lee hsien loong : post crisis asia - the way forward william taylor memorial lecture by mr lee hsien loong, deputy prime minister of singapore and chairman of the monetary authority of singapore, before the eleventh international conference of banking supervisors, held in basel, 20 - 21 september 2000. * * * introduction three years have passed since the asian crisis struck in 1997. the crisis showed how unstable the international financial system could be, and how vulnerable apparently strong asian economies were to a sudden shock. it has caused a searching reappraisal of the benefits and risks of globalisation, as well as the strengths and weaknesses of the asian economies. i propose to discuss how attitudes towards globalisation have shifted, and what challenges asian economies face in remedying the weaknesses uncovered. when mr paul volcker, chairman of the g30, invited me to deliver the william taylor lecture to this distinguished gathering of banking supervisors, he asked me to share singapore ’ s experience in dealing with the financial turbulence. i will also explain how we are reforming and liberalising our financial sector, to benefit from globalisation while protecting ourselves against mishaps. not all the lessons singapore has drawn will apply to other economies because of differing circumstances. but i hope singapore ’ s case will illustrate the importance of basing financial reforms on a realistic appreciation of the risks and difficulties. in analysing the asian crisis, and in describing the singapore experience, i will be underlining the importance of sound banking systems and strong supervisory oversight. i am particularly pleased to be doing this at a lecture held in honour of a man who dedicated his life to these goals. pre - crisis wisdom for a decade before the crisis, the conventional belief was that globalisation was an unmitigated good. the dramatic success of the asian tigers had shown that openness to trade and foreign investments was a key source of economic growth. a 1992 world bank study on the “ east asian miracle ” credited their success chiefly to market friendly and outward oriented policies. there was broad intellectual consensus, including in the multilateral institutions, in favour of free markets : put simply, deregulation, privatisation, and trade and financial liberalisation were always good, and the faster the better. this was what john williamson called the “ washington consensus ”, but the view went beyond the us treasury, the imf and world bank. one important element of this intellectual consensus was the liberalisation of capital accounts. free trade in goods and services had enabled countries to exploit

those who drive mncs in the west and japan. changing these institutional features of asian economies will be an arduous task. but over time the countries can, and must, change discredited practices. state - owned or family - run enterprises can be transformed into firms run along meritocratic lines by professional managers. greater public ownership can strengthen market discipline and the incentive to improve returns for all shareholders. companies that are not profitable have to be closed or restructured. asian leaders understand this. for example, the governor of the bank of thailand mr chatu mongol sonakul said, describing efforts to promote corporate governance in financial institutions and companies : 4 “ what we are doing is a very long process. we ’ re not talking of months or years. we are talking in, maybe, decades or generations. we ’ re not changing our way of working ; we actually try to change our way of life. ” governments play a key role in fostering and managing this process of change. they have to make the political judgment on how fast to go, how to sell the changes to the people, and what compromises are necessary. only they have the mandate to decide, and only they can take responsibility for the outcomes. south korea under president kim dae jung is a good example of how this can work, as well as of how difficult the process can be. external institutions like the imf and the world bank are also important, providing advice and applying pressure to do what is painful but necessary. this means that imf and world bank loans and assistance have to come with strict conditionality. but the line between essential conditionality and excessive intervention is a fine one. in indonesia, the imf pushed the suharto government hard, not just to deal with the immediate crisis, but to implement sweeping structural reforms. president suharto interpreted this as a threat to his own position, and treated the imf as an opponent rather than an ally. this contributed to a collapse of confidence, political turbulence, and finally suharto ’ s resignation in may 1998. whether or not the imf intended this outcome, it helped to precipitate a decisive and momentous change in indonesia, the consequences of which are still unfolding. singapore ’ s approach let me now turn to singapore ’ s experience in navigating through the crisis and preparing itself to meet the challenges of globalisation, especially in the financial sector. singapore is not entirely typical of the region. we are