With hindsight, we may ask why so much capital was lent to countries about which lenders knew very little. An additional problem is moral hazard: lenders may have assumed that the authorities or international organisations would bail them out if borrowers experienced payment problems. As a last resort, they may have expected the IMF to back the national authorities, which again are expected to support their banking systems. Lenders can thereby neglect to make a thorough evaluation of credit risk. The liberalisation of the capital market within a country requires national regulations and supervision. The liberalisation of capital movements across national borders requires coordination and regulations at an international level. Countries on the European continent have a regional approach to this. They have drawn up a set of laws and rules that govern a common European market, the single market. Norway also participates in this market by virtue of the EEA Agreement. From 1 January 1999, 11 EU countries introduced the single currency, thereby implementing one of the greatest monetary reforms of this century. Moreover, European monetary union effectively eliminates the opportunity to speculate between countries’ currencies, thereby enhancing the stability of the financial system in Europe. 3  BIS Review 20/1999  International rules for economic relations with other countries are important, particularly for small countries. Cooperation within the framework of the WTO and GATT agreement on trade in goods and services is an example. The OECD Capital Code, which provides a framework for member countries’ laws and regulations on capital movements, is another example.

To maintain sustained growth, sound economic management, with an appropriate mix of mix of policies, is essential. Sound monetary policy, together with the appropriate fiscal policy, contributes to macro-economic stability. However, it is structural policies that we must turn to, if we are to successfully meet the challenges brought about by demographic  BIS central bankers’ speeches  1  changes, technological advancements and globalisation. Macroeconomic or financial policies cannot work in isolation, and indeed, an over-reliance on any specific policy instrument can create unintended consequences. The robust recovery in the Singapore economy reflects in part the judicious mix of policies that the government has pursued. 7. This year, the Singapore economy is expected to expand at a more moderate pace of 4–6%, driven by the services sector which is expected to benefit from robust regional demand. The IMF projects that the global economy will expand by 4.4%. Nevertheless, the road ahead remains challenging. 8. First, the pace of recovery varies across economies. Many advanced economies are weighed down by the protracted process of restructuring of financial systems and fiscal consolidation. In comparison, Asian and most emerging economies, including Singapore, have bounced back decisively, and are now facing rising inflationary pressures because of tight factor markets and higher global commodity prices. The growth differential and the very accommodative monetary conditions in the advanced economies have also resulted in a strong surge in capital flows into Asia.