of thailand ’ s exports. slowdown in the u. s. and the eurozone, and their spillovers to the global economy, will dampen global demand for thai exports. but fortunately, the impacts through trade can be cushioned to some degree, given that thailand has moved toward more intra - regional trade within asia and also has succeeded in diversifying to alternative export markets. although i have mentioned before that thailand ’ s economic fate next year will be in the hands of domestic demand recovery, further contribution from exports will be very helpful. in addition to the international trade channel, what we should be even more concerned about is higher financial market volatility. while market sentiment on the u. s. and the eurozone will determine the direction of capital movements, we anticipate volatile capital flows into asia given the region ’ s continued strong growth prospects compared to advanced economies. over the period ahead, capital inflows into thailand also owe to the fact that monetary policy in advanced economies will likely remain exceptionally easy, which means excess global liquidity and capital inflows into emerging markets. the third channel that the u. s. and the eurozone crises may affect the thai economy is through inflation. generally speaking, global demand slowdown will likely lead to lower oil and commodity prices, hence the lower imported price pressures. so in contrast to the first two channels, this is a positive one. nevertheless, domestically, as the flood situation improves, public and private spending will pick up thanks to reconstruction spending and fiscal stimulus. this, coupled with inflation expectations that will remain high over the months to come, points to significant upside risks to inflation that will need to be monitored. ladies and gentlemen, given enormous challenges both at home and from abroad, moving thailand forward will require policymakers to utilize a wide range of policy instruments at their disposal. at the very least, it is crucial to ensure a proper, integrated conduct of fiscal and monetary policies. on the fiscal front, investment in effective water management systems is urgently needed on top of reconstruction and assistance for flood victims and affected firms. this will not only restore foreign investors ’ confidence, but will also enhance the economy ’ s productivity and its potential growth by avoiding future disruptions and making more efficient use of the country ’ s abundant water resources. bis central bankers ’ speeches nevertheless, the expected massive spending for such purposes will unavoidably stretch the government ’ s fiscal resources. at the same time, the government will have to spare some fiscal

ensuring an orderly process of adjustment. the risk at this time is that market forces and expectation can lead to a disorderly movement. hence, foreign exchange intervention remains a viable option to guide an orderly adjustment. at the same time, to ensure no disruption to the financing of the us deficits, there may be a need to consider broadening the scope of investing in us assets especially the physical assets. this is to ensure continued interest in us assets at a time when some segments of us financial assets may be less appealing than before on account of the ongoing stress in the credit market. but in the longer - term, we need to look at this process of adjustment from a global perspective and the key to the issue would be to rebuild a stronger domestic demand growth outside the us. doing so would require stimulating public investment in infrastructure especially in asia, as well as continuing with the financial reform to support private investment and credit expansion. and finally, greater flexibilities in prices will also go a long way in promoting an efficient resource allocation. all these points are not new, but they are a good reminder of what needs to be done. since, our theme today is on the new trends in reserves management, let me end my remarks with a few points on reserves management and financial markets. reserves management is essentially the flip side of reserves accumulation. in terms of the stock of reserves, notwithstanding a successful adjustment in the global imbalance, the relative importance of countries, as measured by their reserves positions, is unlikely to change significantly in a foreseeable future from the position we are in today. this is because reserves accumulation to date reflects successive years of external surpluses rather than borrowed reserves. going forward, productivity improvement and continued careful policy management by emerging markets will help maintain this relative position. therefore, for some or for most countries, the regime shift that we are seeing now may be more of a permanent feature. so, the world is now different, and this change needs to be recognized more fully by the market. more importantly, the configuration of policies at the international level, especially by the bretton woods institutions, also need to adapt to this shift. on reserves management, the size of reserves that we have now in emerging markets, the fiscal costs associated with reserves accumulation, and the opportunity cost of investing excess reserves, all these may induce reserves managers to explore opportunities for enhancing returns by adopting more aggressive investment policies. such actions will undoubtedly affect financial markets. on this, it is important to remind ourselves