Keynote Address by His Excellency Abhisit Vejjajiva
Prime Minister of the Kingdom of Thailand
for Thailand Focus 2011
"Enhancing Thailand's Competitiveness Through the Next Decade"
Monday, 28 March 2011 0815 hrs.
Four Seasons Hotel
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Distinguished Guests, Ladies and Gentlemen,

1. It is my pleasure to join the Stock Exchange of Thailand, Bank of America Merrill Lynch and Phatra Securities in welcoming fund managers, both Thai and foreign, as well as executives and officials from various agencies to the Thailand Focus 2011 Conference entitled "Enhancing Thailand's Competitiveness Through the Next Decade". I am particularly delighted to see the large turnout for this Conference which must reflect the keen interest in Thailand and its many investment opportunities.

2. I believe that many of you may still be wondering, "What can we expect from Thailand?" I am optimistic that we have put in place the conditions that are necessary and sufficient for sustaining Thailand's growth, competitiveness and stability in the coming years.

Emerging from the Global Downturn
3. I would like to begin by saying that we have emerged from the impact of the global financial challenges stronger, despite the daunting challenges over the past several years. When the world economy plunged into a deep recession following a global financial meltdown in October 2008, the impact on Thailand was immediate and severe. For example, our exports fell more than 20% in the fourth quarter of that year. There were indeed fears that the sharp contraction would extend well into 2009, and that with production cutbacks, rising unemployment would quickly follow.

4. As a country and ASEAN as a region, we reacted quickly. Representing ASEAN, I actively participated in the global policy coordination efforts that helped avert what could have been a severe and protracted global recession. Domestically, we enacted counter-cyclical policies in a timely manner, enabling us to stabilize the Thai economy and quickly restore confidence. Thailand never lost her competitive footing or economic balance in the depth of that global recession and there were no major economic setbacks in Thailand. In that same year, the baht appreciated strongly against the US dollar, inflation remained subdued and capital continued to flow into Thailand, signifying that our financial stability and economic fundamentals were largely unaffected.

5. Our policies helped put Thailand in a position to make the best of the global economic recovery in 2010, which I would dub as the year of progress and resilience. As you are well aware, GDP grew nearly 8% last year while the surplus in the current account and the continued strengthening of the baht confirmed our competitiveness and economic resilience. We pushed the unemployment rate down further to less than 1% and rising capacity utilization means that we are now undergoing a strong upturn in our capital investment cycle. The prospects are good that this upturn will be a strong and enduring one for Thailand.

6. I will not go into detail about the ability of the Thai corporations to invest and generate future profits, but I would say that Thai households have maintained low debt levels of about 55% of their annual income so that the sustainability of their spending power can be assured. Moreover, farm incomes are generally rising quickly. This growth in income and consumer purchasing power is a result of the stimulus packages the Government has put in place, especially the current second package or "Thailand: Investing from Strength to Strength 2012" programme.

Ladies and Gentlemen,

Coping with political challenges
7. Despite our best efforts, the political unrest during the past several years has brought losses to Thailand, and of course doubts about Thailand's economic prospects. But subsequent events have shown that the government's efforts have restored a measure of normalcy and Thailand's democracy is in a position to move forward.

8. General elections that will take place sometime during the middle of this year will return power to the people and will be another step forward to augment Thailand's political, stability and rule of law. I am confident that the Thai people will exercise their democratic right to choose the next government, to choose political certainty and continuity. When global economic uncertainties are on the rise, it makes sense for the Thai electorate to vote for continuity of policies that enhances growth, stability and national reconciliation. In all these areas, my government has made headway.

9. Along with many others, I also hope that the Thai people will cast their votes to put in place a strong government, even if it is expected to be formed from a coalition of political parties. Compromises are at the heart of every democracy. In this respect, I would argue that Thailand's political fundamentals have now been put on a sound footing even as I admit that many political differences continue to exist. The democratic reforms that we have put in place have remedied the most serious of past shortcomings. Thailand's democratically elected government should face no more problems of political trade-offs and coalition building than governments elected elsewhere under a similar political system.

10. The bottom line is that, all parties and groups -- with few exceptions -- will primarily look to the ballot boxes, and not to the streets, to settle their political differences. Street demonstrations are a part of Thailand's political scene. But we focus on rule of law and the authorities have patiently crafted an understanding which has ensured that demonstrations are peaceful, orderly and infringe as little as possible on the normal functioning of the society and economy.

Dealing with inflation and global turbulence
11. In other regions, the political turmoil in the Middle East and North Africa has indeed had an important bearing on Thailand's economic prospects. Our rapidly industrializing economy has become ever more dependent on oil imports and constrained by skilled labor scarcity. High commodity prices have benefited our farmers but they are adding to domestic inflationary pressures. This is fast becoming the major challenge for the Thai economy this year. The Government has put in place short-term measures to restrain the rise in the prices of certain fuels to help ensure that inflation can be contained.

12. We also want to be sure that the rising cost of living will not disproportionately affect the less privileged. Thus, we have, for example, made permanently available, free electricity for nearly 7 million households that use electricity in moderate amounts. We will also continue our subsidization of LPG used for cooking. In the short term, low income earners are vulnerable to a sharp rise in their cost of living and this vulnerability must be remedied.

