or tailwinds, but the ability to counter or take advantage of these shifts is determined by domestic capabilities. now some of you may think of endowment of resources, such as land and labour, as the most fundamental domestic factor. and you are right. factor endowments do give some countries a head - start over others. oil exporting countries are a prime example. but the long - run prosperity of nations is not bound by their endowments. times magazine recently ran an article on the fact that holland is europe ’ s largest tomato exporter. one of the most critical ingredients in growing tomatoes is sunshine. holland is cold and gets little sunshine. greece is hot and has plenty of sunshine. yet the dutch can produce 70kg of tomatoes per year in a square metre of his temperature controlled greenhouse whilst greek and other mediterranean grower get approximately 7kg through traditional open - air in purchasing power parity terms. bis central bankers ’ speeches plantations. ironically, in the summer greece imports tomatoes from holland because local farmers are unable to grow enough during the hottest time of the year. natural and geographical constraints can be overcome. japan and singapore also spring to mind as countries that have made much of their limited resources. critical to longrun growth is how you make use of and develop your resources. doing so requires constant reshuffling of factors of production. workers, capital, and land has to be devoted to activities that generate the most value added for the economy. in other words, growth requires structural change. advanced economies are simply not blown - up versions of developing economies. they are structurally different. development entails more than just aggregate growth. it requires significant transformation in the productive structure of the economy. in thailand the average worker in the manufacturing sector is roughly 10 times more productive than those in agriculture. yet, the latter employ about 40 percent of our workforce compared to 15 percent in manufacturing. it is easy to see that simply moving workers from agriculture to industry can lift our income tremendously. in fact, this was precisely one of the key drivers of thailand ’ s growth in the 20 years prior to the 1997 crisis. during this time, the share of employment in agriculture fell by a third, releasing workers to the more productive manufacturing and service sectors. thailand ’ s experience is quite typical of many others in asia. emerging market countries have not only grown rapidly over the last few decades, they have also changed dramatically. sustaining growth going forward hinges on the continuation of this process of change and upgrading

the increase in surplus essentially reflects a fall in investment as opposed to a rise in savings as is the case for china and the oil - exporting economies. in the thai case, a deep currency depreciation after the crisis led to a shift in profitability towards tradeables, and induced a major shift in resource allocation. also, the damage to the banking sector compromised credit growth and the subsequent expansion of domestic demand, as the ability of the financial sector to take risk became more constrained. as a result, there was a sharp fall in domestic demand, especially private investment. and exports, by default, became the key engine for growth. similar adjustment was observed throughout east asia. the adjustment led to a turnaround in the external current account, a decline in external indebtedness, and a rise in international reserves, all of which helped strengthen the region ’ s external position. given the weakness in domestic demand, limiting large currency appreciation becomes a necessity for some economies to support economic recovery. and with weak domestic demand, pursuance of banking reform was an important policy to normalize lending and credit growth. on top of this, liberalization to allow more capital outflows also became an instrument of choice in managing the macroeconomic impact of rapid capital inflows. on the demand side of global capital, policy configuration in the us was instrumental in allowing the external surplus of emerging markets to be absorbed through the us current account deficits. the key mechanism, as i noted, has been the easing of us monetary policy that has helped support global growth through the expansion of us demand. with private investment in the us still recovering from the stock - market correction in early 2000 $ s, lower interest rate and greater access to credit significantly increased us consumption at the expense of a fall in private savings. as a result, the us external imbalance widened while reserves accumulation by emerging markets increased. the next question is can this go on? and is reserves accumulation a temporary or a permanent feature of the international monetary system? to answer this question, one has to distinguish between stock and flows. on the flows side, given reserves accumulation essentially mirrors external surpluses of emerging markets, the pace of reserves increase going forward is more likely to ease. this is because the adjustment process that is now ongoing will reduce the imbalance. the more the adjustment, the less will be the additional flows, and hence the pace of reserves accumulation. but to be successful, the adjustment will require both expenditure reduction, through