mr yam looks towards a stronger financial system in hong kong speech given by mr joseph yam jp, chief executive of the hong kong monetary authority, at the annual dinner 1999 of the hong kong society of accountants on 29 october 1999. * * * introduction i feel greatly honoured to have been invited to speak at this year ’ s annual dinner of the hong kong society of accountants. i must confess that i became a little worried when i checked up on the list of speakers at your annual dinners in the past 10 years. i realise that, in accepting this speaking engagement, i have taken on the almost impossible task of performing to a standard that may well be beyond me. i shall nevertheless try my best not to make you feel that you have gone down market. you are of course well aware of the close working relationship between the accounting profession and the hong kong monetary authority. your involvement in all our many advisory committees and in regulatory compliance of the financial institutions we supervise is crucial to our work, and i take this opportunity to thank you all for your help and forbearance in our ever - increasing supervisory demands. as a gesture of gratitude i shall this evening steer well clear of the irksome domestic supervisory issues. instead i shall focus on the broader subjects of economy and finance as we recover from the financial turmoil of the last two years. economic performance the economic numbers that came out in the past few months seem to convey a clear message, and this is that the economy has, since the second quarter of this year, been slowly but steadily recovering from the painful recession, which had lasted for about eighteen months. the growth rate of gdp moved back to positive territory in the second quarter of this year, having been in negative territory, year on year, for six quarters. the unemployment rate has peaked. asset prices have recovered. retail sales have picked up. tourist arrivals have increased. exports have started to grow again, with the external trade account at the same time moving into surplus. the fall in consumer prices, adjusting for the effects of the generally welcome rebate of rates and lowering of rentals, has stabilised. monetary conditions have remained stable, although we could do with lower interest rates. the overall quality of bank assets, and the mortgage portfolio in particular, has improved. on the fiscal side, although i am not privy to any information that has not been made public, i have the fullest confidence in the skills of the financial secretary in his management of the public finances. as the

product of an economy. they can take dominating positions in particular markets and dictate short - term market movements in their own interests. small open markets have become increasingly vulnerable to international capital. whilst many of them have benefited greatly from an abundance of international capital, both in the form of foreign direct investment and foreign portfolio investment, they have also become easily overwhelmed by such flows. yet there is no equivalent of a world trade organisation to deal effectively with the problems that inevitably would spring up, even though the degree of complexity and time criticality of international finance far exceed that of international trade. there is, of course, the imf, and the bank for international settlements ( bis ). they perform useful roles respectively in providing assistance to individual economies in difficulty, and in setting international regulatory and supervisory standards, and they have done a good job in these areas. but, as very much part of the international financial architecture, they need to evolve to cope with the rapidly changing nature of international finance. they need to ensure that they are able to play the roles required of them in prudently managing the risks, and limiting the destabilising impact, of the increasing freedom of international finance. there is much catching up to do, and much international effort has been devoted to this task. but, presumably because of the difference of opinion on what exactly needs to be done, we now have a rather confusing picture of where all this effort might lead us to. there have been many new international forums created to look at the relevant issues and, together with the existing forums, everybody seem to be involved in this work - g3, g7, g10, g22, g26, apec, emeap, etc., with multiples of working groups formed under each. more recently, there is the more authoritative financial stability forum formed, in which the hkma participates. yet another ‘ g ’ - the g20 - is in the process of being established. hong kong ’ s significant voice on the subject means that some of us have to be travelling and attending international meetings all the time. yet our extensive involvement is necessary if the plight of the small open markets, particularly those that are international financial centres, is to be adequately heard and taken into account in the reform of the international financial architecture. international reform our stance in these discussions is that we support the free flow of international capital but that there is a need to limit its destabilising influence on financial markets, particularly those in