the needs of its members. surely, asian economies cannot decouple from the global economy as we still depend considerably on other economies outside the region. however, i believe that post asian crisis regional integration and cooperation have helped most of our regional economies to stand by each other amid the turbulent environment. ladies and gentlemen, although the regional economies have become increasingly more resilient and have focused on fostering effective regional crisis prevention and management mechanisms, we still need to be vigilant about the on - going risks. moreover, there are important lessons from this crisis that we need to take into consideration in choosing the direction and pace of further economic integration in the new environment. first, while innovations and the removal of barriers to cross - border activity have expedited global capital market integration, they could also bring about complexities, less transparency, and therefore greater possibility and magnitude of systemic risks. sophistication of financial products has led to inadequate understandings of market players as well as lack of transparency in certain securities markets and intermediaries. one notable example is the unregulated and non - standardized markets for structured products where a fair evaluation of the instruments as well as of the counterparty risk has been very difficult, not only for market players but also for supervisors. second, the current financial crisis demonstrates the amplifier role of the financial sector in a boom - bust economic cycle. in the environment of fast credit expansion, rising capital inflows, and lack of proper regulation, the inherent procyclical nature of the financial sector has contributed to one of the unprecedented build - up of financial imbalances in the us during the boom and a disorderly unwinding of these imbalances during the bust. third, the crisis also raises a crucial question about the role of monetary policy in maintaining macroeconomic and financial stability. the important question is whether monetary policy should be employed to help deter the build - up of asset price bubbles apart from the macroeconomic stability objective. and fourth, asian financial markets have been more susceptible to negative events in the major financial markets. volatilities in the regional financial markets have increased, driven increasingly more by actions of international investors. we have witnessed large capital reversals during the periods of risk aversion as their investment positions were unwound both in the stock and bond markets. ladies and gentlemen, these four important lessons will be important inputs for us while we cautiously proceed with further integration. this crisis experience clearly shows that a financial crisis

one of the top priorities as liquid and well functioning local capital markets would help the domestic financial markets withstand risks in the increasingly more volatile world capital market better. the important tasks in this area include improving the legal and regulatory frameworks to ensure investor protection and increase transparency, enlarging and diversifying the investor base, and finding ways to improve the quality of international and local credit rating agencies ’ over - the - cycle risk assessment. in addition to the above crucial works, i would like to stress the challenge in human resource development as the world becomes more complex. this crisis has notably demonstrated the lack of financial experts who are well - versed in financial innovation and risk management both in the public and private sectors. we need experts who can deal with problems through creative thinking as unforeseen risks likely lie ahead along the future path of integration. the sharing of knowledge and information will crucially help fill the gap among our regional experts. as for regional cooperation, it is essential to further enhance regional surveillance especially in the areas of financial markets. crisis management increasingly needs close regional coordination to strengthen effectiveness of the chosen measures and avoid beggar - thyneighbor actions. and in terms of the scope, we also need to reach out more to our neighbors in south asia and the middle east so that they become the more important partners in both trade and investment spheres. ladies and gentlemen, to conclude, asian economies have come a long way in this sea expedition of economic integration. throughout the journey, our boats have survived many storms. we know that we can lend a hand to one another if our fleet of boats moves together as a group. during this current heavy storm, we learn that we need to be wise in steering the boats to go forward. there is no turning back. after all, we know from experience that all storms will end one day and the more resilient fleets will recover faster and have a better chance of reaching the destination. thank you very much for your attention.