high relative to china and asean countries. ( e ) openness of the economy : another fundamental which has served the asean + 3 countries well is openness of their economies to trade and foreign investment. tariffs rate are uniformly low - in single digits - and non tariff barriers are hardly existent. market access to these countries has stimulated both import and exports of goods and services to the extent that in malaysia the trade - gdp ratio exceeds 100 percent. china and india both had almost identical level of exports of $ 10 billion in the late 1970s. a relatively more open trade policy pursued by china has enabled it to increase its exports to more than $ 400 billion last year while india was able to each about $ 60 billion. similarly, fdi flows are welcomed by all the asian countries as they benefit the domestic economies in form of new technology, better managerial skills, networking with the global supply chain and infusion of foreign capital. fdi flows to east asia during the last four years amounted to $ 208 billion. china alone receives $ 50 billion annually and most foreign enterprises produce goods not only for the chinese markets but also for exports. 65 percent of china ’ s increase in exports in the last ten years was generated by foreign firms and their joint ventures. this policy of openness makes a lot of sense. our entire economy is $ 100 billion and even if we are able to double it within ten years, it will only grow to $ 200 billion whereas, as world exports today are $ 7 trillion and if we aim at capturing 2 percent of world trade, our exports alone will increase to $ 140 billion - ten times the 2004 level. so you can see what a tremendous difference it will make in boosting pakistan ’ s economy if we aggressively integrate ourselves into the world economy. this is the way the asean + 3 countries have done it. those who favour inward like strategies relying simply on domestic economy and argue against exploiting the opportunities offered by globalization are, in fact, condemning us to a perpetual state of backwardness, poverty and misery. ( f ) tax culture : one interesting feature of the development story of asean + 3 countries is the high tax compliance by the population and low incidence of tax evasion. in the 1970s when japan had not yet joined the ranks of developed countries, tax recovery was almost 96 percent of the total tax assessments. the high degree of revenue collection helps a nation to build infrastructure like roads and highways, bridges, ports, etc. and to spend on education and health. in the

go on forever, which underlines why the social contract for banks must be redrawn. it must be redrawn to reflect the lessons from the crisis. and also to mark a credible shift in regime so that, as an industry, you can re - establish trust and stand on your own feet. traditionally, there have been three elements to the social contract for banking. in exchange for being allowed to profit from taking the risks inherent in providing liquidity, or monetary and credit, services to the economy, banks have been subject to prudential regulation ; given access to liquidity insurance at the central bank ; and required to finance industry - wide insurance schemes to protect depositors. all three components have needed to be redesigned. i offered a few thoughts on the first – the regulation of banks – at the conference on the fsa ’ s turner report a few weeks ago. on microprudential supervision. i wanted to add four points. first, that supervisors must be expert, unafraid to substitute their judgment for that of management and the board where necessary, but restrain themselves from doing so except when needed. second, that concentrated exposures, on either side of the balance sheet, must be limited. third, that complex structures rendering a bank unsupervisable must not be permitted, as the bcci crisis taught us nearly twenty years ago. and fourth, that regulatory requirements for capital, liquidity and so on should take into account how much risk a bank brings to the system as a whole. as one of my predecessors, george blunden said over twenty years ago, “ supervisory standards are set with an eye to protecting [ banks ] from problems which could be created by wider, systemic developments. a bank may consider a course of action it wishes to take to be acceptable – as it may well be in a limited context. but the same course might, if widely copied by other banks, have unfortunate effects on the banking system as a whole. it is part of the supervisors ’ job to take that wider, systemic view and sometimes to curb practices which even prudent banks might, if left to themselves, regard as safe. ” 1 all four points are old verities. on the second plank of the banking social contract, i set out the bank ’ s current thinking on liquidity insurance in tokyo a few weeks ago. 2 the bank has introduced new permanent liquidity facilities for banks, whereby we stand ready to lend to viable banks against a very wide