Central Bank Governor sees AEC as a positive for Thailand

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Central Bank Governor sees AEC as a positive for Thailand

In the last issue we covered the main elements of an article by Dr Prasarn Trairatvorakul which appeared in Euromoney Institutional Investor. Included in the article were comments regarding the advent of the AEC in January 2015 and what he thinks it will mean for the Thai economy.

The 2015 ASEAN Economic Community (AEC), creating a single market and production base with a free flow of goods, services, investment, capital, and skilled labors, will change business in multiple dimensions, including market expansion and higher business complexities in terms of supply chain management and cultural diversity.

Strategically advantaged in terms of geography and an open culture, Thailand is therefore in an enviable position to serve as a regional hub for transportation and logistics for key selected sectors that will result in shared benefits to the region.

To achieve this the government is planning the expansion of an efficient transport and logistics infrastructure, connecting to all neighboring countries. Priorities include development of the East-West Economic Corridor as well as the Dawei industrial zone and deep seaport in Myanmar which will be connected to Thailand’s Eastern Seaboard.

In addition to the linkage of physical infrastructure, there are also coordinated efforts to further integrate regional financial services to better serve the growing intra-regional economic activities.

Restrictions on capital flows have been steadily reduced, while payments in regional and local currencies have been encouraged as alternatives to major currencies to reduce transaction costs and currency risks. For example, a number of ASEAN central banks, including the Bank of Thailand, have in recent years signed bilateral swap agreements with the People’s Bank of China to facilitate the use of yuan and their local currencies for trade settlement.

Although not specifically related to the AEC, regional banking and financial services are clearly going to play an important role in the maintenance of the grouping once it comes into being.

On banking services, discussion is ongoing on the criteria for Qualified ASEAN Banks (QAB) which would, by 2014, permit the entry of ASEAN banks into other member countries. Meanwhile, regional stock exchanges are working towards promoting ASEAN equities as an asset class and establishing an ASEAN linkage that permit the trading of regional securities on a common platform. This will likely result in higher inbound fund flows and trading volumes for regional capital markets.

In the global environment of increased interdependence, no country can be immune from the possible adverse spillovers from crises originating elsewhere. Asia and Thailand are no exception. To prepare for this vulnerability, the strategy is therefore for each country to adhere to policy disciplines, to forge ahead with economic reforms to sustain their competitiveness, and to collectively contribute to global and regional sustainable growth dynamics.