the escalated political tension was also something we had not anticipated. in particular, the damage it has inflicted on the tourism sector will significantly shave off one significant source of external revenue the economy has relied on. still, we see the economy ’ s growth momentum to remain in tact. here i am not alone in believing so. the latest set ’ s ceo survey released last week showed that the majority of listed companies ’ ceos remained confident in the growth prospect of the thai economy. obviously, this is a difficult time for the economy. but you have to remember that we are no strangers to difficult challenges, some much worse than what we are facing. most importantly, as i repeatedly said on different occasions, thailand possesses strong economic fundamentals and room for maneuvering the right policy mix that makes us resilient against economic shocks. allow me to elaborate on some of these. first, thailand ’ s external position remains strong. our external debt to gdp has hit an alltime low since 1980, recording 29. 4 percent last year. our foreign reserves doubled within three years reaching over 100 billion us dollar at present day. the amount of foreign reserve has by far exceeded the short - term external debt by more than four times. this provides us an ample room to safeguard against instability from volatile capital flows and exchange rate movements. second, the government ’ s fiscal position continues to improve as reflected by a falling trend of public debt to gdp. this gives the government the financial flexibility to tackle economic problems and stimulate the economy if necessary. it is no coincidence that credit rating companies often stated the strength of our fiscal and external position in their underlying reasons for affirming thailand ’ s sovereign ratings. in fact, to cite james mccormack, the head of asia sovereign of fitch ratings, at the firm ’ s last week annual thailand conference, unless political uncertainty significantly undermines thailand ’ s future growth prospect, it is unlikely that thailand will be downgraded, for the country ’ s sovereign credit fundamentals remain sound. third, the banking sector remains healthy and strong enough to weather the current global financial turmoil. the bis ratio remains high and the ratios of npls to total loans continued to decline. together with the implementation of ias39 accounting standard in 2006 - 2007 and the adoption of basel ii by the end of this year, the banking sector would be less prone to adverse shocks. finally, the soon - to - be - implemented second phase of the financial sector master plan will further improve efficiency of

only make the scenario far reaching. without the resuscitation of investment, thailand ’ s potential growth rate will likely fall to a lower path. the same study also points out the impact of demographic change on thailand ’ s future growth. by 2026 - 2035, the economy ’ s potential gdp growth rate under the balanced growth path assumption is projected to fall to 4. 8 - 5. 4 % due to ageing population. moreover, the study finds that measures such as attracting foreign workers and raising the retirement age from 60 to 65 have only small impact at boosting the economy ’ s long - term growth and that the key to maintaining high growth rate lies in enhancing productivity growth rather than trying to squeeze out more hours from the aging population. while improvement in educational and skill attainment of the labor force and de - bottlenecking of inefficient sectors such as improvement in the logistic system and water management for irrigation are most obvious policies, financial deepening must not be neglected. it is the efficiency of resource allocation which includes funds and capital that enhances economic productivity, hence, raising the economy ’ s long - term growth potential. this is the focus of the rest of my talk to which i now turn. ladies and gentlemen, as you know, the fundamental function of financial markets and intermediaries is to channel funds from those who have a surplus of savings to those who have a deficit. if financial markets are functioning efficiently, they contribute to an optimal allocation of resources, reduce the cost of capital, and allow for risk - sharing and risk - diversification. well - developed and efficient financial markets contribute to higher productivity growth because they are better at channeling capital from sectors in decline to those with growth opportunities, in a process of schumpeterian “ creative destruction ” that ultimately drives economic growth. having efficient resource allocation is particularly important now for the thai economy, given the ongoing structural shift in relative prices of commodities and asset prices which render some businesses obsolete while opening up many other new opportunities. indeed, the vast body of research over the past decade strongly suggests that improvements in financial developments precede and contribute to economic performance. in other words, the widespread desire to see an effectively functioning financial system is warranted by its clear causal link to growth, macroeconomic stability, and poverty reduction. as for the specific form of financial market development, it is also well accepted by policymakers that economies that have well - developed banking sectors and capital markets are advantageous to