I am honored to be part of the annual NIKKEI conference on Regional economic cooperation, and to have this opportunity to share with this distinguished group some ideas as to how to effectively achieve a viable Asian Financial Market.

I would like to start of by putting into perspective some of the key issues and difficulties we face in developing a workable Asian Financial Market; after which I would then like to table some of the possible strategies and tactics that could be deployed in attempting to put in place a regional financial market.

Firstly, among the key issues is the fact that not only is the Asian Region comprised of several political and economic systems but also that all these systems are in a varying degree of maturity within the development spectrum. For example, there is a considerable difference in the political/economic developmental stages reached by countries in the East Asia bloc as compared to that reached in the ASEAN group of countries or in the East Asia sub-region.

Added to this issue of infrastructural unbalance is the complexity of the regional economic situation. Why so? First if all, many of the economies within the Region had overheated too far and too fast in attempting to transform itself towards a more fully industrialized economic state over the past decade. And, secondly, the speed as well as the degree of overheating in several of these economies resulted in a severe economic bubble being created - thus rendering it impossible - or, indeed, very impractical - to achieve a 'soft landing'.

Therefore, there exists within this Region both an unbalanced and complex political-economic environment. And this situation has been further aggravated by the adverse impact resulting from the recent economic crisis that has come into play since 1997, whereby the degree of the impact on each respective system has varied greatly depending upon the level development that has been reached in each country at the time.

This situation makes it difficult to put in place an effective Asian Financial Market - since we must take into account and accommodate such differences in the political/economic infrastructure of the various member countries. It also leads to an 'un-coordinated' decision process in regard to determining an effective set of economic policies that would be workable for this Region as a whole.

The difficulties in having to deal with the wide ranging set of political and economic development scenarios applicable are further accentuated by the more recent political (and hence economic) uncertainties being faced by a few of the key countries in this Region.

For instance, both Indonesia and the Philippines are currently experiencing a high degree of political 'instability', if you will, that could lead to a high likelihood of prolonged political and economic disorder - even if only for a temporary period.

While, on the other end of the spectrum, Malaysia enjoys both a relatively more stable political environment - although some degree of political uncertainty may still exist nevertheless in regard to the future leadership of the country in the post-Dr. Mahathir era - and a more mature state of economic development; yet Malaysia has adopted as well as maintained policies for partial capital controls within a more-or-less open-market economic framework in the hope of preempting some degree of financial volatility that might disrupt its real sector growth.

Another example is Thailand: Since adopting a new constitution in the mid 90s, Thailand has enjoyed a relatively stable political structure with one of the most democratic form of government in the ASEAN region. It has also endeavored to maintain a liberalized financial market environment. so as to attract the needed direct overseas investments flow necessary to achieve its targeted fast-paced industrialization programs.

As for China, like many other then-closed socialist economies attempting to adopt a more open-market economic system it devalued its currency (by over 40%) in the early 90s so as to attract the needed foreign investments. It was, in fact, such a successful strategy that much of the needed direct foreign investments flowing in the Region was redirected towards China - thus, effectively serving to fuel its fast-paced economic development to the detriment of some of the other regional economies that were equally dependent on more foreign-sourced capital to develop their own countries.

At the same time Japan, while being a regional super economic powerhouse, for the past decade has been suffering from its own weakened financial markets due to the fact that its inherent political system does not readily facilitate the implementation of a timely and complete resolution to its pervasive economic problems.

The second key issue is that, after the recent economic crisis, many of the once booming economies have been going through an extended and, often, very painful restructuring process (as prescribed by the IMF in consideration for its financial assistance) for its basic economic & internal financial systems.

In the case of Thailand, subsequent to the 1997 crisis, a series of financial reforms have been implemented with the objective of reestablishing market confidence through the adherence to open- market policies and putting into place improved levels of transparency and disclosures.

Specific efforts and achievements for Thailand have included activities to accelerate the reform as well as strengthening of the Financial Sector in general and the Banking sector in particular, through such measures as

a. the establishment of the Thai Asset Management Corporation (or TAMC) as a formal debt restructuring instrument that will quickly rehabilitate the banks' NPLs. Once this is achieved, the banks should then be able to refocus on what they are suppose to do: namely providing loans facilities to further facilitate economic recovery in the real sector;

b. the issuance of Government bonds, and the deployment of other fiscal stimulus initiatives that are part and parcel of a key proactive agenda of economic strategies of the new Thaksin Government, and

c. a proactive push to quickly expedite the corporate debt restructuring so that they will be further disposed to make additional capital investments that can eventually stimulate economic growth and recovery; while at the same time putting into effect various initiatives to leverage Thailand's indigenous resources and capabilities through the provision of opportunities that will encourage further corporate investment activities.

