management. still, the effort to nurture our banking system back to its normal health has already started to bear some fruit. profitability of the banking system is improving and the recent credit upgrade of major banks confirms that we are proceeding on the right track. this of course does not mean that all is well. there are still weak points in the system. but at least, we know where they are and we are working hard to tackle them. with respect to financial institution stability, the authorities ’ strategy was to bring the infrastructures of the thai financial system up to international standards. among the measures taken are the introduction of strict provision requirements, the steps to the establishment of the deposit insurance agency, and the tightening of the bank of thailand ’ s supervision and examination framework. to improve oversight, the bank of thailand has also adopted a policy in line with the new bis capital accord, emphasizing the importance of systemic stability and efficient risk management. in an effort to further modernize our financial system, the bank of thailand, in cooperation with stakeholders and representatives from the sec and the department of insurance, is in the process of drafting the country ’ s first financial sector master plan. scheduled to be implemented in 2003 - 2012, the master plan is intended to increase competition within the thai financial systems and at the same time to improve the soundness of the system as a whole. the preliminary vision for the future of commercial banking and financial services in thailand given by a high - level steering committee comprises three pillars – accessibility and availability of financial services for all potential users nationwide ; a competitive and efficient financial system ; and finally fairness for all customers. this preliminary vision of the master plan reflects our changing perception of the country ’ s new financial architecture. as there are already two asian financial centers in hong kong and singapore, there is no point to try to be the third one. instead, what thailand needs is probably a more customeroriented financial sector with efficient operation and minimum systemic risk. the extent to which thailand ’ s financial service landscape is going to change from today will depend on the results and recommendations of an ongoing study. what i can tell you now is that whatever the final outcome will be, for thailand, this is a change to rectify past shortcomings for the better. as we are drafting our financial sector master plan, the set is working tirelessly on its capital market master plan. the set plan tackles another important problem, namely the underdevelopment of thailand ’ s capital markets. if its

at this point. as such, moving forward will be possible only with further institutional reforms. such a sentiment is echoed in former premier wen jiabao ’ s description of china ’ s impressive growth performance as “ unstable, unbalanced, uncoordinated, and unsustainable ”. so we know, by and large, what is needed. indeed, economists have done a very good job at explaining the importance of institutions for growth. but how do we achieve institutional change? why do some countries manage to improve their fundamental capabilities while others languish? this is the heart of the matter. it is not hard to spot bad institutions when we see it and propose changes that would seemingly yield large benefits. it is another issue entirely how to make the change happen. in this regard, policy prescriptions that call for “ growth enhancing structural reforms ” or “ strong institutions ” alone is partial at best. that ’ s like saying that if you want to get fit, you should exercise. good advice, but not very useful. a practical reform strategy must be based on a ground - level perspective of how institutional change happens. policy can then be tailored to maximize the chance of success. so how does institutional change happen? the answer seems to be a mixture of history, will power, and luck. it relates to the complex power dynamics in a country. structural reforms create winners and losers. the winners are often diffused and dispersed. conversely, the losers are often easily identifiable, powerful and well - organised. institutional change must go up against vested interests. this process falls squarely in the political domain. and as we are reminded by the events in egypt and elsewhere, the political process and power struggles are rarely clean. exercise is sweaty and messy. the fact is, institutional reform is highly contingent. they depend upon events transpiring in a particular way at critical junctures. this is shaped by the prevailing political economy context and social attitudes at the time, as well as luck. there was nothing inevitable in deng xiaoping ’ s rise to power in china in the late 1970s, which was the key pivotal moment that set china towards economic reforms that bolstered the role of market forces. the set of events that transpired were highly contingent on the outcome of a power struggle between remnants of the cultural revolution leadership, namely the gang of four, and more reform - minded members of the communist party. in other countries, such power struggles have come out on the other side and oppressive