that these circumstances reflect the need for cautious policy implementation to maintain economic stability, especially during a time of uncertainty. When the Bank of Thailand began cutting interest rates, it gradually adjusted them in line with the gradual pace of the economic recovery, despite criticism that the rate cuts were too slow. However, under high uncertainty, policy implementation capacity must be maintained.
If interest rates had been cut rapidly in response to pressure, coupled with aggressive fiscal policy stimulus, there would have been few tools available to deal with the situation in the event of a trade shock. This case highlights the importance of maintaining economic stability. While some policies may seem timely, there are rationale behind their necessity in the context of uncertainty.
"Despite criticism of the delay in interest rate cuts, what we want to emphasize is that, amidst the high level of uncertainty, we must preserve ammunition. If we suddenly cut interest rates significantly, as we're under pressure, while the financial sector accelerates economic stimulus, if we spend all our money on fiscal policy and continue to cut interest rates significantly, and now we're faced with a shock from the trade sector, we'll run out of ammunition and tools to use. This reflects that while some may criticize the delay, the rationale lies in the Bank of Thailand's commitment to stability."
Looking ahead, with uncertainty and a likely future economic slowdown worsening than in the past, it is crucial to prepare tools to cope with the situation. Prioritizing economic stability through interest rate policy, along with other measures such as overseeing new loans in the system and debt restructuring, is a key priority.
Dr. Sethaput added that in addition to addressing immediate issues, the BoT prioritizes long-term plans alongside addressing immediate issues, emphasizing the development of the BoT's financial infrastructure, or Financial Landscape. The BoT's core concept is the "3 Open" framework, which includes:
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- Open Competition (Open Competition) : Promote competition from new players in the market to stimulate innovation and provide diverse choices for users, such as issuing Virtual Bank licenses.
- Open Infrastructure (Openness of Infrastructure) : Promote connectivity between various infrastructure systems to make financial transactions more efficient and smooth.
- Open Data (Openness of Data) : Promote data sharing to lead to the creation of financial services that are more specific and better meet the needs of individual users.
Household debt problems
Challenging but must be solved
Dr. Sethaput stated that in the past, the BoT has often been criticized for prioritizing financial institutions over debtors when it comes to ensuring they receive appropriate care. However, a closer look at the various measures implemented reveals that most regulatory reforms are primarily aimed at benefiting debtors. In the event of easing of requirements for financial institutions, such as by contributing to the rehabilitation fund or easing various regulations, the BoT expects these benefits to ultimately be passed on to debtors.
The Bank of Thailand (BOT) has issued regulations on fair lending, or Responsible Lending (RL). The core of this issue is that a significant amount of debt is due to advertising that encourages borrowers to borrow too easily, even though they may not be aware of the costs involved. This requires financial institutions to provide complete information in an easily understandable format. The results have been positive, as the BOT has found that advertising that provides incomplete or exaggerated information has decreased. In the first year of the market conduct measures (2560-2561), forced sales decreased by 60%. Four financial service providers were fined 4 million baht for forced insurance sales. Both forced and fraudulent sales complaints have also decreased.
Another important issue is debt restructuring under fair lending criteria, which mandates that debt restructuring must occur before it becomes a non-performing loan (NPL). This measure focuses on financial institutions assisting debtors from the onset of repayment difficulties, but before reaching the point of NPL. This helps prevent debtors from becoming non-performing loans. Furthermore, if a debtor becomes non-performing, financial institutions must offer at least one more debt restructuring proposal before taking legal action, such as lawsuits or asset seizures.
Another ongoing issue is the calculation of default interest. Previously, the calculation was based on the total principal balance at a rate determined by the creditor. The calculation is now based on the principal only for the installments in which the payment was missed, at the contractual interest rate plus no more than 3%. This reduces the default interest burden, allowing more installments to be used to reduce the principal, allowing for faster debt settlement.
a sample : Outstanding principal 4.77 million baht, installment 42,000 baht Loan interest 8% per year, default interest 15% per year, installment payment overdue for 30 days.
“The name of this criterion, Responsible Lending, is derived from international practice, which may lead some to misinterpret it as blocking access to credit. But the underlying principle is far from it. Lenders must consider that borrowers must have sufficient funds to survive. This is not designed to limit lending. However, recent cases of credit limitations have led to claims that people may not be able to access credit, which is why it's often attributed to the Bank of Thailand's regulations. This is not the case.”
