On trade and financial integration, we all have to wait for the resolution of WTO negotiations. In the meantime, Thailand and ASEAN have made progress on a number of free trade arrangements with Japan, China, Korea, Australia, and New Zealand. Within ASEAN, more progress on the ASEAN blueprint, which lays out the strategic plan to achieve further trade and financial integration within 2015, is in the pipeline. On this topic, I also like to share with you an observation that Asian emerging markets, in general, rely increasingly more on trade integration because it is judged to be a safer mode of risk-sharing with the world. While benefits from trade integration are universally appreciated, net benefits to overall economic development from the international financial integration have not been so apparent in Asia. As a result, while the pace of financial integration has far outstripped trade integration in advanced economies, it has only managed to keep pace with trade integration in emerging markets. Turning to the financial sector side, nowhere are the international rules of the game closer to my heart than the international standards for banking supervision. Early this year, the Bank of Thailand’s capacity and performance in supervising financial institutions  BIS Review 107/2007  3  has been assessed against international best practices in the context of the joint IMF/World Bank Financial Sector Assessment Program or FSAP. This FSAP assessment confirmed the strength and capacity of our supervisory process, which have been significantly strengthened over the past decade.

This balanced approach seeks to optimize synergies between monetary policy, foreign exchange intervention, and capital account policy. Allow me to elaborate. Our monetary policy, under the current inflation targeting framework, can take care of exchange rate as long as there is no conflict with inflation. And, foreign exchange market intervention is conducted only to smooth excessive volatility in the market. As for the capital account policy, I firmly believe that key is the right pacing and sequencing of capital account liberalization, with a view to ensuring a more balanced structure of capital flows into and out of Thailand. On the capital inflow side, we are still maintaining the URR or unremunerated reserve requirement for the time being. This capital control measure has proven a useful tool for reducing the chance of prolonged financial misalignment with economic fundamentals, especially on occasions when most market participants are offside in the same direction. As for the outflow side, we have further liberalized our capital account during the last two months. These measures included the relaxation of FX holdings by juristic persons and individuals. In fact, at the beginning of this year, we also expanded the limits of Thai direct investment and portfolio investment abroad. Even though we all agree that financial openness is needed for long-term economic efficiency, going forward, the appropriate degree of opening or pacing through time will remain an issue for controversial debate. Ladies and Gentlemen, The third part of my talk today focuses on “international rules of the game”.