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

One such test – motivated by the risk scenarios identified in the process of monetary tapering in the U.S. – shows little exposure of the banking system to a sharp increase in the interest rates of long-term securities. Meanwhile, households’ aggregate borrowing and financial burden indicators show a marginal decline, although with some changes in the composition of the debt. The share of bank debt has increased compared with other credit providers, while total corporate debt is stable as a ratio to GDP and the financial indicators of companies reporting to the Superintendence of Securities and Insurance (SVS) are also fairly stable. Capital inflows to Chile continue to be dominated by FDI while aggregate solvency and liquidity figures are also stable. In this way, our general analysis of the domestic financial system yields that it is on a good standing to deal with the risk scenarios described, and we see no incubation of systemic risks at the local level. This explains, in part, why the recent volatility episode in foreign financial markets had lesser effects on the Chilean financial system than in other emerging economies, where risks did incubate over the past few years. However, to maintain this resilience the different players making up the financial system must take the necessary decisions and safeguards, especially considering the dynamism of the financial sector. One first firewall, perhaps the most important one, is the one related to corporate stockholders, who should establish and implement clear policies aimed at restricting their operating risks via corporate governance, boards and management.