Last year, there were several bond deals of about $ billion from domestic corporate issuers successfully placed in Singapore. Structured debt products now account for about 35% of the total $ debt issuance, reflecting a move towards more sophisticated debt instruments. With deeper and more mature capital markets, and greater confidence and experience in managing larger $ flows, we are now ready to make a further move. Since October last year, MAS has been seeking the views of key market participants on how we can facilitate the continued growth of the $ capital markets. Following these dialogues, we have reviewed the non-internationalisation policy, taking into account their ideas and suggestions. We have decided to further liberalise the policy, to lift many of the specific restrictions on the use of the $ Henceforth, we will retain only two basic guidelines: a. First, financial institutions may not extend $ credit facilities exceeding $ million to nonresident financial entities, where they have reason to believe that the proceeds may be used for speculation against the $ exchange rate. This continues to be necessary, as we have no reason to allow offshore speculators to access the liquidity in our onshore FX swaps and money markets. b. Second, when a non-resident entity wishes to obtain a $ loan, or tap our equity or bond markets to fund overseas activities, it must swap or convert the $ proceeds into foreign currency as and when it uses the proceeds offshore.

Lessons from the Asian crisis Five years have passed since the Asian financial crisis began, prompting a major re-think of policies held to be obvious and valid before the crisis. In particular, the crisis has highlighted three major issues in Asian economic and financial systems. First, some analysts have questioned East Asia’s growth model, with its emphasis on high savings, reliance on foreign investment, and export growth. East Asian economies, it is argued, should instead lower savings rates, in order to stimulate domestic demand, develop indigenous enterprise, and insulate themselves from volatile external conditions. Second, the crisis highlighted the dangers of liberalising capital markets too rapidly and without adequate safeguards. Before the crisis, capital account liberalization was the vogue. Conventional wisdom emphasized benefits rather than costs of free capital flows. The crisis demolished this complacent confidence. Undoubtedly, structural flaws and policy errors, especially in the financial and corporate sectors, contributed to the crisis. However, the financial markets’ reaction to these weaknesses was out of proportion to the severity of the crime. Markets proved highly susceptible to contagion and herd behaviour. Crashes and panics shook seemingly sound economies to their roots. Third, the crisis demonstrated the dangers of over-reliance on bank-based financing. In many Asian countries prior to the crisis, capital markets were underdeveloped. Bond markets, in particular, were illiquid or nonexistent. So Asian firms relied on bank loans for working capital and to fund capital expenditure. When banks ran into trouble, firms were left without alternative sources of capital.