Other unilateral regulatory initiatives, although not being imposed outside the respective countries, are also charting a path forward that is likely to have wider ramifications, given the significant cross-border operations of the affected institutions. Policy priorities in emerging Asia Let me turn to the policy priorities in emerging Asia. While most emerging economies entered the global financial crisis from a position of strength, policy-makers continue to be challenged by the weaker global economic environment and the effects of the global policy spillovers. While the emerging economies in Asia have been affected by these external developments, most have demonstrated resilience during this period. Let me confine my remarks to the policies that have contributed to this resilience. First, it is the payoff from a decade-long of policies and financial and economic reforms following the Asian financial crisis. Second, it is having an enhanced policy toolkit and the policy flexibility to manoeuvre in this environment. Third is the increased cooperation and collaboration in Asia, in the areas of surveillance, in the assessments of the risks and vulnerabilities to the region, and in the consideration of the policy options to address many of the new challenges. An important policy shift following the Asian financial crisis is to rebalance the economy and to diversify our sources of growth. This has involved wide-ranging policies and reforms to promote domestic demand, in particular domestic consumption and investment activities by the private sector.

This has allowed the financial system to better intermediate highly volatile capital flows. Despite this, the surges and reversals of capital flows continue to present a major challenge to policy. Specific policy strategies have also been adopted to reduce the prospect of being destabilised by these flows. Financial reforms following the Asian financial crisis have transitioned financial systems in Asia towards greater market orientation and increased exchange rate flexibility. This has facilitated greater capacity to adjust to the increased volatility in the financial system. Further progress on liberalisation has also increased the potential to undertake foreign exchange transactions, including engaging in outward portfolio and direct investments abroad. This has resulted in stronger two-way capital flows, contributing to more orderly conditions in the financial markets. Liquidity management measures, prudential regulations including macro-prudential measures, and more interventionist measures that include restrictions on such flows, have also been implemented in varying degrees to cope with the volatile capital inflows. For the most part, prudential regulations, such as the imposition of ceilings and limits on external exposures, or minimum holding periods for specified domestic instruments, but which have not discriminated according to residency, have been implemented. Overall, they have enabled the financial sector, markets and the economy to function without disruption during the period of the global financial crisis. While policies at the national level are important, these have been complemented by a higher level of regional collaboration and cooperation. The Asian region is now well ahead in the areas of surveillance arrangements, financial safety nets and crisis management.