Unemployment is expected to remain well above pre-crisis levels for a long while, and therefore to exert no significant pressure on unit labor costs in the upcoming period. 12  BIS Review 133/2010  Against this background, we now envisage weaker external demand conditions compared to the previous Report, while domestic demand continues to recover as anticipated. Therefore, the revised forecasts envisage that the resource utilization would stay at low levels and the contribution of aggregate demand conditions to disinflation would increase slightly. Regarding fiscal policy, in line with the MTP projections, we envisioned that the fiscal stance would remain supportive throughout 2010, albeit less strongly than in 2009, and that fiscal consolidation would gradually ensue starting from 2011 as guided by the fiscal rule set out in the MTP. In this respect, we assumed that the fiscal space created by the stronger-thanexpected economic activity leading to better-than-expected performance in budget revenues, would be used mostly to reduce the government debt stock and hence, fiscal adjustment in 2011 and onwards would be implemented through institutional and structural improvements. In other words, we assumed that tax adjustments would be consistent with inflation targets and automatic pricing mechanisms throughout the forecast horizon. Consequently, we envisaged that the rising debt-to-GDP ratios would reverse course gradually starting in 2011, while the risk premium would not display any significant changes throughout the forecast horizon. There have been some important developments since the April Inflation Report that necessitated a downward revision of the 2010 inflation forecast.

Challenges still remain. For example, we have to work out and implement efficient solutions across countries that have different start points, practices and regulatory frameworks. But it is encouraging that governments are more seized with this problem, and more ready to collaborate with one another, than ever before. Singapore has taken the lead in several of the regional initiatives. Financial institutions here should also take part actively. This is the time to engage regulators and government officials in the region, to enter their growing markets and position yourselves for the business opportunities that the initiatives create. As a leading foreign exchange centre with a critical mass of global fixed income and equities expertise, Singapore can service international investors operating in Asia. Our market is well placed to facilitate the hedging activities that are essential for risk management and improving market efficiency. BIS Review 39/2004  5  These will complement the domestic markets in the countries of the region. Our strong legal system and the availability of international legal expertise and product structuring teams equip us to structure complex cross-border transactions. The growing wealth management industry will also generate a steady source of funds for regional investment products. Human capital A major issue that concerns all parts of the financial sector is human capital. A distinguishing characteristic of a successful financial centre is that it attracts talented and dynamic professionals from a broad range of disciplines and experiences. They make the financial centre what it is.