or brand of well - established financial centres has also been tarnished by these events. of course, after the events many people sought to apportion blame. obviously, the institutions concerned must take the bulk of the blame. inadequate regulation and poor supervision were also culprits. but to me there is a much more fundamental issue that needs to be tackled if we wish to reduce the risk of similar events recurring. that is the culture and values of the financial firms and the market practitioners. in making our streets clean and free from litter, it is not enough to station one health inspector at the corner of every street to catch offenders ( there are simply not enough health inspectors to go round anyway ), nor is it enough to raise the fines against littering to a draconian level because people will still litter if they think they can avoid being caught. the best way to keep our streets clean or cleaner, in my view, is to nurture the value among our citizens that littering is morally bad and should not be indulged in even when no health inspector is around and there is a low chance of being caught. in the context of the financial - services sector, the best way to uphold the integrity of the markets and trustworthiness of the industry is for the stakeholders to nurture and cherish a culture and values that encourage and support honesty of the practitioners and bis central bankers ’ speeches restrain the institutions from placing the maximization of profit above the interests of the customers. this may all sound very idealistic and is “ easier said than done ”. we all understand that it will take a long time, years and even decades, to change people ’ s mindset and values. however, no ifc is built overnight. it has taken london and new york many, many decades to become what they are today. the race to become among the top ifcs in the world is a long term endeavour. it has taken hong kong many decades of untiring efforts to accomplish what we have today. there is a lot more that we need to do in order to maintain our niche when so many competing centres are trying very hard to catch up. to differentiate hong kong from its peers, we must maintain those qualities that are hard to copy and yet appeal to users and customers who can freely choose where to conduct their financial businesses. so what should we do? there are three layers of parameters that help shape behaviour and values. the first layer is what is prescribed in the statutes,

in which there have been underlying improvements in the hong kong economy. deflation, under the discipline of the link, has made hong kong more competitive : it is now a less expensive city in which to do business or take a holiday. the real effective exchange rate for the hong kong dollar - which is a true measure of the competitiveness of an economy - has declined by 24 % over the past five years. recent research carried out by the hkma also points to a much greater degree of flexibility in wage adjustments than the official statistics might suggest. a key component of our economy - the export of goods and services - has continued to grow strongly throughout the whole of the last five quarters. in 2002 hong kong enjoyed a balance of payments surplus in the current account equal to about 11 % of our gdp, and this surplus has been sustained into 2003 : it means, in dollar terms, that hong kong as an economy has been earning around us $ 1. 5 billion in foreign exchange every month. in short, it appears that sars, despite the large human cost, has had only a short - lived and superficial effect on our economic development. or, to use the language of economists, the impact of sars was a temporary demand shock rather than a permanent loss in output. structural issues the evidence suggests, then, that hong kong is back on the path to broad - based economic recovery. let us hope that this is indeed the case. since the outbreak of the asian financial crisis more than six years ago, we have had much bad news and very little good. we are all ready for a break, and, equally important, i think we are in a position for making the best of it. but we should not assume that all our problems will be solved by economic recovery. many of them will be, of course, and the others will be much reduced. yet there are structural issues that have to be faced, and dealing with them may take effort, imagination and a strong will. one of these issues is the fiscal deficit. this was around hk $ 62 bn, or 4. 9 % of gdp in the last fiscal year, and, according to the government's latest estimates, may exceed that figure for the current fiscal year. economic recovery will undoubtedly help contain or reduce the deficit. but the larger, structural questions, such as how to produce a more stable revenue base, will still be there, and they will involve difficult choices. as we know, this much - debated question is