Beyond this substantial direct contribution to GDP, the financial sector plays a critical role in intermediating credit for the economy, and in providing other critical financial services to companies and depositors in Singapore. It is therefore important for the whole economy that the financial sector continues to function normally. Should financial institutions in Singapore become less competitive or credit  BIS Review 127/2008  1  become less readily available, it would hinder the financing of economic activities and raise the borrowing costs of businesses. This would aggravate the already challenging economic situation and thereby adversely affect our growth and jobs. Fourth, this financial crisis is not confined to any country or region, but is a global one. Singapore’s guarantee of deposits demonstrates our confidence in the soundness of our financial system, and helps contribute towards restoring confidence in the international financial system. Why the guarantee is sufficient and prudent The deposits of individuals and non-bank customers with banks, finance companies and merchant banks in Singapore amount to about $ billion. In view of MAS’ stringent regulations and close supervision of financial institutions in Singapore, their strong capital and asset positions, and the potential support that foreign institutions in Singapore can avail themselves of where necessary under the government guarantees provided by their home jurisdictions, MAS and the Ministry of Finance have assessed that the backing of $ billion of the Government’s reserves provided to the guarantee would be more than sufficient. Let me explain.

The most critical challenge emerging Asia faces is to build economic and financial infrastructure fast enough to properly harness the growth energy and put these capital into productive use. Without adequate financial infrastructure, namely market and legal infrastructure, and financial literacy, there is potential risk that emerging Asia cannot absorb such flows. This could result in misallocation of resources, including asset bubbles and instability. In parallel, public investment in infrastructure projects, as well as social investments in education and healthcare, are keys for increased productivity and economic upgrade. The challenge lies in getting the right balance between growth and stability, in managing large and long-term financing, increasing public investment, while keeping financial discipline. These are complex issues on how to ensure efficient resource allocation. A key strategy is to enhance the role of the market mechanism of the financial sector in Asia to rise to the challenge, and to act as check-and-balance on public policy. In closing, we are at an important turning point where we face paradigm shift. This is one of the realignment of relationship between the market, regulators, and society. In crisis countries, the balance of the relationship between the financial industry and the society shifts because the cost of financial crisis is born by the society. In emerging Asia, public policy including financial regulation comes under pressure from social demand for financial access as well as consumer protection. These naturally accompany the take-off in growth as a result of economic and financial liberalization.