Interventions should seek not to override or suspend market functioning, but rather to guide market processes. A case-by-case approach by definition is supremely tactical, but it also needs to be strategic in orientation as well, if it is to be successful in the longer run. In particular, we in the public sector would be well served to maximize the complementarity between efforts to prevent crises and efforts to contain and resolve crises when they do arise. •  The consensus on sound preventative policies includes precepts that public sectors should limit the scale of their involvement in the domestic economy, and that borrowers, public and private, should be encouraged to follow best practices in the management of their liquidity and foreign exchange risk. Indeed, as I discussed earlier, this is the essence of what we are trying to do under the revised capital accord. Moreover, countries are being encouraged to strengthen their legal and regulatory regimes for insolvency resolution to better deal with cases when private sector borrowers get it wrong. •  Progress in these areas, even if only incremental, will have important implications for what is possible and necessary in the future. For example, having stronger banks and corporate balance sheets, with lower leverage, expands the scope for using interest rates, and asset price adjustments as stabilizing devices. Better liquidity management at both the micro and macro level—longer maturities, and greater reserve coverage and back-up financing—will create margins to ride out financial shocks. And better insolvency regimes would make decentralized workouts more feasible.

Greater regional financial integration While there has been a high level of economic integration, a more recent development has been the acceleration of regional financial integration. As high savings economies, this would facilitate a more efficient allocation of part of the surplus funds of the region into productive investments in the region. This would contribute towards lower financing costs in the region and reducing the risks while at the same time promoting the economic potential of the region. To facilitate financial integration, the liberalization of foreign exchange rules, the harmonization of standards and the removal of impediments to cross-border investment have been undertaken. The ASEAN Roadmap on Capital Market Development has been formulated to foster alliances and linkages in the equity and bond markets among ASEAN exchanges, including the harmonisation of regulations. In the equity markets, multiple listings are being promoted as regional bourses attract domestic companies in the region to list on their exchanges. The FTSE/ASEAN Index and the FTSE/ASEAN – 40 Index, launched in 2005, also serves to increase the integration of the regional bourses and to promote ASEAN as an asset class. In the bond markets, the Asian Bond Funds (ABF 1 and ABF 2) initiated by the central banks aim to broaden and deepen the regional bond markets. Meanwhile, the Asian Bond Markets Initiatives (ABMI) aims to enhance the infrastructure, which includes plans to develop a regional credit guarantee mechanism, a regional credit rating agency and a regional settlement link to facilitate cross-border transactions.