. however, i am optimistic that the buoyant consumer demand will soon make it more and more attractive for some businesses to start thinking about expansion or diversification. i believe similar development is also being seen in varying degrees throughout south east asia. the rate of inflation was only 1. 6 % last year, allowing the central bank to conduct an accommodative monetary policy. the reduction of external debt has been steady. external debt is now only 60 % of gdp compared to 90 % at its peak. financial institution performance in thailand has also strengthened considerably. last year the banking system recorded an operating profit of 0. 68 % on assets, boosted by both improved interest income and fee - based income. the transfer of non performing loans to the government owned, thai asset management corporation, has reduced the npl ratio in the banking system to 11. 5 %. with less need for provisioning, the average bis ratio of the thai banks now stands at approximately 13 % at the end of march this year. last week the thai authority also finalized the measures to deal with losses from the financial sector intervention. the government will fiscalize the losses by issuing bonds to cover them in full. the servicing of the interest rates will be entirely from the government budget. the retirement of the principals will be borne by the central bank. but it will be paid out of the central bank's future yearly profits which would be earned mostly from the international reserves and would normally be paid over to the government in its yearly appropriation of the profits anyway. thus the scheme will not affect the bank of thailand's ability to formulate monetary policy in the future. the scheme also makes more clear the path of fiscal deficit in thailand. with fiscal consolidation beginning next year when the economy firmly recovers, the scheme sets a limit of fiscal burden at approximately 60 % of the gpd which is still quite a manageable limit. the environment is therefore becoming more optimistic, the business prospects are becoming bright, and one should now plan for growth. what then, ladies and gentlemen, are the issues that we should pay attention to when we plan for growth? preparing for rapid growth for emerging markets like ours, i think we have to address issues both at macro and micro levels. at the macro level, the authority has to ensure that there is adequate infrastructure to handle high volume of transactions safely and efficiently. the need here covers not only that of the point of sale hardware and communication technology. the problem is that these things become

of agents to smooth out their consumption profile in the face of fluctuations in income. as such, a substantial part of the observed differences in macroeconomic outcomes between emerging market economies and developed economies can be attributable to the disparate levels of financial sector development in these two groups of countries. indeed, a number of empirical studies indicate that financial development, especially greater financial access, is associated with lower macroeconomic volatility. 2 next, the institutional framework of monetary and financial supervision policy also has an important influence on the extent to which various shocks make their way through the economy. importantly, in a setting where the central bank lacks independence, its performance is likely to be more easily influenced for short - term political ends with adverse macroeconomic consequences. at the same time, a weak financial supervision framework increases the risk of financial imbalances building up, especially in situations where substantial capital flows drive up asset prices and generate favorable conditions for credit expansion, which may ultimately lead to severe economic dislocations. in contrast, a credible policy framework and enshrined central bank independence provide the necessary preconditions for alleviating the impact of shocks on the economy. for example, by anchoring the public ’ s long run inflation expectations to the target level, a credible inflationtargeting framework helps to mitigate the impact of temporary supply shocks on inflation and cecchetti, flores - lagunes, and s. krause ( 2006 ) provide empirical evidence for oecd countries that increased access to credit enables households to smooth their consumption, which in turn reduces the volatility of consumption and output growth. see also larrain ( 2004 ) and raddatz ( 2003 ). similarly, the evidence regarding international financial integration suggests that moving towards the latter ultimately will bring benefits of enhanced risk - sharing that leads to reduced consumption volatility ( kose, prasad, rogoff, and wei ( 2006 ) ). allows the central bank more leeway to adjust its policy instrument to cushion any negative impact on output. overall, our observation is that the unique combination of shocks and structural features of the economic system in emerging market economies give rise to a macroeconomic backdrop that is characterized by significantly higher output and consumption volatility than in developed economies. the period leading up to and immediately following the asian financial crisis is a prime example of this interaction. in that case, rapid movements of capital flows into and out of emerging markets interacted with financial system