second, given that financial markets have become more integrated and more interconnected than ever before, the risk to economic and financial stability associated with capital inflows this time is also much greater. this is because large capital inflows relative to the absorptive capacity of any economy are more likely to be sustained for a longer period. as a result, the effects of abrupt reversals of capital inflows are likely to be more severe as well. such reversals, abrupt or not, are bound to happen once better growth prospects in the advanced economies are confirmed. the upshot is that we are living in a world where disruptive tail events can be more of a frequent occurrence than was the case in the past. and third, while the forces underlying the current cycle of capital flows are global, policy response in emerging economies remains domestic - centric. this, i think, is an important point to note in the current capital flows episode. also, because financial markets are more integrated, policy response in one country can have significant unintended consequences on other economies. in other words, we are living in a world where events and policies in a country can result in large spillover effects on other economies. so, this is the new economic and financial context in which the flows are taking place and the policy responses are being shaped. managing this will be a challenge, and effective policy response will require an integrated approach that combines flexible monetary and exchange regime, fiscal policy, capital account liberalization, and the use of macroprudential measures, in a coherent policy framework. moreover, the policy response will need to be supported by structural reforms and policies to enhance the depth, the resilience, and the strength of the domestic financial system, as well as policies to promote a greater degree of product and labour market flexibility. in this context, macroprudential measures constitute only one of the many policy tools that will have to be used. let me now turn specifically to macroprudential policies. one noted feature of the approach to deal with capital flows in the current cycle is the recognition that an effective and responsive prudential framework can help contain the build - up of financial risk and vulnerabilities that a boom in capital inflows typically generates. this includes the use of “ microprudential ” instruments to help keep individual banks strong, or to seek to contain system - wide risk through “ macroprudential ” measures. policy tools to serve both purposes are many

. 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