joseph yam : changes in asia – a brief look at the dynamics within the region statement by mr joseph yam, chief executive of the hong kong monetary authority, and alternate governor for hong kong, china in the asian development bank, at the 40th asian development bank annual meeting, kyoto, 6 may 2007. * * * i would like to thank the government of japan and the people of kyoto for their hospitality in hosting this year ’ s annual meeting of the asian development bank ( adb ). i would also like to congratulate mr kuroda on his re - election as the president of the adb. this year marks the 40th anniversary of the adb. over the past four decades, asia has achieved remarkable development, particularly in terms of economic growth and the reduction of poverty, and clearly the adb has contributed significantly to this achievement and has established itself as a regional financial institution of strategic importance. asia has undergone remarkable changes too over the past four decades and in many ways, in particular in terms of the economic dynamics within the region, and between the region and the rest of the world. changes have been particularly marked in the past decade or so, under the influence of globalisation and the revolution of information technology. there has, for example, been rapidly increasing trade integration, encouraged obviously by the high degree of freedom in international trade, and consequently increasing economic interdependence within the region. changes always present new challenges and opportunities. and for the new challenges to be met and the new opportunities to be exploited, there is often the need for new approaches and new initiatives, at both the national and international levels. there is a view, for example, that trade integration in the region has not been adequately served by financial integration, given restrictive controls on capital mobility still being practised in selected jurisdictions. as a result there is some doubt as to whether the long term development potential of the region has been maximised and whether the rapid economic growth the region is experiencing is sustainable. there is further concern from the point of view of the maintenance of monetary and financial stability. new approaches and new initiatives are indeed necessary to promote greater financial integration in the region. i am sure there are many other areas concerning development of the region in which new approaches and new initiatives may be desirable. being a regional financial institution of strategic importance, it is obvious that the adb has a significant role to play. i would argue that this should be a role of increasing significance, or even a pivotal role

thus, even though overall m3 growth in the current decade has been broadly unchanged compared to the 1990s, growth of bank credit has been significantly higher. accordingly, looking at m3 growth in isolation can be misleading ; it is equally important to look at the underlying dynamics of money supply through an analysis of the components as well as sources of money supply. now, with actual slr holdings close to the stipulated, growth of bank credit as well as banks ’ slr investments, in future, will have to be in line with their deposit growth. thus, high credit growth is likely to be accompanied by high growth in money supply. as the accumulated empirical evidence clearly suggests, sustained periods of high money supply growth are eventually associated with higher inflation, even though in the short - run, the association between money supply and inflation may be weaker. against this backdrop, we need to be cautious of the fact that m3 growth over the past two years has been running above 20 per cent per annum. continued high growth could turn out to be inflationary in due course of time ; hence, the reserve bank has been putting greater emphasis on analysis of monetary and credit developments in the recent past. it needs to be reiterated that the reduction in inflation over the past decade and the lowering of inflationary expectations enabled some reduction in the overall interest rate structure, which enabled both the government and the private corporate sector to reduce their debt servicing burdens, contributing to a step - up in the sectoral savings. the macroeconomic review of the indian economy does suggest a strengthening of the fundamentals in terms of movement to a higher growth path in recent years, supported by investment, savings and improvement in productivity. moving forward, there is a need to delineate the likely prospects for savings and investment in the coming five years and address some critical issues to sustain the growth momentum. ii. prospects for the next five years early indications on the growth prospects in the coming five years were set out by the approach paper of the eleventh five year plan in terms of indicative projections on sustaining real gdp growth in the range of 8 - 9 per cent. subsequently, this was reassessed by the working group on savings for the eleventh five year plan ( 2007 - 08 to 2011 - 12 ) ( chairman : dr. rakesh mohan ) ( may 2007 ). this group projected that sustaining a real gdp growth in the range of 8 - 9 per cent would require investment rate to accelerate to 36 - 38 per cent of gdp and gross domestic savings ( gds