We must awaken to the cruel reality that somehow the debt overhang accumulated over the years has to be reduced and redressed before consumers and investors can regain confidence on a brighter future. To some of you my speech today may have sounded rather gloomy. You might have felt that it is easy for someone from Asia, a region that is growing strongly and to some extent suffering from overheating pressures, to lecture colleagues in Europe, which is in the midst of a sovereign debt crisis and suffering from low growth and high unemployment, about what are the right things to do. But it is far too easy to overlook the fact that Emerging Asia’s dynamism today is the result of very painful adjustments that took place after the widespread devastation caused by the Asian Financial Crisis of 1997–98. You may or may not know that Hong Kong had had a very serious housing market bubble, which collapsed in late 1997. In the six years after that, housing prices declined by close to 70%, with unemployment rising three times. At the same time, the economy contracted by 8.7% over 5 quarters with deflation amounting to 15% during this period of adjustment. There was a lot of pain and sense of gloom during this very difficult period, but Hong Kong people did not give up and kept on trying their best to deal with the problems. After this very painful adjustment, Hong Kong has re-emerged stronger and more resilient than ever before.

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