far as helping to provide a clear direction of policy preference towards greater regional integration. as a result, cooperative government efforts to develop regional financial markets, especially the bond and equity markets, are being carried out in many regional fora. the important ones have been the asian bond market initiatives under asean + 3, the launching of the asia bond funds i and ii under emeap, and the roadmap for monetary and financial integration undertaken by asean. the key rationale underlining this cooperation is the desire to develop resilient and robust regional financial markets, especially the capital markets. such markets will allow the private sector in east asia to better manage risk, as well as to reduce the dependency of the region on its banking sector. moreover, better financial integration means saving surpluses of asia will be better mobilized to support investment activities in asia, thereby increasing the efficiency of resource use. and more importantly, greater cross - border financial flows will help sustain and expand intra - regional trade and investment onto the next higher levels. but despite the recent progress, many observers have noted that, while the progress is well and good, financial integration in east asia seems to lag behind that of trade integration. as a result, east asia as a region continues to be more integrated financially with markets outside the region than within the region. i think this is a valid and fair observation, but such observation needs not mean that financial integration in east asia, going forward, will continue to be a slow process. in my view, specific factors have come into play in limiting the pace of integration in its initial stage, but as these factors become less binding, one will begin to see a more solid and faster pace of financial integration. the slow pace of financial integration relative to trade, in my view, is a reflection of three specific factors. first, trade integration has a much longer history in east asia, of which the key turning point was the introduction of the asean free trade area in 1992. therefore, trade integration benefits from an established policy structure and a more simplified policy framework of tariff reductions, compared to that of financial integration. second, financial integration has essentially been a market - driven process, with the policy supports focusing on removing market impediments and developing financial infrastructure. therefore, there has been less of a deliberate policy push while the different levels of financial market developments in the region also act as a constraint to rapid integration. and the third factor is that, compared to trade integration, financial integration is complicated by

tarisa watanagase : japan - thailand – partnership in prosperity dinner talk by dr tarisa watanagase, governor of the bank of thailand, to the japanese chamber of commerce, bangkok, 25 march 2008. * * * ladies and gentlemen, i would like to thank the japanese chamber of commerce for the invitation to speak before you tonight. it has been a year since i gave a talk at a similar function held by the chamber. i remember we had a lively exchange of ideas then, and i am glad you keep in touch. with long presence in thailand, the japanese chamber has played an active role in promoting common understanding between thai government agencies and the japanese business community here. japan - thailand economic relationship is both special in breadth and depth. even a casual observer cannot fail to notice this prosperous partnership. trade between our nations has doubled in value over the past 5 years ; that ’ s roughly 14 per cent increase per year. on the investment front, japan ’ s annual direct investment in thailand has been steady at close to 3 billion us dollars over the past few years, considerable uncertainties notwithstanding. japanese financial service providers are lively participants in the thai financial system. ladies and gentlemen, much has happened since we last met. the story of financial disruption is playing out in the us and reverberating across the world. oil prices have increased by more than 50 per cent. businesses and governments are looking for best response strategies to ensure smooth expansion of their enterprises and the economy in general. tonight, i would like to focus on 3 related and timely subjects. i will begin with my view on the outlook of the thai economy and the risks surrounding its prospects. then, i would like to outline what i think is necessary for monetary and exchange rate policy going forward. and lastly, i would like to talk about how we can foster private investment and what japanese businesses can do, in your role as investors and employers, to help make thailand an even better place to invest. ladies and gentlemen, as you well know, the thai economy had to weather through a host of challenges over the past 2 years. to my mind, and from the view of the monetary policy committee, domestic political uncertainty, high and rising energy prices and sharp us dollar decline were at the top of our concern. indeed, political uncertainty, coupled with rising retail oil prices, took a toll on private sector confidence and consumers ’ purchasing power. these negative developments dented domestic demand during the first 9 months of 2007. the