With effective reforms, the economy should better withstand shocks and reap more benefits from increasing interconnectedness. It is worth noting that reforms are not complementary, but rather a much needed action to unlock long-overdue potential enhancements, especially on the production side. Additionally, financial reforms and institutional adjustments to new regulations will lay a crucial foundation for efficient management of systemic risks in the financial system. Once our houses are kept in good order, one might hope that the stable global equilibrium could be reached. [This is what Professor Taylor has dubbed as the “Nearly International Cooperative Equilibrium” or NICE.] Nonetheless, with greater interconnections, keeping one’s house in order might only be the near-best equilibrium. It should go along with enhancing cooperation in the international community. Long before this recent crisis, Emerging Market Economies have been in the process of strengthening the cooperation in both regional and global level. “Coordination” is essential and will facilitate policymakers in staying ahead of the crisis. In this light, international coordination, I believe, should provide three key policy elements; Firstly, policy dialogue that would serve as a platform for discussions on developments of risk scenarios, and sharing experiences to counter difficulties among members. Such cooperation includes the Executive’s Meeting of East Asia-Pacific Central Banks (EMEAP), Bank for International Settlements (BIS), and International Monetary Fund (IMF). These platforms have also provided channels for policymakers in the region to communicate their policy conducts, which may also create spillovers to other members, so that one could make the region being more cooperative.

Last but not least, I will share my views on good policy preparations and highlight the importance of policy collaborations, so that we, collectively, could better withstand the impact of the crisis going forward. Part I: Major developments that have contributed to the past global financial crisis Ladies and Gentlemen, looking back on what we have experienced in the past decade, the recent crisis has caused tremendous impacts with repercussions at the global level. On a more positive side, however, the crisis has revealed three major developments in the financial system, which have shaded some light on the inadequacy of existing policy framework for our future preparations. First is innovation, in response to the shift in the global financial system landscape. The sophisticated financial instruments have been developed to serve rising demands from all types of investors with different risk-return appetites. However, such a creation has resulted in products that disguised the genuine financial risks. Moreover, systemic risk stemming from complex nature of such products have led to increasing contagious consequences in global economic and financial system. Second is the institutional shift represented by an increasing role of non-banks and shadow banks, especially in some Advanced Economies. This has long been a trade-off for policymaking between economic and social considerations. On one hand, the shadow banking sectors undoubtedly provide financial opportunity to those with limited access. This institutional development also has encouraged higher competition in the financial system, leading to greater efficiency.