to a larger volume of pension funds, which need to seek higher returns in emerging market assets. secondly, technological advances, such as the it revolution and decline in costs of telecommunications and transportation, have substantially lowered costs for cross - border financial transactions. thirdly, changes in exchange rate regimes and capital account liberalization over the years have lifted many of the previous obstacles to crossborder financial transactions. fourthly, financial innovation has made credit risk transfer mechanisms more widely available, increasing the appeal of riskier assets. fifth, the high level of liquidity may be a result of structural factors, or in some cases, policy factors, making savings in emerging markets persistently higher than in developed markets, given the lack of social welfare, healthcare, etc. this has resulted in a higher marginal propensity to save for consumers in emerging markets and contributes to a persistent global savings glut. sixth, greater diversification in international reserves management, as well as sovereign wealth funds, may have led to increased investment by authorities in more diverse assets as well. on the other hand, numerous transitory factors may also have been responsible for this change in risk appetite and risk premia. a reversal in any of these factors could result in risk aversion away from emerging markets and destabilizing capital flows, and a rise in risk premia. let me name a few factors. firstly, the situation of global imbalances and slide of the usd has led to preference for investment in emerging markets, particularly given ongoing – but by no means sustainable – expectations of appreciating currencies in emerging market economies. secondly, low interest rates worldwide and the high level of global liquidity have led to search for yield in riskier investments. this may be a temporary phenomenon if we believe that the extended period of accommodative monetary policy worldwide is unsustainable, and eventually monetary would need to tighten to compensate for this era of profligacy. thirdly, similar investment strategies employed by hedge funds and other funds could lead to momentum trading and herd movements, both in terms of inflows and outflows. any shocks that trigger a change in these strategies could result in large movements of capital. in any case, whether owing to the changes in risk appetite or not, we must remind ourselves that the current pricing of risk is based on the expectation that strong growth and contained inflation will continue to prevail. any unexpected deterioration of the macroeconomic environment, however, could

fundamentals remain sound with economic stability intact. last year, monetary policy in thailand was focused on limiting the second round effects of the oil price increase on inflation. that focus i think was well met. policy rate has been held steady from midyear last year, and since then, inflation pressure looks to be moderating. latest data show a further consolidation of inflation in december. so, under the current softening trend, baring no surprises on the oil price, there is also a possibility that, in thailand too, inflation could be less of a policy concern this year. under this scenario, therefore, there could be greater room for monetary policy to aim for a balance between growth and inflation. i noted earlier that, to ensure continued momentum of expansion, what we need to see in thailand this year is a stronger turnaround in domestic demand, especially in private sector investment. this is, in a way, the most important must - have macro development for thailand this year. financial environment supporting private sector investment, i think, is very positive and conducive this year, with lower oil prices, easing domestic inflation, ample liquidity, and a more stable interest rate environment. but to substantially lift investment, what we need to see in thailand is a continued improvement in business sentiment and confidence. here, therefore, lies an important issue for policy. on this, i am quite confident that the ongoing efforts by the government to promote growth with stability will successfully lead to continued improvements in business sentiment and confidence, which will be positive for our investment going forward. i want to end my brief remarks this morning with a few year for our domestic banks and financial firms as they continue to support the economy while preparing for a number of important regulatory changes that are set to take place this year. beginning this month, basel ii will be launched in the g7 economies. for thailand, this means we will have less than two years to prepare for our own eventual adoption of basel ii, which has been slated for end 2008. at this time, most banks in thailand have already decided on using the standardized approach for the calculation of minimum capital. and to prepare for basel ii, we will be asking our banks to begin reporting their capital under the new standardized approach from the third quarter of this year onwards, in parallel with the usual calculation under basel i. this, i think, will be an important exercise for our banks before we formally begin basel ii at the end of next year. this year will also see financial