burhanuddin abdullah : reflections on the changes in the region a decade after the asian crisis speech by dr burhanuddin abdullah, governor of bank indonesia, at the international symposium “ ten years after the asian currency crisis : future challenges for the asian economies and financial markets ”, hosted by the center for monetary cooperation in asia ( cemcoa ), bank of japan, tokyo, 22 january 2007. * * * honorable governor of bank of japan, mr. toshihiko fukui, honorable managing director of the imf, mr. rodrigo de rato, fellow governors, ladies and gentlemen, good morning. first i wish to join others to express our appreciation to thank the bank of japan for organizing this important event. it is indeed an opportune time to reflect on the recent developments and progress that we have achieved following the crisis. i believe that through a frank and candid discussion we can share from each others ’ experience during this symposium in the spirit of cooperation especially on how we have fared through the turbulence period of unprecedented economic crisis of the late nineties. we expect that we can capitalize on the recent progress and cope with the future challenges for the benefit of our economies. in this session, allow me to briefly express my reflection on the changes in the region a decade after the asian crisis to identify factors that would influence the economic dynamism and prospects of east asia in general and asean in particular. fellow governors, in my observation, i notice that a number of remarkable changes have occurred in the region. first is the heightened regional cooperation with the objective of establishing a regional self - help. unlike most of their counterparts in other parts of the world, the latest financial crisis, among other factors, provides strong impetus for the monetary and financial cooperation in east asia. the initiative to create a set of bilateral swap arrangement, to develop asian bond markets, and to conduct regional surveillance are our collective means to maintaining greater stability in the region, particularly in the face of highly volatile flows. i surely hope that this kind of cooperation will continue and be widened in the future so as to positively affect the economic dynamism in east asia. second, in the aftermath of the asian crisis, countries in east asia have become more conscious in protecting their own national interests and of strengthening their sense of security amidst greater global economic uncertainties. this is shown by the fact that countries in east asia have accumulated the bulk of the world's foreign - exchange reserves. in the past

the impact of exit policies in advance economy which will differ in term of speed and magnitude, depending on each country ’ s specific economic character. given this, a faulty exit strategy of the advanced economies could easily spill over into smaller economies, swamping our efforts to deal with the slowdown. managing an exit from the current policy settings as growth recovers poses another test for emeap central banks to that hard - won credibility. with inflation in the process of bottoming out and the recent data flow in emeap countries suggesting a clear recovery in economic activity, we all find ourselves pondering the risk that the economic stimulus provided by fiscal and monetary policy makers might be withdrawn earlier compared to advance economy. in this regard, i believe that monetary policy credibility is particularly crucial to the countries ’ growth risk premium, which is judged by historical inflation volatilities. for some countries, given the inflation volatilities are historically high, a more pre - emptive monetary policy response is warranted in order to anchor inflation expectations. provided that improving balance of payment positions, for countries which historically have strong pass - through from exchange rate changes to inflation expectations such as in indonesia, stronger exchange rates will also be important to keep inflation expectations well - anchored without necessitating to aggressively increase interest rates and hurting the growth recovery. in other words, a strong exchange rate can serve as an effective anchor to inflation expectations. this will be important throughout as higher global commodity prices in 2010 could begin to translate into higher inflation expectations. finally, every country has a stake in the sequencing and magnitude of the strategies of the large economies. the impact of global exit on smaller economies could manifest in a return of recessionary tendencies as well as balance of payments ( bop ) problems, which have generally not been a significant feature so far. imf programs have conventionally been oriented to dealing with bop crises. in the current scenario, the larger resource base may have to be deployed with much more flexibility to help particularly smaller economies to deal with the potentially recessionary impact of exit — a kind of global macroeconomic safety net. some operating guidelines for such a program need to be quickly developed. thank you.