Bank Leader of Thailand Talks Economic Confidence, Growth

As investors continue to voice concerns over emerging market growth in Asia, Governor of the Bank of Thailand Prasarn Trairatvorakul emphasized the importance of strong political institutions in coping with today's economic challenges in a lecture Monday afternoon at the Harvard Kennedy School.

Earlier this year, expectations that the U.S. Federal Reserve would begin tapering its monthly bond purchases sent rounds of shock waves across emerging markets around the world. Trairatvorakul suggested that for Asian economies, the more critical long-term challenges are not external, but internal.

“In order to facilitate sustainable growth, governments in Asia have to find ways to achieve efficient resource allocation and create trust and confidence in the public,” Trairatvorakul, a graduate of Harvard Business School, said in an interview with The Crimson.

Trairatvorakul said that the strength and quality of domestic institutions are the most important factors in determining the Asian economies’ capabilities of transitioning to a more diverse and sophisticated model of growth. He compared institution-building to a soccer game.

“There are many moving parts at the same time, the play is unpredictable, and it involves an enormous amount of tacit unseen coordination among players,” Trairatvorakul said.

During the lecture, Trairatvorakul identified a number of institutional features conducive to economic growth, including macroeconomic stability, rule of law, good education, and low levels of corruption. Trairatvorakul called on emerging markets to seize the opportunity to introduce structural reforms and challenge “vested interests” in order to strengthen their political and economic frameworks.

In addition to institutional-building, Trairatvorakul discussed the concept of central bank independence at yesterday’s talk.

“We should be wary of using the term independence because independence has different meanings in different contexts for different people,” Trairatvorakul said in response to a Business School student who asked about whether past decisions made by the Bank of Thailand were affected by political considerations.

“It would be naive to think that the central bank here is completely independent of the U.S. government,” he added.

Trairatvorakul said that the elected government should be involved in determining the targets and objectives of monetary policy, but “timing, strategy, and other technicalities” should be independently decided by the central bank.

“The central bank has to be the neutral party that takes away the punch bowl when everyone else is drinking,” Trairatvorakul said.