Dr. Sethaput also stated that Thailand's debt problem is a significant and complex issue, as it has been accumulating for a long time. The debt level has been rising since before the COVID-19 outbreak and has only continued to increase during this period. He added that Thailand's household debt problem cannot be resolved in a short period of time, and it differs from debt in other countries, which is mostly secured home loans. Thailand's debt is largely consumer debt, often unsecured.
"Debt relief measures, including debt restructuring and regulations, have been implemented by Thailand more than other countries with debt problems. This partly reflects the fact that Thailand's debt problem may be more severe than elsewhere, requiring more action than elsewhere. Ultimately, however, a sustainable debt solution cannot be achieved by addressing debt alone. It must address income. The main problem preventing debt resolution is the slow recovery of income. Currently, household expenses exceed income. Even if we resolve all debt, if their expenses exceed their income, new debt will arise, as they will still need to borrow."
However, the idea of establishing an Asset Management Company (AMC) is one way to address the current debt problem, but the process for achieving it is complex. The current debt problem is different from the 2540 crisis, in that in the past it was often associated with large and small debtors, while today's debt problem is more concentrated among the grassroots and involves a large number of debtors.
If debt is purchased into an AMC, consideration must be given to debt tracking and management, purchase pricing, and measures to prevent defaults (Moral Hazard) that could impact the overall system. Managing large amounts of debt requires careful consideration, even if all parties want a quick resolution.
"While resolving debt through debt restructuring or establishing an AMC can help manage existing debt, if income issues are not addressed, the debt problem is likely to recur. Therefore, income is the most important factor in addressing this issue sustainably."
The Thai economy is worse than GDP figures.
Higher cost of living - slow income recovery
Although the Thai economy has weathered several shocks, looking ahead, Dr. Sethaput predicts that economic uncertainty will be higher than ever, particularly the impact of US trade, a shock that he believes will not be easily resolved. The US tax situation continues to pose challenges. While the quantitative results are not yet clear, future trends are expected to become increasingly evident.
In the first quarter, Thailand's GDP grew by 3.1%. The second quarter figures have not yet been released, but various indicators predict it will be close to 3%, based on a 2.9% assumption. Therefore, the average GDP growth for the first half of the year is 3%. If GDP grows by 1% in the second half, the full year 2568 will average approximately 2%. Therefore, the Bank of Thailand estimates that the Thai economy will grow in the range of 2-3% this year. This forecast is primarily based on first-half data. Current market figures are highly variable and inaccurate, with some suggesting that the Thai economy may grow by only 1% this year.
"That's why the Monetary Policy Committee (MPC) meeting projected 2-3% economic growth this year, which drew considerable criticism. But the main reason is not that the second half will be good, but rather that the first half was good and the numbers weren't bad. But I emphasize that this is just the numbers, because people's perception is that the economy may not be as good as the GDP figures."
However, there's a possibility that the economy could contract by more than 1% in the second half of this year, but the risk level is still not high. If the economy contracts for two consecutive quarters, it would be considered a technical recession. Thailand has experienced four technical recessions in the past: the Tom Yum Kung crisis, the Hamburger crisis, the major floods, and the COVID-2 outbreak. Therefore, compared to past situations, if the negative factors this year are not as severe as those mentioned, the economy in the second half of the year is unlikely to experience a significant recession.
Dr. Sethaput also stated that one of the key issues is the impact of trade with the United States. Thai goods exported directly to the US or sent through supply chains for resale in the US account for nearly one-quarter of total export value. However, most of the companies involved are large multinationals, with a limited direct impact on domestic employment levels.
But of particular concern are businesses affected by the influx of goods, particularly from China. When China was unable to export to the US, it turned to Thailand instead. June 2568 figures show that China's exports to the US fell 16% year-on-year, but global exports rose 6%, while shipments to Thailand grew more than 20%.
Some of these are products shipped from Thailand to other countries, but a significant number are products competing with Thai entrepreneurs, particularly SMEs in the garment, furniture, and electrical appliance industries, which have relatively high added value to GDP and employ a large number of people. These groups are directly affected and should be closely monitored.
