raw materials are being sourced in one country, whilst assembly production or designs of that same product could be made in another country - all based on the location where they best have comparative advantage. the second factor contributing to rising intra - regional trade is the reform efforts and liberalization policies undertaken by the asia - 9 economies. these reforms which came out of the collective efforts of government and the private sector, include significant trade reforms and progressive liberalization and opening up of markets to greater trade and foreign investment. the outward oriented policy has allowed east asian firms to be well integrated with the global trading system and ready to participate actively in intra regional trade when the opportunities arise. as important are the structural reforms that encompass the legal, regulatory, and institutional reforms to provide a conducive environment for foreign investors. we have also strengthened the banking and financial sectors so that they are in a position to provide efficient financial services in support of intra regional trade. international standards and best practices are also being adapted in many disciplines such as in the areas of governance, accounting, and taxation to ensure credibility and transparency to our foreign counterparts. these constitute important ingredients of east asia ’ s success stories. but most important is the willingness of the governments to open up their economies and the understanding of the business sector on the need to cooperate with their foreign counterparts. against this background it is interesting to note that growing intra - regional trade has not been the result of the rise in exports to final destination markets in the g3 countries alone, but also the result of stronger domestic demand growth in the region itself. the rise of the educated middle class in asia - 9 has grown considerably. this affluent middle class has an appetite for consumption that can help sustain growth in the region well into the next decade. mastercard international recently did a study which tracks consumer trends in asia and defines the middle class as those earning more than five thousand us dollars per year. according to this study, when a person ’ s income reaches this level, consumption moves very quickly from basic to discretionary spending – that is to fuel holidays abroad, eating out, and visiting shopping malls – which is a powerful driver of domestic demand within the region. this same study estimates that this middle class will almost double by 2010, signaling the arrival of the asian consumer as a key driver of growth in the region. third, an important reason for these successful relationships has to no small extent been driven by the cultural and ethnic ties within east asia. these ties, which came about because of historical

tools, including large foreign reserves, the current policy capability is adequate in meeting challenges of the day. second pillar : fixing the shortfalls ladies and gentlemen, at the same time, a number of pressure points in the thai economy have started to emerge in the aftermath of the global financial crisis. the decline of economic growth in recent years relative to pre - crisis period hints at structural bottlenecks holding back the economy. exports which were the leading driver of pre - crisis growth are expected to be flat this year, lagging those of our competitors. anecdotal evidence suggests that some manufacturing sectors are struggling to be integrated into the global modern supply chain. slow gain in labor productivity, and inadequate investment may be hindering the overall technological advances, a critical pre - requisite for sustaining long - term development. these problems are potentially our existing shortfalls that need to be overcome in the second pillar of development. however, it may be too premature to put the entire blame on structural flaws. there are a number of cyclical headwinds suggesting that the recent subdued growth could be just a temporary phenomenon. the more diversified export product range in thailand implies that our global growth ‘ beta ’ may be lower than that of our specialized hi - tech exporter peers. this is not necessary a shortcoming, since some high - end manufacturing sector such as semiconductor is prone to strong cyclical swings, with a short and sharp upturn followed by a protracted downturn. but by implications, export diversification that helped lessen the impact of global recession then, is limiting our sensitivity to the global recovery now. it may therefore take some time for exports to show a firmer recovery. another factor weighing on private sentiments and domestic demand until recently is the political development. economic uncertainties brought about by street protests and threats of violence late last year have had a discernible impact on private spending and tourism. but a political resolution in the second quarter has lifted the fog, and the incoming data since suggest that there has been a steady improvement in private sector confidence. the resumption of public spending is also adding to growth impetus, including through accelerated disbursement of fiscal budget, and infrastructural public investment. the government ’ s efforts to balance the short - term stimulus needs with the long - term improvement of fiscal spending efficiency should also be welcomed. as the fiscal support starts to kick in, the domestic demand should continue to lead this recovery. bis central bankers ’ speeches this cyclic