, and structural adjustments that will enhance competitiveness while at the same time be able to reduce the adverse impact these policies would have on the economy. however, it is important to recognise that drastic actions will have drastic consequences. while there is a general consensus that fiscal consolidation and structural adjustment are necessary to regain competitiveness and sustainable growth in the future, in the immediate term it will involve costs to the economy. as the experience in previous crises has shown, including during the asian financial crisis, there are threshold levels that when breached the economy will be pushed into an even deeper recession. this will in turn increase the cost of the resolution of the crisis and result in an even more prolonged period of weakness. the concern is also the potential huge financial and social costs. the asian experience during the financial crisis in the late 1990s has also shown that the potential for effective results is enhanced when the policy package is comprehensive. bis central bankers ’ speeches financial restructuring and repair, fiscal consolidation and structural adjustments have their best chance to yield results in an environment in which there is some economic growth. piecemeal policy measures that primarily focus on addressing the immediate problems will be inadequate and will not be able to garner sufficient growth momentum and thus sustain confidence. the financial restructuring and repair, the fiscal consolidation and structural adjustment urgently needs to be complemented with wide - ranging pro - growth policies. another challenge confronting the world economy lies in the manner in which policy coordination may be improved, both within and across borders, to maximise the impact of policy measures while minimising the unintended spillovers on other parts of the economy or financial system and across borders. enhanced coordination can also provide increased clarity on the direction of policy and reduce overreactions by the market while boosting confidence in prospects for the policies to achieve their intended outcomes. strong fundamentals in asia will continue to support our prospects in this more challenging environment. following the asian financial crisis, several emerging economies in asia have strengthened their economic and financial fundamentals, improved their fiscal and external debt positions, and reformed their banking sectors. this has yielded tremendous payoffs. it has supported our economies to withstand the effects during this recent global financial crisis. structural adjustments to diversify our economic structure and sources of growth have been an important part of this resilience. asia also continues to have considerable policy flexibility to respond to external and domestic developments, although a prolonged delay in the recovery in the advanced economies will erode this policy flexibility in the future. part 2 asia ’ s

development agenda also forms a key part of the efforts to firmly anchor our future growth. several imperatives in the development of the financial sector are key in enhancing and maintaining both growth and stability in our region. first, is the further financial deepening in the asian economies through the development of market - based and diversified channels of intermediation to support the region ’ s economic transformation. since the asian financial crisis, asia has already made significant progress in this direction, in particular, in the progress and growth of the capital markets. across asia, the development of the financial system also continues to be pursued with vigor. in the previous decade, during a period of relative stability, asia had focused on building and solidifying our financial system. deep, diverse and progressive financial systems have contributed significantly to increasing the resilience of our economies. looking ahead, the next phase of asia ’ s transformation will see a rising and more affluent middle income population. there will also be massive investments required for infrastructure and development and for a higher contribution to growth by small and medium businesses. this will substantially increase demand for a wider spectrum of high quality financial products and services. the strategy is also for the intensification of financial deepening in asia to meet the increased demands of domestic investors in the management of their surplus funds. a large part of asian funds are still intermediated through the global financial markets and then recycled back into asia. this increases asia ’ s exposures to volatile capital flows. to reduce the existing gap between the supply of and demand for financial assets within asia, it will require the development of a vibrant risk capital ecosystem comprising intermediaries, financial markets and the supporting financial infrastructure to facilitate the efficient allocation of savings to productive investments. second is the strengthening of financial linkages and connectivity, within the asian region, and between asia and other economies including other emerging economies. asia has reached the stage of development where its further advancement calls for deeper regional integration that will result in greater capital mobility across borders, facilitated by more interconnected financial systems. as a rapidly growing region, greater regional financial bis central bankers ’ speeches integration will support the more effective and efficient intermediation of asia ’ s sizeable funds towards meeting the investment opportunities of the region. efforts to enhance cross - border financial linkages and advance financial integration have also intensified in asia in this decade, mainly through the progressive liberalization of the financial sector, the pooling of resources to promote the development of domestic capital markets and the integration of payments and settlement