let me turn to the issue of how to return to sustainable growth. reviving growth following recession and returning to sustainable growth are of course not one and the same. the latter will require comprehensive reforms – in both advanced and emerging countries. and again i see greater scope here for emes, particularly emerging asia, to lead the way back to sustainable growth. to be specific, emes contributed about 40 percent to world gdp growth during the globalization period of 1986 – 2007, compared to 27 percent for the preglobalization period of 1973 – 1985. more recently, emerging asia alone accounted for 50 percent of world gdp growth during 2006 – 11. and imf projections suggest that the growth contribution of emerging asia will continue at around 50 percent for the next five years. these are not surprising in that emes are well positioned to undertake high investment for growth along their catch - up process which is not yet completed. but this large contribution to global growth masks important risks to emes, in leading the return to sustainable growth. many emes rely heavily on external demand for growth, and therefore will face challenges going forward if advanced economies do not grow fast enough. over a longer horizon, the export - led growth strategies of large emes will be unsustainable, given their implications for the global imbalances. this suggests that emes need to rebalance their growth, toward a greater share driven by domestic demand. another risk facing emes is financial vulnerability. liberalization of their capital accounts has exposed these countries to the vagaries of financial shocks of external origin, while their underdeveloped domestic financial markets offer little scope for hedging. indeed, financial crises have often interrupted the otherwise steady growth trends of many emes. bis central bankers ’ speeches advanced countries of course also face significant risks to sustainable growth. their high and rising public debts undermine not only financial stability but also growth. evidence suggests that public debt above 85 – 90 percent of gdp tends to affect growth negatively. high longterm unemployment will lead to permanent losses of productive human capital. more recently, rising unemployment and income inequality have compromised social cohesion in these countries. last but not least, the euro area has and will remain vulnerable to growing structural imbalances between its core members and its periphery. based upon these observations, i would like to touch briefly now on several reform agenda that i believe could help us to return to sustainable growth. first, fiscal and financial regulatory reforms there is no question that fiscal

reform should be the first priority, and mark the starting point of any reform sequence in debt - ridden advanced economies. but emes also need to prepare for approaching fiscal challenges associated with population aging and growing demand for social welfare. as to financial regulatory reforms, they have been extensively discussed and formulated into the basel iii policy framework. and for this reason, i will not discuss them further here. second, more and better financial integration by emes we all know that trade integration has enabled many emes to grow rapidly and accelerate their catch - up processes. i believe that financial integration can do the same for emes, by improving resource allocation within and across countries and offering greater liquidity and risk hedging. the diverse development stages and demographics of emes offer very fertile ground for efficiency gains from financial integration. these gains can of course be reaped only if the attendant systemic risk is adequately controlled. but the strengthened basel iii framework will render financial integration by emes more opportune going forward. third, structural reforms to promote domestic demand promotion of domestic demand helps to diversify the sources of growth, and thereby yields stability gains for emes. empirical evidence indicates that economic growth in emes is not related to the size of the trade surplus, or even to the volume of exports, but rather to the output of industrial products. and as long as domestic demand is sufficient to accommodate it, emes can attain sustainable growth by expanding their industrial economic activities. while the list of possible reforms to achieve this is long, i would like to highlight here the effects of domestic financial development and social safety nets. a recent study finds that their underdeveloped financial systems could be a cause of the high savings rates in asian emes. with limited access to financial markets or opportunities for diversification, firms tend to retain their earnings for future investment and households to increase their precautionary saving. these tendencies dampen private consumption. incentives for precautionary saving will be even stronger, i should add, if the social safety net remains relatively weak. finally, strengthening the global financial safety nets ( gfsns ) the large literature on economic development suggests that the quality and volume of financial intermediation matters a great deal for long - run growth. existing studies also show that leveraged risk - taking enhances growth. it does of course also bring about undesirable side effects, such as recurring financial crisis, but a review of the evidence indicates that the growth - enhancing effects dominate