In contrast to many emerging countries, the Albanian economy has been sustained by domestic demand, while – although upward – foreign demand in the form of Albanian exports has provided a proportionally lower impact over the economic growth. Economic activity at home has been almost entirely sustained by domestic financial resources, while foreign financing in the form of credit lines or portfolio investment has been less considerable. Operating within all the parameters of financial soundness, the Albanian banking system has been dynamic and effective in channelling the savings towards the funding of corporate production or household consumption. This process has been also facilitated by the macroeconomic stability which enabled the fall of risk premiums in economy and helped to gradually extend the investment horizon. These features led the economic activity at home to record adequate growth in the first three quarters of 2008, a period which is covered by statistical data. With regard to the last quarter, indirect data on economic activity – mainly financial ones – suggest a slight slowdown of  BIS Review 29/2009  1  economic activity, however, remaining within the projections for 2008. Manufacturing, where construction continues to share the main weight, provided the main contribution to the increase of turnover indicator in terms of volume. Investment in major road infrastructure projects and the recovery of construction permits from the prolonged constraints triggered high growth rates in construction activity during this period. In addition, the sector of services continues to provide the primary contribution to economic growth at home.

Countries with stronger macroeconomic fundamentals experience less volatile capital flows and are therefore less disrupted by them. “Fragile five” episode was a case in point for the market to differentiate countries, with high current account deficits and high inflation as the focal point. In most cases, strong macroeconomic fundamentals include both internal and external fronts. Internal front involves improved fiscal discipline, banking system with prudent supervisory and regulatory frameworks, stabilized inflation, wellequipped financial markets, and credible monetary policy framework. External front includes sufficiently flexible exchange rate, adequate foreign reserves, and manageable external debt levels. In addition, well-diversified sources of finance among bank-based, debt and equity markets would be supportive of financial stability. Concluding remarks 4  BIS central bankers’ speeches  Ladies and Gentlemen, I have spoken at length, from the subject of global volatility, onto more policy options issue based on central banks’ perspectives. Let me now wrap up by leaving you with a final remark on these issues. In the world of increased financial integration, volatility of capital flow and exchange rate is unavoidable. A sustainable path forward requires going beyond coping with capital flows to living with them. Therefore, public and private stakeholders must remain vigilant of any impacts they may have on real economy. Thailand’s approach so far has been to allow the exchange rate to act as an automatic stabilizer, while its extreme movements are carefully managed. At the same time, reforms are actively pursued with the economy’s long-term resilience as our ultimate goal.