cheap travel to a wider group, and if this involved the occasional dramatic large accident, this should not be seen as a reason for banning international plane travel. but where does this analogy lead? surely to the dual acceptance of the benefits to be derived from the new technology, with the need – at the same time – to do whatever can be done to make travel safer – even if this involves some rules and regulations. seen in this light, we are back where we should always have been in this debate – contemplating the transition from regulation to liberalisation, acknowledging the desirability of moving along this path as quickly as possible, but also acknowledging that it is a bumpy path. there has been, since 1997, some progress. the core rhetoric no longer simply extols the importance of immediate and total deregulation, but now puts in words like “ orderly ” to describe the process. to acknowledge this is one thing : to put it in place is another. in trying to put some practical content into the idea of “ orderly ” deregulation, there may be reminders of the old irish joke about asking the way to limerick : “ i wouldn ’ t go there from here ”. there is fairly unanimous agreement that we do want to go there from here. but deregulation has some of the characteristics of a rolling snowball, whose momentum is self - generated and uncontrollable. while there is a longstanding and extensive literature on “ sequencing ”, it is rather unsatisfactory. countries often take the reform / deregulation opportunities in whatever order they come along. more seriously, the necessary infrastructure is not something which can be created instantly, 12 or even in advance of the requirement. rather, it is put in place by trial - and - error and learning - by - doing, and some old - fashioned good luck is required to get this safety net firmly in place before it is needed. what is pretty clear is that the process of “ reform - throughcrisis ” is a very painful one. conclusion when the asian crisis first broke, some of us thought of it as an opportunity for reform : there would be some pain, but the forces of beneficial change would be given impetus. we had in mind, i suppose, some version of the golden straitjacket. as the crisis developed, it became clear that for some as more international trade takes place in “ weightless ” technological services and products whose marginal cost is small compared with the average

was always clear that we would avoid the direct contagion, because we were not subject to the fatal combination that had infected asia – the interaction of large and volatile capital flows, with a fragile domestic financial sector. the capital flows to australia are nothing like as volatile ( and are not even as large ) : but, more importantly, we did not have a fragile domestic financial sector. it is true that australia is very dependent on international capital inflows, with an average current account deficit of around 4½ per cent of gdp for the last couple of decades. these flows are large, but nothing like the flows experienced in asia : in 1996, for example, thailand received capital flows equal to 13 per cent of its gdp. just as important, the capital inflows that funded the australian deficit were, by - and - large, quite stable. even in the mid - 1980s “ banana republic crisis ”, which saw a large change in the value of the australian dollar, the most that the current account adjusted in any one year was a little under 2 per cent of gdp ( in 1986 / 87 ). compared with changes in current account balances in some countries in east asia in 1998 of up to 15 per cent of gdp in a single year, our fluctuations were manageable. one - third or more of australia ’ s capital inflow is in the form of foreign direct investment, which, even in the crisis countries, tended to be quite stable. a quite minor part was in the form of the elements which turned out to be extraordinarily volatile and flighty in asia – bank - to - bank flows. the three crisis countries had been receiving bank - to - bank flows at an annual rate of around us $ 50 billion in the years leading up to the crisis, and were subject to outflows – total reversal – of nearly us $ 75 billion in the first nine months of the crisis. nor, incidentally, were we vulnerable as a creditor : australian banks had not lent much to asia. australia has had plenty of experience of changing sentiment – “ flavour of the month ” at one moment and poor cousin the next – but has not had the kind of total volte face experienced in asia ( “ euphoria turned to panic without missing a beat ” ( sachs 1997 ) ). one reason why australia is not subject to these sorts of dramatic reversals is the depth and maturity of our financial markets. the institutions and instruments that foreigners invested in tended to be