are beginning to take different views about regional currencies after the us dollar has lost sufficient ground. no one knows for sure which way a currency will move, but with increasing likelihood we will see more 2 - way movements in regional currencies. so the key message here to all parties concerned is that they should not assume a one - way movement in any currency over the next 12 months. instead, they should make it a normal practice to hedge against undesirable outcomes. ladies and gentlemen, monetary and exchange rate policy can at best help safeguard economic stability and smooth out short - term fluctuations and bumps here and there. price competitiveness may be important, but it is only one side of the story. the other side of competitiveness is product improvement and efficient production techniques. japanese companies are no stranger to this dimension of competitiveness. after the plaza accord in the mid - 1980s, when the yen gained roughly 50 per cent in one year against the us dollar, japanese businesses found ways to improve. those that succeeded became more resourceful as a result. for the thai economy to compete and grow robustly into the 21st century, we need to foster investment in infrastructure, physical and institutional, as well as in human resource. this is the only way to improve our productivity while enabling the majority of the thai people to share the gains from economic growth and global integration. what ’ s especially important to continued prosperity is the clarity and the implementation of planned public investment over the next 5 years. these plans, as they are, will address the entire spectrum of infrastructure deficiency our economy faces. the public sector ’ s commitment to invest heavily where it matters most should help boost business sentiment and with it private investment, an important growth engine that had been held back over the past few years. moreover, the modernization of public transportation, housing and water resource management, as well as health and education spending should translate into better private sector return from cost reduction and productivity increase. better outlook for returns should enhance the charm of thailand as an investment destination. we also need to focus on service as well as manufacturing sectors. in fact, the service sector is larger than manufacturing in employment terms. the bank of thailand can help in this endeavor by continuing to strengthen our financial infrastructure. aside from broadening people ’ s access to financial services, we also aim to promote competition in the financial sector. competition, while being mindful of the risks involved, will enhance efficiency as well as knowledge building and transfer. with good prude

additional pressure. this is to say some smaller emerging markets will face an aging population and the increase in demand for wealth management, while the supply of local products are limited for diversification. this will pose challenges for inter - temporal allocation of resource and risk. thus, it is imperative that emerging markets devise a proper strategy and process to expedite reforms and develop the financial system. the second longer - term reform i want to bring up is policy institution and framework. on this, two policy institutions are of utmost important for attaining monetary and financial stability. the first is a credible monetary framework that effectively anchors the public ’ s expectation of inflation. the key issue here is the importance of independence and transparency of the monetary policy process. the usual case is that the lack of independence can come at a great cost in terms of lower central bank credibility and a less favorable trade - off between inflation and output volatility. likewise, weaknesses in monetary policy transparency can contribute to policy uncertainty and exacerbate the impact of shocks on macroeconomic volatility. the second important policy institution is an effective supervisory policy and domestic financial institution ’ s capacity for sound risk management. the logic for this is clear. with less effective supervision and limited capacity to manage risk, the ability of the economic system to absorb volatility from global markets is significantly compromised. reflecting this, emerging markets have put enormous emphasis on building up the necessary institutions with regard to effective supervision. but the challenges are many. for example, at this time, many emerging markets are facing the challenges in implementing basel ii. the objective of basel ii is to strengthen the soundness and stability of the banking system through more risk - sensitive capital requirements and rigorous internal risk assessment process. this has a direct bearing on ensuring financial stability. but because basel ii is developed from the current practice among banks in developed countries, some banks in emerging markets may have a large gap to fill. for example, in moving away from collateralbased to credit - based loan approval, banks must focus more on the ability to pay of customers and to make loan decisions in a forward looking manner. this requires a different set of expertise that focuses on risk assessment in the environment of changing economic cycle and asset quality. next is the information system which is the most important foundation for achieving financial stability through capital adequacy. whereas developed countries generally already have in place the necessary infrastructure in this regard, financial institutions in emerging countries have to build the system from the ground up, involving