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The EMEs, despite their diversity, seem to generate expectations of high growth and are generally characterized by less-than-fully developed markets, specially financial markets. Consequently, there are significant cross-border capital flows, with market perception of high risk and high reward in EMEs. It is useful to note that implicit in the word "emerging" in the very title given to the EMEs as a group, is the notion that they are undergoing a rapid change or transition.

We must recognize that the transition embraces demographics, political institutions, social dimensions and related attitudes. These all-encompassing changes have an in-built potential for uncertainties, possibly some volatility, but it gets exacerbated by the international capital flows, particularly when the changes in such flows happen to be unrelated to domestic fundamentals. In such a situation, managing the transition turns out to be a critical challenge for policy making, and the management requires a more difficult and dynamic trade off between commitment and flexibility in policy.

Overall, while added risks - both upside and downside - are inevitable with increasing global financial and economic integration, the EMEs may consider strengthening their resilience through not only sound macroeconomic management but also by adopting appropriate prudential measures. Over a period, co-ordinated efforts, both at regional as well as global levels, could also help EMEs to cushion themselves better against the risks of financial globalisation.

Thank you,

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