While there is a general consensus that fiscal consolidation and structural adjustment are necessary to regain competitiveness and sustainable growth in the future, in the immediate term it will involve costs to the economy. As the experience in previous crises has shown, including during the Asian Financial Crisis, there are threshold levels that when breached the economy will be pushed into an even deeper recession. This will in turn increase the cost of the resolution of the crisis and result in an even more prolonged period of weakness. The concern is also the potential huge financial and social costs. The Asian experience during the financial crisis in the late 1990s has also shown that the potential for effective results is enhanced when the policy package is comprehensive. BIS central bankers’ speeches  1  Financial restructuring and repair, fiscal consolidation and structural adjustments have their best chance to yield results in an environment in which there is some economic growth. Piecemeal policy measures that primarily focus on addressing the immediate problems will be inadequate and will not be able to garner sufficient growth momentum and thus sustain confidence. The financial restructuring and repair, the fiscal consolidation and structural adjustment urgently needs to be complemented with wide-ranging pro-growth policies. Another challenge confronting the world economy lies in the manner in which policy coordination may be improved, both within and across borders, to maximise the impact of policy measures while minimising the unintended spillovers on other parts of the economy or financial system and across borders.

Finally, I will conclude with a few words on the implications of the evolving financial regulatory landscape for large international financial institutions from the view of a host country, given that many of the world’s largest financial institutions have a presence in our financial systems. Part 1 Half a decade into the global financial crisis, the world economy continues to be significantly challenged by the inability to hold a sustained recovery. This clearly has important implications for Asia. While continuing to register positive economic growth, the momentum of the growth in 2012 has begun to moderate in most of emerging Asia. In addition, global policy spillovers and the deleveraging activities in US and Europe have contributed to increased and more volatile capital flows with its consequential implications on the financial markets in Asia. While the extraordinary policy actions taken, in particular, by central banks have been important in averting a major global economic recession, it has proven to be insufficient to support a sustained recovery. In the recent months, the global economy has again experienced a broad based moderation in growth from an already modest pace. The most pressing challenge confronting policymakers in the crisis-affected economies is to develop an optimal policy mix that will address the fiscal imbalance and impaired financial sector, and structural adjustments that will enhance competitiveness while at the same time be able to reduce the adverse impact these policies would have on the economy. However, it is important to recognise that drastic actions will have drastic consequences.