been a little more conservative in their move towards financial liberalisation. in hong kong, where our commitment to maintaining open markets is strong, in addition to our unconventional market operation, we had to introduce measures that have effectively built us a big cushion. the purpose of this cushion is to help us to absorb the spasmodic international financial shock waves of mammoth dimensions that can now be generated by the international financial system. some others, regrettably, have had to suffer the debilitating consequences of financial meltdown, and to face the often unjust accusation that these were entirely of their own making. domestic responses by economies in this region cannot on their own address the root of the crisis or lessen the chances of another international financial shock wave. one thing that we have learned from this episode of financial turmoil is that, no matter how well maintained the domestic financial environment may be, problems remain in our increasingly liberalised international financial system that cannot be resolved by individual jurisdictions alone. there is a need for regional and international co - operation. hong kong has not, of course, been alone in this view. there is now international consensus that something needs to be done, if not on what exactly should be done, in reforming the international financial architecture. financial crisis : local, regional or international the financial crisis is basically an international one, and i think it is now generally accepted as such. but, when the financial crisis erupted nearly two years ago in thailand, and even when it was already spreading rapidly throughout the region, the explanations put forward by the experts then were largely local ones : macro - economic imbalances in the crisis - hit countries, cronyism, poor regulation, policy errors, and so on. consistent with these explanations, the assumption was that the international monetary fund ( imf ) and the multilateral development banks would fix it country by country, as they had done before in other localised crises elsewhere in the world. we therefore saw a series of policy adjustment programmes and financing packages targeting specific economies. these international financial institutions deserve much credit - far more than they have received - for mobilising, sometimes in a matter of days, financing packages totalling us $ 400 billion. but in a new and rapidly changing international financial system, the instruments that the international financial institutions have at their disposal seem to be increasingly inadequate. they soon found out that they can no longer use traditional strategies to deal with novel and unprecedented problems thrown up by constantly changing technologies and ever more sophisticated market practices.

macroeconomic, fiscal and monetary policies, and all of them had paid a heavy price for their past mistakes. the fact that the latest series of crises erupted in the developed world does not mean emes are immune from the spillover effects. more fundamentally, the emerging market economies, including hong kong where household debt to gdp ratio saw a record high, must learn from the latest mistakes of the developed world and take extra care in not getting into the mind - set or habit of spending beyond our means, whether at the household, corporate or government level. hong kong should in particular guard against the temptation of “ collective irresponsibility ” by pushing for or condoning public policies that entail spending that cannot be sustained in the medium to longer run, or else we would be mortgaging the future of our children and grandchildren. this again is easier said than done, and requires considerable wisdom of hong kong people and the courage and skills of our leaders to resist increasing pressure and temptations for unrestrained public spending. hong kong ’ s population is aging, and aging fast. at present, the elderly bis central bankers ’ speeches dependency ratio of hong kong is 5 : 1. this means that hong kong now has 5 persons within the age group of 15 – 64 supporting each person over the age of 65. however, in over two decades ’ time, the ratio will deteriorate significantly to 2 : 1, which means that there will only be 2 persons in the age group of 15 – 64 supporting one elderly person. the government has already made it clear that, while we are having budget surpluses, structural budget deficits will occur within a decade mainly due to changing demographic structure. 20. ladies and gentlemen, i have just made a long speech and now i would like to leave you with several key takeaways. first, it is very easy for governments to fall into the trap of going down the path of fiscal unsustainability as a result of the collective irresponsibility syndrome as well as population aging. second, it is very, very hard and immensely painful to try to get out of a government debt crisis. third, more likely than not, it is the next generation and the next and the next that will have to shoulder the costs and to suffer the pains for excessive spending and stock piling of debts by the current generation. if we don ’ t want to mortgage the future of our children and grandchildren, try not to leave with them a pile of debts as in