13. I understand fully that certain subsidies have undesirable implications in that the distortion of market prices delays adjustments, misallocates resources, and burdens government finances. Thus, we aim only to dampen the impacts of global price volatility and have definite plans to dismantle subsidies once the economy has had time to make the necessary adjustments. We also believe that if the prices of key inputs can be raised gradually, this will help contain inflationary expectations. This would in turn allow the pace of monetary tightening needed to keep inflation in check to be gradual, avoiding the risk of excessive tightening of overall credit conditions.

Competitiveness, resiliency and human resource development
14. The political turmoil in the Middle East and North Africa also confirms to us that the top line growth or GDP growth, while important, is not all-important. Growth that leaves large groups of people behind and fails to address the disenfranchisement of the majority is simply inadequate and unacceptable. In light of this, we are tackling the structural imbalance in society, such as through the proposal to raise the minimum wage.

15. But this is not a proposal made without careful consideration. The government has undertaken education reform in the second decade, with its focus on teachers' quality, upgraded IT in schools, upgraded science curriculums, and the promotion of vocational studies so as to match graduates with jobs needed in the labour market. To materially enhance labour productivity, we have expanded worker training. I am also confident that Thailand's labor cost and productivity will remain internationally competitive. Our well diversified manufacturing base in general, and our continuing success in turning Thailand into a major production and export base for automobile and parts in particular, is a reflection of Thailand's competitiveness and the quality of our industrial labor force.

16. The fact remains, however, that ambitious plans to further expand Thailand's manufacturing sector means that the shortage of skilled labor remains a challenge and could constrain our economic advancement in the medium term. We are working closely with our entrepreneurs to design and implement training programs to ensure that a sufficient number of technicians and skilled workers are made available to satisfy the growing demands of our industries. We also recently established the Professional Educational Quality Institute to ensure quality of our workforce.

17. Inflation remains a challenge not only for Thailand but for the global community as a whole. We understand the importance of working closely with the Bank of Thailand to ensure that our competitiveness is not inflated away because prices in Thailand rise faster than that of our competitors. Structurally, given the expectation that oil prices are on the rise, we know that we urgently need to reduce Thailand's dependency on imported oil and our disproportionately large logistics costs caused by excessive reliance on road transportation.

The Government and competitiveness
18. How does this government see its role in promoting Thailand's economic growth and development over the longer term? Given the challenges, we are overhauling Thailand's public-private partnership legislation to encourage more joint-venture between the government and private investors for large infrastructure projects. The amendments are aimed at streamlining the approval process and enhancing transparency, ensuring investor confidence, fairness and accountability. While the entire legislative process may not be completed in time, I am certain that the undeniable need for such an overhaul means that the next government will be compelled to build on what we have accomplished.

19. Many large infrastructure projects will be launched in the coming years, especially those dealing with rail transportation. Progress continues to be made on expanding the network of the mass transit system in and around Bangkok. Negotiations are under way to construct a railway network that would link up mainland Southeast Asia in which Thailand is an important hub. This will indeed be part and parcel of the effort to strengthen ASEAN connectivity. These will require considerable amounts of investment and expertise and need close collaboration between the government and the private sector. It is our belief that a streamlined and improved public-private partnership mechanism would greatly facilitate these future endeavors.

20. Meanwhile, Thailand continues to be fully engaged in efforts at the regional and multilateral levels to liberalize trade and various economic activities. These are expected to lead to further tax cuts, such as cuts in tariffs, as well as further harmonization and streamlining of Thailand's taxation system and other regulations.

21. We are also drafting a new land and real estate legislation aimed at bringing about a more equitable distribution of wealth, enhancing the government's revenue, and promoting better use of land. All in all, I believe that the policies I have just highlighted will provide you with an understanding of our policy agenda and vision, as well as the role that the government must play in promoting economic growth and development.

The role of the private sector
22. And of course, foreign direct investment has always been an important driver growth and dynamism. I am glad that FDI of 6 billion US dollars a year was sustained notwithstanding the political turmoil of the past several years. Continued interest in Thailand's automobile and electronics sectors, among others, combined with rising capacity utilization of Thai industries is expected to support the upturn in Thailand's private investment cycle in the coming years. We are in particular expecting to see significant increases in investment in energy and petrochemicals, automobiles and parts, electronics and various agricultural industries. Our ability to sustain double-digit growth in private investment over the medium term would help guarantee that Thailand's annual economic growth will not be less than 5% in the current decade.

23. But for us in the government, we can only go so far, and much is left to and depends on private investment. In this respect, I welcome the continued interest that all of you have in Thailand's equity market. This Government understands the key role that the stock exchange plays in the efficient allocation of capital and, in turn, that the accumulation of private capital remains vital in setting a country's long term rate of growth.

24. Finally, allow me to welcome all of you to Thailand and to the 2011 Thailand Focus Conference. I wish all of you every success and that your time here is both enjoyable and productive. Thank you and Sawasdee Krub.

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