and will take time for the demand - supply equilibrium to be established. on the asia pacific front, the asian development bank has recently announced us $ 500 million of immediate budgetary support to help countries that have been worst hit by rising food prices. with increasing food prices and high oil prices, mitigating the impact of strong inflationary pressures will remain a key priority for many asian governments. in such an environment, companies too will have to carefully manage the higher input and other costs and how much of that to pass on to consumers, to preserve your margins without losing either competitiveness or affordability. subprime crisis and asia ’ s continued push to deepen capital markets the second issue is the turmoil in global financial markets. the transmission of the crisis is a good illustration of how inter - connected financial markets are today. the problem started with us subprime mortgages, in fact a relatively small part of the us mortgage market, but it rapidly escalated into other securitized markets, to more generic debt capital instruments and eventually into the wholesale or libor money markets. from there, as central bank surveys have shown, there is now a general tightening of lending conditions to end - borrowers, which are exerting a drag on the us and western european economies. asia has felt some of the tremors of this crisis, but as yet we have been relatively unscathed. in the banking sector, a number of banks in the region wrote off losses on their us sub - prime mortgage related assets. compared to their peers in the us and europe, the impact on their balance sheets and profitability has been less severe. this can be attributed to a combination of factors. following the asian financial crisis, banks here had taken active steps to improve their credit standing by enhancing their capital base. we are also aided by the fact that we are more reliant on traditional banking rather than the capital markets for our debt financing. beyond the direct impact on banks, the general reduction in risk capital and financial deleveraging will be felt in asia, through higher costs of capital. this is the downside that many companies and investors will have to confront. on the upside, this should further spur the efforts of asian countries to make their own financial intermediation process more efficient. this can be done through a lowering of barriers to global capital and the building of channels to facilitate the growth of this capital. global investors will increasingly look to asia for investments as asia remains an attractive area for growth

hong kong may have introduced a degree of bias in my views on the subject, which i have tried consciously to avoid. 15. but i would urge you instead to look at the reports of our annual medical check - ups conducted by the imf since 1990 in the form of what are known as the article iv consultations. the imf team was in fact in hong kong for this year ’ s consultation in the second half of october, when the short - lived but somewhat intense attack on our currency occurred. it was the best time for any diagnosis of financial problems. but after observing us closely over the period the team again gave us a clean bill of health. let me give you a few relevant quotes from the concluding statement of the consultation, which has already been published. it said that : “ the authorities ’ commitment to a rules - based and non - interventionist approach should enhance the economy ’ s ability to withstand the recent regional and financial market turmoil. ” “ as in the past, the mission strongly endorses the authorities ’ continued commitment to the linked exchange rate system. ” “ appropriately, the authorities have taken forceful action during the past two weeks to tighten significantly monetary conditions, and have successfully demonstrated their ability and commitment to defend the link. ” “ it is important to recognize that allowing interest rates to rise in response to exchange market pressures is an essential element of the currency board mechanism that lies at the heart of hong kong ’ s monetary arrangements. ” “ recent events demonstrate that the system is working exactly as intended... ” “ our discussions with market participants have indicated a widely - held consensus that the prudential and regulatory oversight of the financial sector is strong, which has helped underpin confidence in the system. ” 16. but what the internationally renowned doctor, in the form of the imf, says may not always be universally acceptable, particularly for those who may have been innocent parties having to suffer the pain of market adjustment, inevitable as it may be. it is quite understandable therefore that there will always be grievances and consequently calls for prescriptions for pain killers and other preventive medicine. i welcome constructive suggestions very much and we are in the process of meeting with those who are so kind as to offer their views and go through the vigorous technical discussions that good ideas deserve. 17. so far i am glad that there is full support for our linked exchange rate system. no one liked the prospect of hong kong being swept along in the process of competitive deval