as yet. some of those involved in public policy often see competition as too frenetic. this different perspective is captured most clearly for me in a soliloquy attributed to a prominent european leader several years ago. he asked, “ what is the market? it is the law of the jungle, the law of nature. and what is civilization? it is the struggle against nature. ” a major determinant of regulatory regimes is how a rule of law is applied to strike a balance between the perceived benefits of wholly unfettered markets and the perceived societal costs of overly fierce competition. in most countries an uneasy balance remains between unleashing the forces of competition and reining them in when they are perceived to threaten the social order. with markets continuously evolving as technologies advance and the political perceptions of the proper extent of regulation also changeable, it is no wonder that our regulations always seem to be in flux. while regulation must change as financial structures do, such regulatory change must be kept to a minimum to avoid fostering uncertainty among innovators and investors. moreover, shifting regulatory schemes unavoidably leave obsolescent regulations in their wake. business people both here and abroad complain, perhaps with some exaggeration, that so many regulations are on the books that they are probably at all times unknowingly in violation of some of them. we at the federal reserve endeavor periodically to review all our existing regulations in order to revise or rescind those that are out - of - date. it has worked well for us, and is probably a good practice to apply to regulatory systems in general and to the basel supervisory process in particular. * * * the extent of government intervention in markets to control risk - taking beyond the commonly practiced control of systemic risk is, at the end of the day, a trade off between economic growth with its associated potential instability and a more civil and less stressful way of life with a lower standard of living. those of us who support market capitalism in its more - competitive forms might argue that unfettered markets create a degree of wealth that fosters a more civilized existence. i have always found that insight compelling. but the resistance by many to such arguments suggests a more deep - seated aversion to the distress that often accompanies the process of creative destruction. the choices that we make in our societies on these critical issues will importantly shape the opportunities for the unforeseen, but inevitable, innovations that have the capability to

taiwan ’ s desire for a separate identity. no prc leadership can ever tolerate a bid for independence by taiwan. if taiwan pushes too far, the chinese must react or be exposed as a ‘ paper tiger ’. the us stand, and perceptions of the us stand in china and taiwan, are key to the problem. president bush has said publicly that he does not support taiwan ’ s independence. but the us may still be drawn into a cross straits conflict. if this happens, there will be serious consequences for the entire region. but it is encouraging that chen shui - bian ’ s inauguration speech took a more conciliatory tone, suggesting that he is aware of the grave dangers, although he still left open the possibility of independence. in southeast asia, terrorism will be a major preoccupation for many years to come. another terrorist attack will shake confidence in southeast asia, damaging growth prospects. the southeast asian waterways are vital lifelines for japan, china and south korea. a maritime terrorist attack that disrupts them will have wide economic and political repercussions. unfortunately, there is widespread discomfort among muslims everywhere with american policies in the middle east and towards the israel palestine conflict. mainstream muslims are afraid to speak up against extremists for fear of appearing pro american. this is a serious problem that has not yet been adequately addressed. one important question is the role of islam in southeast asian countries. traditional southeast asian islam is syncretic and tolerant, but it is increasingly influenced by more austere middle eastern variants of islam, especially wahhabbism. which way this battle for the soul of islam goes is a key uncertainty that will determine the future of the region. in malaysia, prime minister abdullah badawi won a clear victory over pas, the opposition islamist party. he did not challenge pas ’ contention that malaysia should be an islamic state, but instead fought pas on what kind of islamic state malaysia should be. his victory bolsters his vision of progressive islam and should encourage mainstream muslims everywhere. but pas will not give up and is girding itself for a long - term struggle. in indonesia, it is significant that all three major presidential candidates are secular nationalists. but all three have also found it necessary to seek vice presidential candidates with strong muslim credentials, and support from muslim parties. although indonesia has a long history of tolerant, syncretic islam, more so than other southeast asian countries, political islam is now at the centre of indonesian politics and