"The Thai economy is clearly worse than GDP figures. This is partly due to the perception that the economy is not doing well, and partly due to the rising cost of living. Our inflation is low, but prices have risen significantly since the Ukraine war, which saw prices rise. Once they rise, they don't usually come back down. Therefore, the cost of living has increased. Income recovery is slow, and debt is high. GDP figures only measure the economic condition, but do not reflect the incomes of the majority of people."
Dr. Sethaput revealed that the impact of US tariffs requires urgent management. The first priority is to conduct serious negotiations, followed by addressing the rapidly increasing import volume, and finally, remedial measures.
However, it is important not to stop at just remedies, but to focus on appropriate adaptation, as the current situation clearly shows that the world has changed. Adapting during this time is essential.
"In the past, we've often ended with relief, stimulus, and then a pause, without looking ahead. We view this shock as a wake-up call. In the past, after the Thai economy recovered from a shock, we've seen a steady decline in growth. After the most recent shock, the Thai economy should have been nearing 3%, but now it looks lower, and it will be even lower if we don't adjust."
Stop dreaming of fancy policies
Turn back to create added value
But when asked how to adapt, Dr. Sethaput said that Thailand tends to cling to ever-changing concepts, often hyped up as "the S-Curve," or "the Detroit of Asia," at one point. However, he urged Thailand to be more realistic, as this may be a fantasy rather than a realistic potential. Thailand should be more realistic, starting with its existing strengths and focusing on continuous value-added development. Competing with countries with more abundant resources, such as China or other regions, can be challenging. Therefore, creating value and increasing efficiency from existing assets is the right approach for Thailand.
The Bank of Thailand (BOT) has held discussions with the Joint Standing Committee on Commerce, Industry, and Banking (JSCCIB) to assess the impact of the current situation and develop strategies for adaptation in a changing world. The primary objective is to invite stakeholders from all sectors to participate in setting directions and exploring collaborative approaches. The aim is not limited to the preparation of a White Paper, but also to develop a Memorandum of Understanding (MOU) or a mutual agreement to establish a group capable of creating real economic value.
Dr. Sethaput stated that Thailand has historically been too selective in selecting groups or sectors, hoping for rapid growth. Instead, the focus should be on how each sector can create added value. While Thailand's strong sectors may not be glamorous, having SMEs and involving a large number of people can have far-reaching effects. For example, investing in a data center may look good in terms of numbers, but compared to the food or agriculture sector, where Thailand already excels, it could potentially generate greater economic returns. Thailand should consider its strengths, such as food, agriculture, and tourism, and leverage them through multi-stakeholder collaboration.
"We must stop focusing on dreaming about numbers, whether it's GDP or investments we might be proud of, but ultimately yield nothing in return. The source doesn't provide us with anything, merely serving as a production base for export. We must refocus our thinking on value creation, which is appropriate for the new circumstances. While we're facing a severe shock, we must use it as an opportunity to move forward."
Get ready to host
meet World Bank-IMF 2569
Dr. Sethaput added that Thailand is fully prepared to host the 2569 IMF-WBG Annual Meetings. The Bank of Thailand (BOT), in collaboration with the Ministry of Finance and various agencies, has been preparing for over two years. The BOT will coordinate with the International Monetary Fund (IMF), while the Ministry of Finance will work with the World Bank.
The main theme of the meeting, proposed by the Bank of Thailand and discussed with the IMF, is "Safe and Inclusive Digital Finance." This presents a significant opportunity to showcase Thailand's financial technology capabilities, particularly its PromptPay system, which handles 70 million transactions per day, ranking third globally after India and Brazil, which are several times larger. Furthermore, Thailand is leading the way in linking its "Fast Pay" system, PromptPay, with Singapore's PayNow, and is currently participating in the Nexus project to connect with several other countries.
The theme of “Safe and Inclusive” emphasizes two key issues: safety, as digital advancement comes with risks from fraud; and system stability. The conference will address transnational fraud and seek ways to collaborate. Inclusiveness is ensuring that all groups of people, particularly the elderly, people with disabilities, and those living in remote areas, have access to digital financial services without being left behind.
"This conference is expected to attract over 18,000 participants from 190 member countries. The BoT aims to produce tangible and sustainable results, aiming to establish "Bangkok Best Practices" on Safe and Digital Finance, which can serve as reference principles and regulations for other countries."
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