us residential investment, must not be repeated. otherwise, the crisis risk will remain high, and globalized finance will be seen only as a threat to long - term economic stability. managing this risk and growing safely will be the stake of emerging market economies going forward. to achieve this, policymakers will need to acknowledge the risk and come up with the appropriate safeguards. first and foremost for emerging markets is the continued strengthening of the domestic financial sector as i have noted, which is the key pre - requisite for raising the ability of the financial system and the economy to manage risk. next, regional financial mechanism will also need to be strengthened to provide additional safeguards in the context of market surveillance and coordination of crisis prevention and resolution efforts. one lesson we have learnt dearly from the current crisis, as well as from the asian financial crisis, is that globalized finance can be a source of serious risk to global economic and financial stability. policymakers at the global level must accept this fact and be prepared to respond to it in a forward - looking way. i probably have used up the allocated time. again, i want to thank the central bank of peru and reinventing bretton woods committee for the invitation. it has been a pleasure, and thank you for your attention.

the region ’ s economic fundamentals and the banking sector. i find this view quite plausible. this is because, in the case of asian financial crisis, it was also the countries that did not have a serious financial sector problem or external vulnerabilities that were able to recover relatively more quickly. on this note, let me digress to the issue of decoupling. if we divide the dynamic of financial crisis into three phases, namely, first the shock of the news phase when everything is on a downturn, to the second phase of market stabilization, and the third phase of economic recovery, it is clear from what has happened so far that, on the downturn, it is a recoupling story both for the real economy and for finance. the downturn has been quite synchronized because of the globalized nature of the world ’ s production, trade, and financial investment. nonetheless, for the market stabilization and the economic recovery phases, i see decoupling in the timing and in the pace of recovery being a strong possibility. this is based on significant differences that exist, between the core - crisis countries and the countries affected by contagion, in the relative strength of the economic fundamentals, the state of the banking sector, and the perception of risk by investors. however, beyond the initial recovery, sustained economic decoupling will be difficult without a major restructuring in the sources of growth which, in the case of asia, calls for a reorientation of the growth driver from exports to domestic demand. making this transition safely in this era of globalized finance will be the next important challenge for emerging markets in asia. in the past ten years, the share of domestic demand in the region ’ s gdp fell by 6. 3 percentage point, and the share is now 12. 3 percentage point below its peak in 1994. moving the ratio back will require major restructuring in both the demand and the supply sides of the economy, which needs to be supported by policies that redirect economic incentives from savings to domestic consumption and investment. such task is gigantic. chief amongst the polices needed to support this transition will be the development of the region ’ s financial system, to ensure an efficient intermediation of savings into productive investment. this is really the key issue where the challenge and the constraint to economic decoupling lies. one of the prime reasons underlying the current global imbalance is the limited capacity of the financial systems in emerging markets to generate investment from their local savings