Indeed, the East Asian region has the potential to enhance its capacity to deal with the risks and vulnerabilities and the potential to continue its growth process. While countries in the East Asian region have many common characteristics, they are also diverse in several aspects. Common features include openness and export orientation and a high rate of growth of manufactured exports. Most countries have a high rate of capital accumulation supported by a high rate of savings. Macroeconomic stability has prevailed in most countries. Inflation has been relatively low and any external imbalances were of manageable proportions while the fiscal deficits have been modest and Government debt levels have been kept low. The countries in the region are, however, diverse in terms of natural resource endowments, the stage of financial sector development, the degree of market orientation of their economies, the choice of exchange rate regime and the degree of public policy activism. The overall growth strategy of the region has essentially been based on an export -oriented industrialisation drive. This model, which is based on high savings and investments, has indeed served the region well. In the current environment of slower growth, the strategies adopted by several of the East Asian economies have been to implement a series of pro-growth policies to contain the impact of the global slowdown on the domestic economy. The strong initial conditions in an environment of an improving outlook in the major economies, lends support for increased optimism for stronger growth in the near term.

Countries that are small, and have less developed economic and financial systems, are open  BIS Review 62/2002  1  and liberalized, and that do not have the range of policy options at their disposal, will be highly disadvantaged in this global market place. It is this globalisation process that will contribute towards widening the existing disparities between nations. Against this trend, the current global economic and financial environment has been characterised by increased uncertainty. There is uncertainty in the global economic outlook, financial markets and geopolitical developments. The expected strengthening of recovery in the advanced economies has yet to occur. Financial reporting irregularities and the weakening of the corporate sector has affected confidence, contributing to the increased volatility in the global equity markets. Further risks also remain on the horizon, including those emanating from structural imbalances in some of the advanced economies. These developments have res ulted in unstable and highly volatile conditions in both the asset and currency markets. However, despite the major declines in asset markets, large shifts in financial flows, significant movements in major currencies, financial stress in the corporate and financial sectors in a number of countries followed by overall economic weakness, the East Asian economies have emerged relatively resilient. Going forward, it is recognized that a higher tolerance level to sudden changes in economic conditions and to the more volatile market conditions is necessary. Building such tolerance levels involves enhancing the capacity, strength and resilience of the economy to cope with the external shocks to the system.