for the home and the host countries. the cesee countries benefited from technology transfers and access to external funds while non - cesee banks generated high rates of return on their investments. but the combination of high returns and needs for ( external ) funds led to unsustainably high credit growth rates in some countries. and in some instances, domestic regulations that were aimed at limiting credit growth were eluded by e. g. direct cross - border credits. another concern in this respect is the wide - spread allocation of foreign currency credits. in some cesee countries, the share of foreign currency credits in total credits increased tremendously, making them rather vulnerable to exchange rate shocks. again, this trend is limited to some cesee countries. high shares raise the potential for adverse balance sheet effects in particular for households. by contrast, there is a natural hedge for most companies, in particular for companies borrowing internationally or subsidiaries receiving i / c loans. the risk of substantial depreciations already materialized in the recent past. the growing signals of an upcoming global recession following the lehman brothers bankruptcy and the sharply deteriorating economic perspectives for the euro area led to a sharp depreciation of cesee currencies in the fall of 2008 and beginning of 2009. 2 in most countries, central bank interventions on foreign exchange markets helped to contain the extent of currency depreciation, and since the end of the first quarter of 2009 the recovery of several cesee currencies has signaled a potential reversal in risk assessment. second, huge current account deficits and capital inflows contributed to overheating in some countries. again, this is not a common feature of the whole region, but concerns only a small part of cesee. in central europe, the catching - up process has reached a more advanced stage in which the current account deficit has gone down and the repatriation of profits on inward fdi stocks constitutes the only or a main source of the remaining current account deficits. by contrast, in some southeastern european countries current account deficits are still large and partly even widening, in particular in bulgaria and romania. high current account deficits trigger a further worsening of the net foreign asset position which, if financed mainly by short - term debt, constitutes a major macroeconomic risk given the relatively fragile international environment with its intensified risk aversion and potential reversal of financial flows. before, only romania had witnessed a depreciation as a result of its large and rapidly widening current account deficit. against the

##economic fundamentals and robust policy framework. we will closely monitor the adjustment process to ensure that risks to financial stability continue to be contained. to summarize, the economy seems to be at an inflection point. the outlook for growth has improved following the political event in may. but a new set of challenges has also emerged. now that political uncertainties have waned, what should be the priorities for public policy? what are key areas of needed “ economic reform ”, and what should such agenda entail? this brings me to the second topic of my talk, that of challenges to public policy management during the current period of transition. challenges to public policy management the agenda for economic reform under discussion today is wide - ranging and may at times seem confusing to the public. to organize one ’ s thoughts, it might be helpful to revisit the basic role of government in a modern economy. at its most basic level, the government exists to provide services that otherwise cannot be carried out by private market – things like infrastructure, law enforcement, or national defense. public policy may also pursue social welfare objectives in accordance with its citizen ’ s wills, for example to promote income equality or access to health care and education. finally, but no less important, public policy must provide a stable environment for the nation to prosper, and avoid being the cause of malaise itself. based on these basic tenets, the present challenges for thai policymakers are twofold. public policy must first aid the private sector in overcoming structural bottlenecks and lift the economy ’ s potential growth by addressing areas where market has failed. secondly, the policymakers must restore and maintain macroeconomic policy credence, and lay a stronger foundation for the economy to grow on a sustained basis. let me take each of these in turn. 1. structural policy to boost potential growth the thai economy is growing at a pace well below what a typical country with the same level of income should be able to attain. failure to sustain a higher pace of growth over an extended period, even when demand pressure has eased, suggests that part of the problem could be from the supply side. it is no secret that infrastructure in thailand needs an overhaul. indeed, very few would dispute the merits of large - scale public investment. the challenge is to strike a balance between timely implementation and rigorous cost - benefit analyses, as well as efforts to make the most efficient use of public resources. focusing on those projects with the greatest bis central bankers ’