Private investment activity has also resumed following a period of excess capacity due to overinvestment prior to the Asian financial crisis. There are also plans for massive investment in infrastructure development in the region. While Asia has the internal capacity from its high savings to finance these investments, the resulting higher import demand that these investments will generate will contribute to the further unwinding of the global imbalances. This stronger domestic consumption and investment demand in Asia is also being supported by the strengthened and more developed financial systems. The relatively low level of leverage of the corporate sector and the continued access to financing support this trend. While regional economic integration has always been part of the Asian economic landscape, regional financial integration has been a more recent phenomenon. While regional financial integration will facilitate the already strong trade and investment linkages in the region, a more important aspect of financial integration for Asia is that it will facilitate a more efficient intermediation of funds within Asia. Asia’s more developed financial markets and continued initiatives to liberalise the financial sector will also strengthen inter-linkages with both the traditional financial markets and with new financial centres in other emerging economies. Going forward, products from Asian financial markets can be expected to increasingly assume greater importance as an asset class. It will thus increase the potential for the diversification of risks and contribute towards stability of the international financial system.

It will also expand the options for investors and borrowers and thus, contribute to more efficient allocation of financial resources across borders. In addition, the development of the capital markets in the Asia region will have the important role in channelling part of the sizable savings of Asia back into productive investments in the region. With greater liberalisation of the financial sector and the capital account, and the increased linkages of the national payments systems in Asia, and the greater presence of regional institutions in the individual domestic financial systems, the trend for increased financial flow within the region will continue. Given Asia’s favourable economic prospects and more developed financial market, Asia is already attracting volatile capital flows. The route that Asia is taking to forge greater financial integration will however be different from that of Europe. Unlike in the European Union, Asia has not ventured to have centralised institutions to coordinate financial integration. Rather, it has leveraged on existing regional groupings and existing networks to forge greater collaboration in areas of common interest. Secondly, a common currency is not on Asia’s medium term agenda. To minimise exchange rate risks and facilitate intra-regional trade and investment, countries have ventured into arrangements to use domestic currencies for trade settlements. Let me touch on policy and strategies adopted in Asia. Asia has tended to not adhere to rigid ideologies but rather focus on institutional building and financial market development, strengthening of the payment systems and the regulatory and supervisory framework.