i am sure there will be more central banks both in asia and outside looking at asian bonds at the international level because of this initiative. but in the nest step, the asian bond fund will extend the investment into the various local bond markets in local currencies. the fund will be calling on asian countries. it will be ready to invest, but only if the market builds up the right conditions, and removes all the impediments. and you know that until the last impediment is removed, the market will not be attractive to foreign investors. and since these impediments often extend across many government departments and functions, as well as the judicial system, so only the strongest political commitment can remove all of them. so will the political commitment come forward? with money waiting at the door, and with peer pressure and available assistance within asia, i think there is a good chance that it will. someone asked me earlier how much of the asian international reserves will have to go into these asian bond funds. well, i hope not a lot. it is not the job of the authorities to replace the market. what the authorities try to do is simply to act as a catalyst. in the long run, private money in asia should find its own way to invest in asia, whether it is savings from insurance companies in japan, mutual funds in hong kong or pension funds in singapore investing in corporate bonds all over asia. will there be enough opportunity for investing in asia? certainly! many asian countries still have very young populations. half of thais are under the age of 30. demand for construction, household products and infrastructure will be strong for many decades. there is ample opportunity for asian savings to find asian investments.

exchange rates, because of the interest rate differentials. the success and sustainability of the monetary union will depend at least partly on its credibility. crucial to its credibility will be fiscal discipline and this requires fiscal rules to prevent free riding by any individual partner state. in a monetary union, the costs of fiscal indiscipline by one member of the union are partly externalised to the other members. the possibility that the profligate sovereign borrower might be bailed out, directly or indirectly through higher inflation, by its partners, will drive up public borrowing costs for all members of the monetary union. the future of the monetary union itself could be thrown into doubt if the financial markets and public believe that a member with serious fiscal problems cannot solve these problems within the monetary union, essentially because the solution would be too deflationary, and hence opts to leave the monetary union. this is the concern which many commentators have expressed in relation to the current economic and fiscal problems of greece. to avoid these problems we must put in place binding, transparent fiscal rules covering fiscal deficits and public debt, which will operate both during the transition to monetary union and after the monetary union has been established. i trust that the principle of fiscal rules is generally understood and accepted within the east african community. however there are some who argue that these rules should be made less stringent – i. e. the fiscal deficit targets should be loosened – to allow for much higher public spending, on the grounds that there are large unmet demands for public investment within the east african community. unfortunately this misses the point. if the monetary union is to be successful, the targets for fiscal deficits and public borrowing must be tight enough to ensure that the partner states of the monetary union run fiscal policies which are sustainable, and are perceived to be sustainable by the markets, even in the face of adverse fiscal shocks, such as a cyclical downturn in the tax base or a cutback in donor aid. conclusion the 21st century global economy will present enormous opportunities for east africans to lift their economies to middle income status, raise living standards and eradicate mass poverty. we will be much better placed to take advantage of these opportunities and to face up to the challenges if we can achieve deep and meaningful integration of the east african economies. monetary union is an essential component of regional economic integration. establishing a monetary union in east africa will be difficult and will pose risks. it will require an enormous amount of work to reform institutions, change legislation