Cumulatively, this rapidly expanding domestic demand has represented an important market for the region. It has also increased the pace of regional integration. While energy prices have remained high, this is not expected to undermine the global growth momentum. Oil price increases thus far have mainly been demand-driven, and therefore, well absorbed compared to historical episodes of oil shocks. However, the tight global supply conditions that prevail have not removed the risks of higher oil prices. The inflationary trends that have emerged, has prompted the monetary authorities in a number of countries to raise interest rates. While the degree has varied across countries, these moves have primarily reflected the need to anchor expectations and limit the second-round effects of rising oil prices. This has therefore continued to allow monetary conditions to remain supportive of growth. In view of the broadly favourable outlook for the global and regional economies, renewed attention has been focused on the prevailing imbalances in the global economy. This is a pertinent issue especially as these imbalances are expected to widen in 2006. It is recognised that reducing the global imbalances is a shared responsibility, across the major regions of the world. Several reasons have been cited as constraints to the process of adjustment. This include the relative lack of strength in domestic demand outside the US; the large gap between saving and investment in major regions of the world; and the fragmented structure of global capital intermediation that hinders surplus regions from financing productive investments within their region.

The key to high-performance economy inevitably lies in supply-side policies that raise the economy’s potential growth. BIS Review 98/2008  5  The fact that supply-side policies take time should urge the government to hasten such policies. However much conflict of interest between a fixed-term government and long-term policies may be, it is important to realize that raising productivity, and hence the economy’s potential output, is ultimately the key to raise economic performance without provoking subsequent instability. As mentioned earlier, Thailand needs to be more resilient to oil shocks. For example, it is now a good opportunity to shape up our logistic system. Much integration needs to be done to coordinate the use of rail, road, river, and air transportation. Ladies and Gentlemen, My main message for you this evening is that the key for a successful economy is to preserve competitiveness and to grow at the potential rate as well as raising the potential output. This is to ensure both the performance and the sustainability of an economy. Many central banks are doing this through inflation targeting. At present, the risk of political uncertainty not only lies in terms of consumers and businesses’ confidence, but also in the efficiency of the government to pursue policies that raise productivity. As negative supply shocks persist, the better the job done by the government to enhance productivity, that is, to secure our potential output, the lesser the cost of economic stabilization. Thank you very much for your attention. 6  BIS Review 98/2008