But PAS will not give up and is girding itself for a long-term struggle. In Indonesia, it is significant that all three major Presidential candidates are secular nationalists. But all three have also found it necessary to seek Vice Presidential candidates with strong Muslim credentials, and support from Muslim parties. Although Indonesia has a long history of tolerant, syncretic Islam, more so than other Southeast Asian countries, political Islam is now at the centre of Indonesian politics and a crucial swing factor. In Thailand, Prime Minister Thaksin’s pro business and pro growth economic policies have not found resonance in the Muslim south. The recent upsurge of Islamic separatist violence is worrying, though there is so far no evidence of international terrorist connections. Southeast Asian governments, even those with large Muslim populations, are secular, moderate and intent on economic growth. If progressive and moderate forces are to win the global battle for the hearts and minds of the Muslims, Southeast Asia is perhaps the most favourable battleground. Riding on Asia’s growth This backdrop gives hope that the strategic and security environment in Asia will remain stable. I am also optimistic that Asian countries will continue to maintain stable political environments, pursue pro-business economic policies, and participate in the global economy. One significant economic issue countries must tackle is to strengthen and develop their financial sectors. BIS Review 33/2004  3  Asian countries need a two-pronged approach to do this. First, they should foster greater regional cooperation in financial markets to leverage on their collective strength.

These initiatives are significant not only for their tangible economic benefits, but also as symbolic demonstrations of the collective interest in regional financial cooperation. Alliances among Asian exchanges Another area with potential for regional financial collaboration is in the securities and futures exchanges market. In US and especially in Europe, a wave of consolidation among leading exchanges has resulted in mega-exchanges that have the economies of scale to make investments in advanced infrastructure, offer competitive fees, and most importantly provide investors and issuers with the liquidity that they seek. Exchanges in Asia have thus far been largely insulated from the trends of consolidation. Asian stock markets are generally smaller in size and less liquid than those in more developed countries. To remain relevant to international investors in this changing landscape, regional exchanges should deepen their collaboration with one another. The decision of the recent ASEAN Finance Ministers’ meeting to explore alliances and linkages among ASEAN securities markets will catalyse and encourage this collaboration. Regional exchanges are already taking the first steps. The Singapore Exchange, SGX, for instance, established a co-trading linkage with the Australian Stock Exchange in 2001. It is in discussions with Tokyo Stock Exchange on a possible alliance, and has recently started talks with Bursa Malaysia, formerly the Kuala Lumpur Stock Exchange, on possible collaborations. Pressing on with reforms at the national level While pursuing regional initiatives, individual countries need to press on with reforms at the national level.