For ASEAN, avoiding capital account crises will become increasingly more important because the more ASEAN trade with each other, the more closely linked our economies are. Hence, the more contagion there will be, and the faster and wider will crises spread. Fortunately, we have already seen a region-wide move toward a more flexible exchange rate regime, with a disciplined framework in the conduct of monetary and fiscal policies. Financial policy becomes more flexible, yet proactive, in dealing with changes in the market conditions and practices. When necessary, a traditional fiscal-monetary policy mix has been augmented by appropriate prudential measures of financial institutions, especially to preempt pockets of asset price bubbles developing in the economy. Ladies and Gentlemen, I turn now to the second part of my talk on the potential scope of regional cooperation as ASEAN faces yet another common challenge on how to manage the global contagion of the US financial crisis. Today’s global financial crisis is the world’s worst since the Great Depression in 1930s with an estimated credit loss of 1.4 trillion US dollars. Trillions of US dollars have been used to provide liquidity and to recapitalize distressed financial institutions. Deposit guarantee has been introduced in a large number of countries to restore investors’ confidence. At this juncture, I doubt if any one can predict with any good accuracy when this episode of financial market turbulence would come to an end. The current global financial crisis reminds us of the lessons we learnt from the Asian financial crisis just one decade back.

The last few decades saw probably the most rapid industrialization since the industrial revolution occurring in ASEAN. ASEAN became renowned for exports of consumer products of great values. We are now hubs for automobile and electronics production. Another noteworthy development in recent times also includes trade expansion among ASEAN nations. Intra-ASEAN trade used to represent only about 12 percent of its overall trade in 1993, but today, that figure has increased to around 25 percent. Moreover, this trend is set to accelerate, resulting in trade expansion both within ASEAN itself, and between ASEAN and the rest of the world. Ladies and Gentlemen, Today, the importance of ASEAN in the global economy cannot be denied. Size-wise, ASEAN population amounts to 565 million with growing middle class population, which means stronger demand for consumer products and financial services. Looking forward, for ASEAN growth to continue and able to avoid disruptive crises, the economic and financial infrastructure that underpins our economic activities must be strong. This brings me to the role of financial policy and strategy to enhance ASEAN strengths. For ASEAN to be strong, a necessary condition is that its financial system must be deep and wide. And its financial institutions must function as intermediaries to allocate funds effectively and efficiently. In the past, ASEAN relied on external source of funding, mainly from developed countries. At present, however, new polar source of funding has shifted towards Asia as well as ASEAN. Having well-developed financial system would enable ASEAN to better recycle its surplus capital among its members.