supply and has to employ immigrant workers from neighboring countries. this tight labor market phenomenon creates incentive for firms to shift factor of production from labor to capital. this shortage of labor will then accentuate my second implication of a strong baht, since the shortage of labor, in addition to cheaper capital goods in baht term, gives incentive for investors to make imported - capital investments. this is the part where the private sector role is essential, especially as thailand has benefited from immense foreign direct investment in which japan played the top role. ladies and gentlemen, let me now turn to the last success factor : inclusiveness, which is probably the weakest achievement among the three success factors so far. however, inclusiveness is something that has increasingly gained attention from thai policymakers in recent years, as it was part imd, 2010. bis central bankers ’ speeches of the root cause of political unrest. i believe that inclusiveness will be one of the long - term solutions for thailand political stability. yet, i should stress that inclusiveness has a different concept from equality. it focuses on creating equal opportunity rather than equalizing income. income equality ultimately means that the reward system is independent of performance which erodes efficiency. inclusiveness, on the other hand, refers to having equal opportunity which still preserves efficiency through reward incentive system while allowing the rich and the poor to have the same economic opportunity. as such, inclusiveness refers to equal access to public infrastructure such as education, fair competition and equal treatments of law and regulation to all. in this way, inclusiveness will provide equal exposure to yield the benefits from economic prosperity. improving inclusiveness in thailand will be a long process but some initiatives have already been put in place. these include decentralization of public spending, better access to education, informal sector debt alleviation, and better credit access for low income group. while these initiatives bode well for inclusiveness, the government must be careful not to excessively gear government spending towards populist policies that eventually add financial burden to the already - tight budget and sovereign debt in the future. in particular, it is important that the government prioritize and balance between public consumption and public investment accordingly. more importantly, efficient management with good governance will be the key ingredients to policy success in this regard. for our part, the bank of thailand has also put inclusiveness as one of the main agenda in the financial master plan ii, other than efficiency and provision of financial infrastructure. the objective is to provide financial

work on securitization and credit enhancement. given that at present, a number of bonds issued by asian entities are below investment grade, the use of securitization and credit guarantees to enhance the quality of these issues can act as a near - term solution to giving these issues a credit quality acceptable to investment managers, and give them the needed initial exposure to private investors. the introduction of these new instruments – which would attain a credit quality acceptable to investment managers by achieving a high rating from international rating agencies – would also benefit the international financial community by providing investors with a greater diversity of products and instruments for investment. more importantly, it would enable smaller corporate entities – who would otherwise be limited to financing themselves through short - term commercial bank lending – to access bond markets and find a source of funding more suitable to their needs. cross guarantees a means of helping economies with less developed local bond markets to issue debt in the regional market may be through the use of cross guarantees. as part of regional financial cooperation and a step towards greater regional financial integration, cross guarantees can reduce the cost of funding for smaller economies with lower credit rating through guarantees provided by more advanced nations. the use of cross guarantees will be similar in principle to the use of credit enhancements, resulting in improved credit risk of bond issuances as well as lower funding costs for bonds. but while credit enhancement can be offered by a third party, cross guarantees are made by countries within the region in an effort to collectively develop the region. a number of concerns may arise with the use of cross guarantees, namely the problems of moral hazard arising from any type of guarantee, the resultant price distortion, and the perceived free rider problem of the smaller economies. to lessen the risks that would arise from moral hazard, such a guarantee may only be partial. the problem of price distortion will be difficult to mitigate, given that bonds issued with cross guarantees by definition will not have their total risk reflected in price. however, this in turn will help benefit issuers in terms of lower cost of funding. with regards to the free rider problem, it is clear that a system of cross guarantees will benefit the lesser developed economies most, since they will not be in a position to guarantee any other issuers. however – with the spirit of regional financial cooperation for development of asia as a whole in mine – countries with more advanced financial systems may decide to offer these guarantees for a limited period of time. proposals for development and integration : enhancing market infrastructure currency arrangements