the programme. new directions the approaches that we took in monetary policy, financial supervision and development have served singapore well. we maintained low inflation and a macroeconomic environment favourable to growth. our capital markets have grown rapidly over the past few years, while our forex market is one of the largest in the world. with over 200 banks and merchant banks, 150 insurance companies and 160 investment advisors in singapore, we have become a major financial centre. but past achievements will not extrapolate into future successes, unless we update our policies to meet changing conditions. policies that worked in the 1970s and 1980s needed rethinking by the 1990s. in 1997, we began a comprehensive review of mas ’ policy framework and approach, which has led to fundamental changes. our work is far from done, and we anticipate many challenges ahead. credibility and dynamism – mas ’ approach to future challenges monetary policy in monetary policy, certain verities are not likely to change. we will continue to manage the exchange rate as our principal policy variable. the primary objective will still be to maintain price stability and the purchasing power of the singapore dollar, over the medium term. we will continue to guard against destabilising speculation in the singapore dollar. however, the international environment has changed. we are witnessing larger capital flows and more volatile financial markets. g3 currencies have tended to undergo prolonged periods of misalignment, followed by sharp corrections. for a while after the asian crisis, when currencies that were quasipegged to the us dollar collapsed in a disastrous contagion, a consensus was growing that the only sustainable exchange rate regimes for emerging markets are either a hard currency peg or a totally free float. in 1973, we reduced the corporate tax for acu interest earnings from overseas loans from 40 % to 10 %. we extended this to fees and commissions received by acus in 1976. these corner solutions are not suitable for singapore. a free floating exchange rate would mean relinquishing our most effective inflation - fighting instrument. on the other hand a fixed exchange rate, pegged say to the us dollar, would lock our economic fortunes to us monetary policy, with no assurance that it would be appropriate to the state of our economy. the intermediate option of a managed float remains the best approach for us. in our experience, a managed float helps to buffer the adverse effects on the economy of short - term financial volatility, and to avoid sustained currency misalignments

##tilled confidence and kept inflation low. price stability provided the foundation for sustained economic growth, which in turn provided the basis for continued strengthening of the singapore dollar. we benefited immensely from this virtuous cycle. over the past two decades since 1981, the singapore dollar has risen steadily by more than 70 %, on a trade - weighted basis. domestic inflation has been among the lowest in the world, averaging 2. 0 % per annum compared to 6. 5 % for the oecd countries. in real terms, gdp growth averaged 7. 6 % a year, while gdp per capita in 2000 was two and a half times the level in 1981. financial supervision mas ’ second responsibility is oversight of the financial sector. mas was an integrated supervisor long before this became internationally fashionable. when it was formed in 1971, mas was responsible for both monetary policy and the supervision of banks. it took over supervision of the insurance industry in 1977, and the securities industry in 1984. from the beginning, mas ’ approach to supervising the financial sector was centred on a strict admission policy, high prudential requirements, and rigorous enforcement. we sought not only to maintain systemic stability, but also to protect individual institutions from failing, and the public and investors from losses. lacking any track record, this approach was necessary to establish credibility with international financial institutions and their home regulators. when it emerged that singapore had been spared the fallout from the collapse of bcci because mas had steadfastly refused bcci entry despite persistent lobbying, mas ’ reputation as a thorough and uncompromising regulator went up. but despite our best efforts, we did have one major failure – the pan - el crisis in 1985. pan electric industries, or pan - el, was a holding company with interests in hotels, property and marine operations. it went into receivership in november 1985, threatening the solvency of many stockbroking firms with whom it had forward contracts. mas closed the stock exchange for 3 days while a lifeboat fund was organised. the four major local banks agreed to provide a standby line of credit, to aid the affected stockbrokers and restore market confidence. pan - el showed up certain weaknesses in our regulatory framework. following pan - el, mas revamped the securities industry act, raising standards and putting in place mechanisms for the proper regulation of the market. mas considerably tightened its supervision of the stock exchange and the securities industry. to some extent this tighter approach permeated beyond the securities industry to other parts of