The last few decades saw probably the most rapid industrialization since the industrial revolution occurring in ASEAN. ASEAN became renowned for exports of consumer products of great values. We are now hubs for automobile and electronics production. Another noteworthy development in recent times also includes trade expansion among ASEAN nations. Intra-ASEAN trade used to represent only about 12 percent of its overall trade in 1993, but today, that figure has increased to around 25 percent. Moreover, this trend is set to accelerate, resulting in trade expansion both within ASEAN itself, and between ASEAN and the rest of the world. Ladies and Gentlemen, Today, the importance of ASEAN in the global economy cannot be denied. Size-wise, ASEAN population amounts to 565 million with growing middle class population, which means stronger demand for consumer products and financial services. Looking forward, for ASEAN growth to continue and able to avoid disruptive crises, the economic and financial infrastructure that underpins our economic activities must be strong. This brings me to the role of financial policy and strategy to enhance ASEAN strengths. For ASEAN to be strong, a necessary condition is that its financial system must be deep and wide. And its financial institutions must function as intermediaries to allocate funds effectively and efficiently. In the past, ASEAN relied on external source of funding, mainly from developed countries. At present, however, new polar source of funding has shifted towards Asia as well as ASEAN. Having well-developed financial system would enable ASEAN to better recycle its surplus capital among its members.

For decades, ASEAN has used its banking system to manage resource allocation. Banking system worked fine in the past. However, in new and volatile financial environments, ASEAN needs to have both strong banking system as well as well-developed capital and bond markets to better service consumers’ and businesses’ financing needs. Having welldeveloped capital markets can allow financial risks in the economy to be spread out, shared,  BIS Review 134/2008  1  and more efficiently managed. And, the efficient allocation of financial resources would, in turn, allow ASEAN to have better access to capital and for its goods and services to flow in greater quantity. At the centre of building strong ASEAN finance is ensuring its continued systemic stability and ongoing market developments. In this regard, ASEAN central banks have a clear role in safeguarding price stability and financial institutions stability. On price stability, let me just say that ASEAN generally has a good track record of keeping inflation low. As for financial stability, the framework of policy has moved toward risk-based supervision, and to an adherence to international standards. Indeed, many ASEAN countries have significantly advanced efforts in implementing Basel II and FSAP, which have fostered a stronger and more balanced financial system with greater transparency. Maintaining financial stability also means that ASEAN must be able to withstand the ebbs and flows of foreign capital. But, as small open economies, keeping balances over any length of time is easier said than done.