The managing director of the International Monetary Fund has praised Thailand for its economic resilience and “V-shaped” recovery, while cautioning Asean not to rush into a single currency like Europe did.
“We see a very positive outlook,” Christine Lagarde said in an interview with Nation Group chair and editor-in-chief Suthichai Yoon. “[Thai] monetary policies are sensible and it’s very important to keep fiscal policies stable and healthy.”
She noted that it was also important for the government to ensure more inclusive growth so that all Thais shared in the prosperity.
The IMF forecasts 5.5-per-cent growth for Thailand’s gross domestic product this year.
Lagarde sees limited direct impact from the euro-zone crisis on the Thai economy, although she acknowledged it could contribute to “a reduction” in exports, as the Kingdom sells about 10 per cent of its exports to Europe. But given the interconnectedness of the global economy, she noted that Thailand could feel some indirect consequences, chiefly through slower growth in China.
She also acknowledged that the fragile US recovery and the European crisis could pose a major disruption to China’s growth model, but added that growth could be sustained through Beijing’s policy mix, which to date had contributed good “numerical results” in both the pre- and post-crisis periods.
“We at the IMF observe that there are a lot of interconnections [in terms of trade, financial transactions and capital flows]… All of these are links and keep economies together. The globe, and Asia, can take advantage of it but can’t avoid being affected or infected by the contamination. There’s no immunity.”
She noted that Asia – and particularly Asean – had a lot to teach its colleagues and partners in the US and Europe, after years of deleveraging following the 1997 financial crisis, which lowered national and corporate debt levels.
On the euro zone, she praised European Union leaders for their pledge to set up a banking union and a supervision union, reached at last week’s EU Summit. The region “has made progress but more is expected in the future”, she said.
‘Very, very intensive care’
While insisting that the euro zone is now “in a very, very attentive care”, Lagarde noted that Asean was on the right track to reinforcing its own strengths through regional integration. Still, thanks to the painful lessons from Europe, which moved into a monetary union without establishing a fiscal union, she said diverse Asean, with its great discrepancies in terms of per capita GDP and competitiveness levels, should proceed slowly.
“It’s a fascinating economic zone, but Asean should not rush to solutions, not put itself into a currency union.” She said a single currency could be in the picture, but it would be “premature” to introduce one for the time being.
She also praised Asean members’ moves to strengthen their links – including the Chiang Mai Initiative, a multilateral currency-swap arrangement – as providing short-term defensive measures for members and serving as “a way to reinforce the zone”.
The IMF is opening an office on the Bank of Thailand’s premises, from where it plans to help Myanmar harmonise its currency regime. In cooperation with the BOT, the IMF will soon sign pacts to provide technical assistance to Myanmar and Laos.
Referring to her brief discussion with Yingluck Shinawatra, Lagarde said she thanked the prime minister for her support – including providing the space at the BOT, Thailand’s contribution to the IMF’s stabilisation fund, and the ratification of the reforms by the IMF’s board of governors.
In office for a year and a week now, Lagarde acknowledged that she had to stay awake all the time, standing ready for any crisis. Given the interconnectedness of the global economy, she said, she must continually ask herself “if the IMF is efficient, relevant, respected and honest”.