our countries is to foster bank penetration and to deepen credit in domestic currency. in general, our countries exhibit low levels of financial services usage when compared to other regions. for this purpose transparency and information dissemination is very relevant. it is necessary to design a regulatory framework which on one hand enables finance to be granted to non - traditional sectors, but which does not disregard the risks that the financial institutions incur. in this sense, supervision plays a fundamental role, as does the possibility of allowing for the requirements of a prudential nature that are imposed on financial institutions not to be uniform, but instead consider the particular characteristics of each institution. because it has been shown that advances in technology have enabled both the inclusion of new products and lower costs mechanisms must be generated in order to stimulate the incorporation of technological progress. for example, a debtor ’ s risk assessment with mathematical methods ( credit scoring ) allows for a more efficient credit allocation. on the other hand, communication and policy coordination should be fostered between the different agencies with a role in direct or indirect regulation of financial markets. this coordination is necessary for the development of certain financial instruments that improve risk allocation. central banks also have a specific interest in the improvement of domestic bond markets, in particular for public sector debt. one reason for this is that more complete markets reflect the relationship between borrowing costs and terms. making an explicit yield curve reveals information about the expectations that the economic agents have, which is essential for business decisions. recent experience has shown that the development of bond markets must be based on placing funds in domestic currency, which is not only relevant for the transmission of the monetary policy but also as a mechanism to reduce external vulnerability. associated with this, the recent de - dollarization process should also be highlighted. in the past financial dollarization enabled the generation of a long term currency in a context of much distrust in the domestic currency as a result of long periods with high inflation. although this allowed for a greater financial development ( as long term instruments reappeared and by generating more liquidity ) it proved to be vulnerable to the reversals of capital flows, in particular when accompanied by exchange rate rigidity. although the balance sheets of the financial intermediaries did not exhibit a mismatch in the asset and liability denominations, there was another concrete mismatch : the revenues of debtors in dollars were not always denominated in that currency. this example shows that there are no shortcuts for deepening the financial markets. the de -

, perspiration, rather than inspiration, was the asian secret. in tolerably well - organised economies, simply adding more inputs will lead to more outputs. certainly, lots of asians became wealthier, and were able to enjoy rapidly improving material well - being. but there was, in krugman ’ s view, no miracle. there was no productivity steroid. the last year or so has generally given strength to krugman ’ s analysis. in crude, and rather simplistic terms, the asian formula worked so long as those new inputs were directed into areas where the real value added, at the micro level, was sufficient to support real growth at the macro level. asia was able to generate high savings rates, and to maintain similarly high levels of investment. but as investment increased, to 30 or 40 percent of gdp in many cases, the quality of that investment began to deteriorate. returns on investment were driven below the cost of capital. the legacy is a huge amount of surplus, and essentially redundant, capital stock. inevitably, that surplus capacity has been repriced. the internationally tradable capacity has been repriced by way of local currency depreciations in most cases. as currencies fall, output becomes more competitive in foreign currency terms. the non - tradable component, largely surplus real estate investment, emerges in the form of sharply reduced asset prices, and in an enormous stock of bad debts. the asian crisis has so far appeared largely as a financial crisis, at least in the eyes of casual observers from abroad. the volatility in financial asset prices - exchange rates, interest rates, equity prices - has been spectacular, and it is not surprising that attention has been attracted in that direction. perhaps less visible, and certainly less reported, is the still emerging ‘ real ’ impact. industries throughout the region now face declining markets, after years of unrelenting rapid growth. as already noted, the surplus capacity in many industries implies that asset values must decline. companies will fail, or will if they are allowed to. unemployment is rising, and will rise further. poverty levels will rise again, and the welfare of, quite literally, hundreds of millions of people will deteriorate. many will return to the absolute poverty that, a year ago, was a rapidly fading memory. that will not be a permanent deterioration. but the next couple of years promise to be harsh. prospects in the longer term, i have