disclosure rules and ensure that you deal only with those who follow these rules. the regulation of international finance is even more difficult, but i think the same cooperative spirit can be applied, if indeed regulation in whatever form is considered necessary. but then, looking at the situation facing the key players in a position to influence the direction of this important reform, i doubt whether the political will is there to make changes of this nature. views of strong domestic lobbies may prevail and urgent domestic issues may divert attention. as you may know, it is not the desirability of reform, nor the technical feasibility of the details, that dictates action or inaction, it is, regrettably, more often than not, the political reality. meanwhile, international discussions on this subject are moving into a critical stage when we will either see results or see much recent effort jettisoned as momentum is lost. regional initiatives what recourses, then, are left to small open markets such as our own to enable us to pursue the legitimate goal of ensuring monetary and financial stability? not a lot, i am afraid. we can certainly tackle the smallness, in terms of building bigger markets and effective shock absorbers, but i would be really loath to see openness tackled, for this would imply restrictions and controls that undermine the efficiency of international financial intermediation and hamper the potential for economic growth and development. elsewhere, i have addressed a few times the question of how we can build bigger markets through regional cooperative efforts. the idea of an asian monetary union is far - fetched. i would be the first to admit that, even though i also claim to be the first to draw attention to the idea publicly. so i will not go into that now, or the subject of regional monetary cooperation, except to say that we shall continue, for the time being, to urge the building of a more robust financial infrastructure for the region, and the improvement and harmonisation of regulatory and supervisory standards. these need not be pursued or be seen as preludes to further steps in a particular direction in the context of any wider regional initiative, but purely as things desirable in their own right, managing risks and reducing the probability of systemic problems occurring. we have a number of regional initiatives in this area, and have made some, but slow, progress. there are the liquidity assistance arrangements in the form of the bilateral repurchase agreements we initiated and put in place in 1995. then there are

hope that i have succeeded in demonstrating that the measurement of real interest rates is rather more complex than may appear at first sight, and is dependent also on the context. if you were to look at only the popular measure of the real rate - the nominal rate deflated by a measure of past inflation - then the recovery in asset prices in hong kong over recent months would seem inexplicable, because real rates would have appeared so high. the recovery in asset prices would, however, be consistent with a reduction in perceived real rates - which is in fact what i am suggesting has occurred, on a fairly significant scale, as expectations of inflation have probably become positive while headline recorded inflation remains negative. for those who see some downside in all of this from the implication in the consensus forecasts that general inflation is now expected to resume, it is worth noting that the forecast magnitude is only very modest. i would not pretend that every piece of evidence unequivocally supports my thesis today. for instance, the continuing lethargy of bank lending to business in hong kong might suggest that high real interest rates remain a deterrent to borrowing and investment. however, i suspect that, while that may well have been the case a little while ago, we are now in a period where decisions are being more influenced by confidence factors relating to the broader economic situation than by interest rates per se, although interest rates do of course remain important. i have pointed to elements of the present economic conjuncture - namely, competitiveness and interest rates - where the position may not be so bleak as painted by some. but i do not deny that we face tough challenges and i note that the consensus for the immediate outlook is for no more than an unspectacular recovery. i have no brief today to try to talk up our economic prospects. my wish is rather to contribute analytically to the discussion of those prospects. the only certainty is that the future is always uncertain.