inception in 2013. another major project is china ’ s asean silk road, the high - speed rail line expected to run from kunming to singapore and run through laos, thailand, malaysia and singapore. despite geopolitical tensions arising from china ’ s claims over the south china sea and the authoritarian regime in north korea, asean unity has largely been restored as more countries have either warmed to china or at least indicated a greater acceptance of its clout against the background of reduced us commitment and the latest unilateralist decisions by president trump. it is clear that the modern distortions in the world economy and disruptions in the global order need to be addressed through close cooperation and maintained regional balances of power, rather than bilaterally. just a quick note here on the alarming increase in chinese military spending : it has now exceeded us $ 400 billion dollars, i. e. it has doubled in ten years, and to give you a point of reference : russia ’ s military spending is estimated at around $ 200 billion and that of the united states at us $ 600 billion. looking at the other major geopolitical pole, tensions between russia and the west ( us, canada, eu ) are as high as they have been for years. a fortnight ago, we saw the largest coordinated expulsion of russian diplomats since the cold war from more than twenty countries, members of nato and the eu, as a retaliatory measure against the use of a russian nerve agent in the uk, violating the prohibition of chemical weapons under the 1997 chemical weapons convention, an international convention that russia had agreed to and signed. or the recent blow - for - blow developments unfolding in syria, a joint attack of the us, the uk and france was launched last night and the rest of the world is following with grave concern about what comes next. 5. on the adverse distributional effects of globalisation before coming to perhaps more boring economic data and figures, let me make a short pause here for a joke, which actually shows that economists and lawyers have lots in common! a university committee was selecting a new dean. they had narrowed the candidates down to a mathematician, a statistician and a lawyer. each was asked this ‘ tricky ’ question during this interview. how much is ‘ two plus two ’? the mathematician immediately answered, “ four ”. the statistician also answered almost immediately, “ four, plus or minus two percent ( the statistical error ) ”. finally, the lawyer stood up

their administrative and regulatory capabilities. financial institutions were reformed with insufficient regulation and unclear focus and expansion was associated with improprieties, scandals and fraudulent schemes during the early stages of transition. therefore, the financial sector was unable to attract deposits and develop extensive client networks. finally, state banks were compelled to carry a high number of non - performing loans, which had been accumulated by the government subsidization programs to state run enterprises. the development of the financial sector was hampered at the beginning by inadequate macroeconomic management. fiscal deficits were mostly excessive, and often monetized, and the inevitable outcome was high inflation. it is encouraging that in the last few years we can see clear evidence of maturity in economic management. the path to macroeconomic stabilization was different for every country. in the region we can now observe all types of monetary and exchange rate regimes, from formal euro - ization and currency boards linked to the euro, all the way to monetary targeting. this is proof, if proof was needed, that there is no single solution, to economic problems but that the policies of each country should be tailored to its specific needs. going beyond the diversity of the region, at this point i would like to underline two characteristics of the financial system of practically all countries in the region, which are the result of their past, but will also shape their future developments. the first is extensive currency substitution. as a result of past inflation, but also because of the large numbers of people working abroad, foreign currencies, and especially the euro, play a large role and they have often become the main currency in use. one can gauge the degree of currency substitution by noting that in all countries in the region deposits in a foreign currency account for at least half of all bank deposits. one must add to this, money " kept under the mattress " and capital flight. undoubtedly all these were a vote of no confidence in domestic policymakers. people showed their dissatisfaction with local financial institutions and monetary authorities by moving their savings abroad, or by using other, more stable currencies. this high degree of currency substitution can only be found in some latin american countries and undermined the effectiveness of monetary policy. the ability of monetary authorities to extract seignorage was severely limited, and this is a partial justification of the high inflation rates. at the same time, monetary management became more difficult, as small shocks had a disproportionately big impact on inflation and the exchange rate. in