It is important to have sufficiently developed domestic financial markets, sound macroeconomic conditions and sound institutions in place. Also important is a surveillance mechanism to monitor capital inflows and outflows. Of particular importance is the monitoring of the accumulation of external liabilities by the financial system and the private sector. Advance knowledge of imbalances and risks would facilitate early actions to manage emerging vulnerabilities. An appropriate exchange rate regime Finally, I would like to mention the significant value to national resilience of having an exchange rate regime that is aligned to the economic fundamentals. It is important to understand that the exchange rate is a means to an end and not an end in itself. Its purpose is to provide a fair rate of exchange between goods and services that are produced in the domestic economy with those that are produced abroad. Trade and investment is facilitated by an exchange rate that is stable and reflective of economic fundamentals, not by one that is volatile and unstable and subject to speculative capital flows. The exchange rate should also not be manipulated to cater to narrow sectoral interests. For every change in the exchange rate that benefits one sector, there would be another sector that is disadvantaged. Therefore, the exchange rate policy has to rise above sectoral interests and consider the overall economic implications in deciding on the appropriate exchange rate. It is also not prudent to respond to short-term trends or to focus solely on developments in bilateral exchange rates.

There are three factors that are key to enhancing our resilience to external shocks. Capacity building: strengthening the economic and financial base The first is strengthening the economic and financial base. A deliberate policy to diversify the economy to achieve a greater balance between domestic and external sources of growth, to avoid excessive concentration in any activity and to reduce over-dependence on any particular market has increased the resilience of the economy. This has required shifting into new areas of comparative advantage and seeking new market opportunities and new areas of growth, while shifting out of those areas where comparative advantage has been eroded. Having flexible labour and capital markets has facilitated this process of adjustment. Of equal importance is the development of a resilient institutional framework and institutions. This includes the promotion of strong private and public institutions. In the public sector, strong institutions can be measured in terms of building efficient and strong delivery systems that promote coordination in the government machinery to provide an enabling environment for operations in the economy. At the same time, sound private sector institutions are crucial. In addition to healthy financial positions, good systems of risk management and corporate governance would ensure better management and a healthy corporate sector. Another important aspect is the availability of timely and reliable financial information and the strengthening of the legal and regulatory framework for enforcement of the laws and regulations. Strong professional organisations can also play an important role to improve and enforce the standards and best practices.