trading linkages. banks will need to co - operate closely to ensure that such cross - institutional links are fully tested. the new rtgs system for high - value payments - - on which i will say more in a moment - - was built with year 2000 in mind. even so, a comprehensive test plan has been developed for rtgs and its suitability is being confirmed with a number of system participants. this plan allows for full testing in conjunction with participants ’ interface systems, and aims to confirm that the rtgs system is year 2000 compliant by the end of 1998. meanwhile, the australian payments clearing association has formed a special consultative group to address issues relating to the other clearing systems. banks must also prepare for problems affecting their customers ( as well as trading counterparties in wholesale markets ) and should be inquiring into the year 2000 readiness of their borrowers and potential borrowers. the effects of year 2000 could severely interfere with the conduct of borrowers ’ businesses and reduce their capacity to meet loan obligations. customers could also find themselves unable to use electronic links to their banks, and try to revert to manual processing. this would put considerable strain on banks ’ resources. if not well - prepared, banks could also be drawn into extensive legal actions flowing from year 2000 breakdowns. the rba will continue to disseminate information about year 2000 issues, and will help to co - ordinate renovation and testing where we can. we are participating in an inter - bank working group which will aim to ensure that core banking systems and other shared infrastructure are fully tested, and that exposure to telecommunications problems are limited ; to work with key vendors to ensure that their products conform to agreed compliance guidelines ; and to develop contingency measures for critical areas. this group will also be playing an education role with banks ’ business partners and customers. let me now describe briefly what the rba is doing about its own house. our target is to have our systems fully year 2000 compliant by the end of next year. our project is overseen by a steering group of senior officers. while the scale of the challenge is not as great for us as for many other financial institutions, our technology platform is complex, involving a mix of hardware and software developed inhouse and also provided by third - party suppliers. it encompasses the exchange of data and services with the commonwealth government, some state governments and the financial community at large - - banks, non - bank financial institutions, austraclear and so on. we

some precision as to timing. 2 generic weakness in the financial sector was, like mark twain ’ s weather, something that everyone complained about, but no - one did much about. the related point is that there remains much that we do not understand. this issue of failure to forecast is especially embarrassing because these countries, by and large, did the things which economists had said were important. their budgets were balanced, they kept inflation low, they reduced ( over time ) protection and increased their openness, both on trade and capital accounts, and they embraced deregulation ( although never completely ). even to the extent that they ran what look in hindsight to be dangerously - large current account deficits at times, there was no doubt that these were “ good ” deficits - i. e. they funded high levels of investment, rather than government expenditure or private consumption. garnaut ( 1998, p. 23 ). for example, paul krugman, who was sceptical about aspects of the “ asian miracle ”, does not claim to have foreseen the crisis : “ speculative attacks on currencies are nothing new, and some of us even warned a couple of years ago that south - east asian countries might be at risk. but the scale and depth of this crisis have surprised everyone ; this disaster has demonstrated that there are financial dangers undreamt of in our previous philosophy. ” ( krugman 1998b ). the second general lesson is that it has turned out to be much more complex than it seemed initially. initially, the crisis was seen in relatively simple terms ( president clinton described it as “ a few little glitches in the road ” ). the belief was that exchange rates had become over - valued, these economies had run a bit faster than their productive capacities would allow, and that in some cases ( most notably thailand ) the current account had blown out in a way that made them vulnerable. the implication was that, with exchange rates floated, they would depreciate modestly, fiscal and monetary policies could be tightened a bit in order to slow growth, and in the process current account deficits would shrink. there was a feeling that “ this isn ’ t a problem ; it ’ s an opportunity ”. at least, there was a feeling that after some short - term pain, these economies would emerge stronger than before : the crisis would provide the motivation for institutional improvement. these are the generalisations : let ’ s get more