have taken such an enormous hit to net worth that it is difficult to imagine them being an early or substantial source of new capital for banks. in any event, the need for new equity extends well into the non - financial business sector also, and even with asia ’ s renowned savings capacity, the short - term need for private savings well exceeds the local capacity to supply. that leaves only foreign investment in asian financial systems and industry as a substantial and available avenue for prompt recapitalisation and rapid economic recovery. foreign investment would bring more than just capital. the region needs skills, experience, risk management systems, accounting and auditing systems, diversification of ownership risk and, perhaps beyond all else, high reputation and confidence in creditworthiness. foreign investors can provide all of that. certainly, foreign investment in the region ’ s financial systems is already occurring. however, my impression is that it is not always openly welcomed. i am well aware of all of the national reservations about foreign investment, and i don ’ t approach this issue with a strongly ideological view of the subject. but it does seem that without a more liberal and welcoming approach to foreign investment, the recovery will be slower because the region ’ s equity needs far exceed the capacity of domestic sources - public and private - to provide. before private investors, of either domestic or foreign origin, are enticed into recapitalising the region ’ s banks, there will have to be substantial progress on issues of accounting standards, audit standards, transparency, and legal underpinning of bankruptcy proceedings and commercial law more generally. investors will not invest unless reasonably confident that they understand the risks they are accepting ( which, as recent events prove, isn ’ t the same as saying that investors will assess those risks accurately ). reducing those risks is one of the most productive activities that governments in the region can now engage themselves in. concluding comments asia has suffered a shock which, by any historical comparison, is severe. recovery from that shock will take time and perhaps the most useful thing that can come from the experience now is to extract the available lessons and try to ensure that recovery is sound, durable and less susceptible to such crises in future. asia 2000 executive director philip gibson in a recent speech pointed to the fundamental strengths of asian countries, in terms of their cohesiveness, willingness to save and invest, commitment to improvement, especially through education, and commitment to recovery. all of those qualities are evident, and all will be necessary over the next

question marks. to start with, while improvement in labor market conditions has allowed a reduction of the unemployment rate in the us to levels around long - run estimates, progress in the inflation front is more modest and some measures of inflation expectations have shown a downward adjustment. one must add to this the possible implications for the us economy of global economic and financial developments. as a result, the anticipated pace of monetary policy normalization has moderated and the possibility of an additional relaxation, even though remote, has not been totally discarded. furthermore, some have argued that the us economy may be crossing through a period of secular stagnation, i. e. a chronic excess of saving over investment that acts as a drag on demand, reducing growth and inflation, and pulling down real interest rates. under these conditions, the functioning of monetary policy is impaired, with fiscal policy becoming a more efficient tool. 3 others have also pointed to the potential limits on policy divergence resulting from common external shocks or trends that cause economic conditions to be synchronized across economies, or from the transmission of foreign shocks across borders through exchange rate and other financial channels. 4 notwithstanding the above, with the us economy showing a strong labor market, an increase in some measures of inflation, resilience to external shocks, and the perspective of both a gradual strengthening of economic activity and an upturn of inflation, the predominant view, shared in general although with some differences by analysts, markets, and fed officials, is that interest rates in this country will continue to follow an upward trend in coming years. while secular stagnation cannot be discarded, the counterarguments to this possibility are well known. 5 it is also worth noting that even if the above mentioned limits on divergence as a 2 international monetary fund, regional economic outlook, western hemisphere, october 2015. 3 see summers, larry, the age of secular stagnation, foreign affairs, february 2016. 4 see brainard, lael, what happened to the great divergence?, us monetary policy forum, new york, february 2016. see bernanke, ben, why are interest rates so low?, part 2 : secular stagnation, brookings institution, 31 march 2015. bis central bankers ’ speeches result of external factors became operative, the continuation and even increase in this trend would not be necessarily precluded. with far more serious economic difficulties in the euro area and japan than in the us, it is difficult to imagine a closer synchronicity of