Another endearing recommendation that originated from the discussion was the proposal to invite greater public participation using the methodology applied by the National Economic and Social Development Board’s (NESDB) to draw up Thailand’s Ninth National Economic and Social Development Plan.4 Prior to this, financial sector development often applied the top-down approach dominated by regulators and policy makers. The procedure used by the NESDB on the other hand opens the door for a bottom-up approach by soliciting public comments and debates via hearings and focus groups. Using this methodology, researchers would therefore be able to capture and distill complex issues into manageable topics while at the same time generating proposals that respond to actual market and grass-root demands.
II. MODIFICATION OF METHODOLOGY
The need to develop a comprehensive financial sector development plan did not recede following the transfer of governorship of the Bank of Thailand from M.R. Chatu Mongol Sonakul to M.R. Pridiyathorn Devakula in May 2001. Governor M.R. Pridiyathorn was a key participant in the Eminent Persons Meeting held in April 2001, and took up the top post at the Bank of Thailand with the view that the project should remain on the agenda but with a more focused scope and objective that better reflects Thailand’s environmental limitations and economic reality.
Reengineered Scope: Tackling the Dominant Banking Sector
The project’s scope was reduced from encompassing the entire Thai financial system to covering mainly deposit-taking financial institutions under the supervision of the Bank of Thailand, namely commercial banks, finance companies, credit fonciers, and international banking facilities.
Several compelling reasons substantiated this amendment. First, even though there are some signs that the role of commercial bank loans has been slowly declining over-time (Chart 1), Thailand is still considered a bank-based economy whereby financial institutions under the supervision of the Bank of Thailand dominate the financial sector. Given this reliance on commercial bank financing, Thailand’s economy as a whole is bound to benefit from policies that improve efficiency and ability of deposit-taking institutions to offer innovative products at competitive prices.
Second, as commercial banks’ started to return to profitability in 2000 (Chart 2) and less preoccupied with internal restructuring, the situation was right for authorities 4 The Bank of Thailand received advisory assistance from Dr. Utis Kaothien of the NESDB.