Thailand has also achieved in lowering its external debt burden - from its peak (in mid 1997) of over US$ 112 billion by almost a third to US$ 80 billion as at January 2001; while at the same time success has been achieved in increasing Thailand's international reserves to well over US$ 32 billion from almost zero reserves at the height of the financial crisis. Moreover, a GDP growth of 2.5 - 4.0 % has been realized since the crisis struck - despite apparent adverse external economic conditions and overall global slowdown.

Other countries in the Region have also been preoccupied with implementing structural economic equally drastic rehabilitation programs.

A notable exception in this painful restructuring process, however, has been China, which, despite its economic difficulties, nevertheless has certain advantages over its Asian colleagues within the Region.

China is a country of over 1.2 billion and still growing, thus offering a vast consumer market potential for US, European or Japanese as well as other Regional conglomerates seeking to explore an enticingly dynamic market in the face of lower growth potential in the more mature markets of their own countries. In comparison, the other regional economies (mostly with a far smaller market potential and some still experiencing, to some degree or another, ongoing political and economic turmoil) is not able to inspire enough investor confidence to compete for the critical foreign investment inflows into the Region.

Such extensive economic overhauling activities is still very much ongoing within the Region, and achieving sustainable success in economic restructuring and reform is still a long way off. Moreover, in many instances, the pervasive economic restructuring process has been complicated by more recent political instability that has even further aggravated the abovementioned unbalanced situation and complexity of the Region as a whole.

And of course, there is now the added uncertainty of the potentially adverse global and regional effects of the recent economic slowdown evident in the USA, that may impact demand for exports of goods and/or services from this Region upon which many of local economies are very much dependent to achieve its planned economic revival.

So, this is where we all stand as far as the political and economic environment of the Region is concerned : namely in an unbalanced and decidedly complex situation.

For the last part of my speech, I would like to now table what are the possible strategies and tactics that could be deployed to effectively build as well as facilitate the achievement of a workable regional Asian Financial Market - strategies which in turn would, hopefully, enable the speedy and successful rehabilitation of the many of the once booming economies of the Region.

Firstly, we should realize that to implement healthy financial markets, freedom of capital movements is essential - that is the financial market framework and system needs to be adapted so as to allow free movements of global capital.

Secondly, at the same time, due to the fragile nature of many of the regional economies, there is as critical need for some degree of control to effectively manage the potentially adverse effects of the volatility within the capital markets. Such controls can only be achieved through having a means to monitor and track capital movements, so as to pre-warn any impending drastic foreign exchange disturbances and thus avoid - or, at worse, minimize - the potential recurrence of the 1997 financial crisis.

I believe, therefore, that there are two key strategies to achieve this seemingly conflicting situation: that is, there is need to foster BOTH close economic cooperation on a regional level and, and at the same time, to promote free and open competition among the regional economies.

In other words the two key strategies are: Firstly, Regional collaboration; and secondly, free economic competition within the Region

Strategy of close regional cooperation

The first strategy of close cooperation among the regional economies can be realized through having in place:

a. a thorough understanding of the scope as well as the various actual stages of the restructuring process each country is currently going through,

b. a full awareness of the degree and timing of the financial liberalization plans needed for each respective country - whereby both the time frame process for liberalization need to proceeded at its own pace for each of the regional economy as well as to accommodate the inherently varying internal political and economic situation of the member countries.

I should like to add here that such conferences will greatly enhance the achievement of both better understanding and increased awareness of the issues involve, thus hopefully leading to more effective regional cooperation.

Another aspect of close regional collaboration - and, I believe, one of vital importance - would be activities such as the recent "Chiang Mai Initiatives" that has resulted in a far clearer understanding for the need to establish bilateral stand-by credit facilities between individual countries.

Since that meeting, there have been several actual or planned implementation of bilateral credit and currency swap facilities - under which the contracting parties agree to directly assist each other by providing foreign currency credit lines in the event that either of them is facing speculative foreign exchange pressures from any third parties - as was the case leading to the 1997 crisis in Thailand.

