IMF Managing Director Rodrigo de Rato's Statement at the Conclusion of his Visit to Thailand
Press Release No. 07/171
July 28, 2007
Mr. Rodrigo de Rato, Managing Director of the International Monetary Fund (IMF), issued the following statement today in Bangkok:
"I am delighted to have had the opportunity to visit Bangkok and to participate in the South East Asian Central Banks (SEACEN) Governors' Conference. I had the privilege of meeting with Finance Minister Chalongphob Sussangkarn, Governor Tarisa Watanagase, and other senior officials at the Bank of Thailand, who are hosting this year's conference. I have also met with other central bank governors from the region who are here to participate in the conference.
"In my meetings with Minister Chalongphob and Governor Tarisa I had the opportunity to hear first hand about the challenges facing the Thai economy. Recent economic activity has moderated but Thailand's macroeconomic fundamentals-a current account surplus, a sustainable fiscal position, and low inflation-remain strong. We expect consumer and business confidence to strengthen and support domestic demand once elections take place at the end of this year.
"My discussions with SEACEN central bank governors focused on Asia's role in global economic decision making. I briefed the governors on progress in increasing the representation of Asian countries in the Fund, specifically through a new quota formula that better reflects members' relative position in the global economy.
"The theme of this year's SEACEN Governors' Conference-Living with Volatilities: Managing Exchange Rate and Capital Flows in Asia-aptly describes the current challenges facing many emerging market economies, especially in this region. In my keynote address this morning I began with the observation that increasing capital flows into and out of countries is a global phenomenon and reflects financial globalization. All around the world, institutions and individuals are more willing and more able to hold assets outside their own country. Financial globalization, measured by the sum of gross external assets and liabilities as a share of GDP, has increased threefold since the mid-1970s, and has accelerated since the mid-1990s. I also noted that while Asia is experiencing very large capital inflows, it has also very large capital outflows.
"I pointed out that while financial globalization brings many benefits-greater business access, faster technology transfer, improved productivity and greater employment opportunities-it also brings risks both for investors and for the countries in which they invest. Recently, I have warned about risks stemming from global imbalances and from increased protectionist sentiment, from carry trades across various currencies; and from the rising leverage in buyouts. My aim in drawing attention to these risks is not to predict disruption in global financial markets, but to forestall it. By taking timely action, governments and regulatory authorities can protect investors, markets, and economies from possible market disruption.
"I discussed some actions that emerging market countries can take to reduce such risks, particularly those associated in capital inflows. First, of course, is good macroeconomic policies, including exchange rate flexibility. Second, intervention in exchange markets to smooth volatility may also be appropriate. Third, further liberalization on capital outflows. These measures should be supported by domestic financial market development. I also discussed the pro and cons of capital controls.
"Another important policy initiative is international cooperation. There has been recent good progress on the issue of global imbalances, for instance, which is particularly important for this region. Given their economies' heavy dependence on exports, a disorderly unwinding of global imbalances would be detrimental. Through the Multilateral Consultation, the Fund brought China, the euro area, Japan, Saudi Arabia, and the United States together to discuss measures that would lead to a gradual reduction of imbalances while sustaining strong global growth.
"I am grateful to the Thai authorities for their warm hospitality and to everyone I had the chance to meet for our open and amicable discussions."