For example: Thailand and Japan has concluded such a bilateral currency swap agreement; and during the recent visit of its Prime Minister to Bangkok, China and Thailand have also agreed in principle to actively explore the possibility to conclude a similar bilateral agreement within the very near future. Other similar agreements have been concluded also between Japan & Korea, Japan & Malaysia , and so on.

Not only would such bilateral swap facilities agreements directly benefit the two countries in question, but these facilities could also be 'networked' to indirectly benefit and cover other parties within the Region that may not yet have any direct agreements in place on a bilateral basis. Through such 'networked' agreements, a third country may leverage on an agreement between two other countries in the event it is facing some speculative financial pressure of its own.

In this manner, it would be possible to create a readily available and coordinated credit swap facilities pool that can be directly - or indirectly - deployed to assist any of the regional members in smoothening out any potential volatility in its respective financial market; and thus it would enable the Region as a whole to avoid or to more ably weather out another potentially crippling financial crisis.

It should also be noted here that also subsequent to the recent ADB meeting in Hawaii, much of the groundwork for closer intra-regional cooperation - in terms of establishing other Bilateral Swap Arrangements (BSAs) and of implementing viable financial markets monitoring mechanisms - has been achieved.

Regional competitive open-market environment strategy

The second key strategy is to have in place a competitive open-market environment among the regional members that would enhance the individual economy's key competitive advantages in being able to effectively leverage its respective core capabilities (such as inexpensive labor force, or high tech manufacturing capabilities or facilities) and its indigenous resources (such as food products supply base or other natural resources). This would enable each respective economy to develop its own 'natural niche' and would facilitate the achievement of a sustained economic development as well as real sector growth for each respective country - and, of course, for the Region as a whole.

In summary, given the inherent unbalanced and complexity issues in respect of the various political and economic systems within the Asian Region as described so far, by deploying the two key strategies of having a close collaboration while at the same time of fostering open free-market competition among the regional countries, can it be possible to create a healthy as well as viable Asian Financial Market.

But this means that a drastic rethink and redesign of the regional financial infrastructure may be needed; such as :

a. Promoting extensive intra-regional cooperation along the lines of the "Chiang Mai Initiatives', with the potential benefit of stabilizing any impending foreign exchange volatility within the Region.

b. Leveraging the vast amount of the international reserves of the regional economies (which, when combined together, forms by far the largest accumulated reserves pool in the world) to be made available as a potential counter-measure against any speculative attempts on any of the regional currencies.

c. Having a policy in place that will develop the Asian Financial Market - but a policy that recognizes and takes into consideration the different pace as well as stages of development of each member economy.

d. Recognizing that having in place a good governance framework which promotes internationally accepted practices of transparency and clear disclosures, will build the trust and confidence needed to attract foreign investments into the Region. However, for optimal 'local' effectiveness, such good governance practices within the Region would also need to incorporate some of the more positive Asian values.

e. Implementing an effective intra-regional capital movements monitoring mechanism, so as to be able to regularly follow-up, appraise and possibly head off potential speculative foreign exchange attempts within the Region.

f. Lastly, keeping in mind that, due to their sheer size and potential economic power within the Region, it is an inescapable fact that whatever economic course they take both Japan (as a well-established and leading economic powerhouse) and China (as an emerging economic giant) will have a undoubted deep impact on the development of a workable Asian Financial Market.

Thus, closer cooperation between Japan and China is essential, since they will inevitably be the key regional partners in promoting as well as maintaining intra-Asian economic and financial stability, and, more importantly, in facilitating a new economic growth era for the Region to be realized

I would like to close by saying that, in my experience, most crises eventually bring out the best in people if they are to survive it in tact. Hence, I am confident that, despite the issues and seemingly daunting challenges outlined above, through the key strategies of achieving closer regional economic collaboration and financial cooperation while at the same time allowing open free-market competitive forces to prevail, the Asia Region as whole will be able to end up economically far stronger and resilient than before, and can become a more cohesive Region in the new economic era of the future.

I hope I have been able to share with you some of the issues and challenges we face as well as what strategic directions we might all take towards the achievement of this brighter economic future for our mutual benefit.

I look forward to an interesting exchange of views in this regard during the panel discussions to come.

Thank you.