Governor's Statement
Speeches
11 May 2002
Governor's Statement
Joseph Yam, Alternate Governor, Hong Kong, China
(Speech at the 35th Asian Development Bank Annual Meeting, 10 - 12 May 2002, Shanghai)
- Mr President, I would like to first congratulate you on your
re-election as the President of the Bank. I would also like to
thank the Government and the people of the People's Republic of
China for their hospitality in hosting this year's Annual Meeting
in this magnificent city of Shanghai, itself a powerful symbol of
tradition and modernisation. I also express my sincere appreciation
to the Bank's management and staff for the excellent arrangements
made for this meeting. I join others in adding our special welcome
to our new member of the Bank - Portugal.
- Poverty is reduced more extensively at times of fast economic
growth but less so when growth slows. The past year has been a
difficult one for the poor. Amid the synchronised slowdown of major
industrial economies, economic growth has been slow and uneven in
Asia. The terrorist attacks on the US on 11 September shocked the
world. The Enron debacle and the Argentine economic crisis cast
long shadows on the equity and financial markets worldwide. Against
this background, the task of poverty reduction is made more
daunting and pressing.
- However, I must commend the Bank for meeting the challenges of
last year by mapping out and implementing the Long-term Strategic
Framework. The framework seeks to reduce poverty through three core
areas of sustainable economic growth, inclusive social development
and good governance. The strategy is a sound one as it does not
focus solely on physical infrastructure, i.e. the building of
roads, bridges and other "hardware", but also on the "software" of
policy and institutional reform in the public and the private
sectors. The Strategic Framework also attaches importance to
private sector development, particularly in the fields of finance,
banking and corporate governance.
- The quality of the "software" of a developing economy is
precisely what international investors are looking for as they
return to Asia. At a time when Asian economies are showing
incipient signs of recovery against an improved external
environment, international capital flows are triggering back to the
region but in a more cautious and discriminate manner than before.
Investors are now a lot more selective about who may lend to and
where they put their money. International capital flows from OECD
markets to Asia, in the form of bank credits, foreign direct
investment and portfolio flows, have dropped significantly in the
last few years. In the case of bank credits, total flows declined
by about US$200 billion during the 1997-1998 period, although the
decline has been at a more moderate pace in the last two
years.
- In the light of this, it is important that the Bank plays a
catalytic role in mobilising resources within and outside of the
region. One approach to this challenge would be for the Bank to
return to basics and improve the three channels of financial
intermediation, namely, banking, equity and debt, through a number
of measures. First, the Bank could increase investment in the
financial infrastructure in Asia. Just as physical
infrastructure, such as airports and highways, facilitates the
movement of people and goods, financial infrastructure, such as the
payment and settlement systems for the banking and securities
sectors, facilitates the safe and efficient movement of money. The
importance of a robust payment and settlement system in this region
is underscored by the events of 11 September.
- Secondly, the Bank could expand the technical assistance
programme to assist economies in restructuring the banking
sector. Small and medium-sized enterprises employ the most
workers in Asia and they are mostly dependent on bank financing.
The banking sector in Asia, devastated by the Asian financial
crisis, has not fully recovered. Banks understandably are adopting
a very conservative lending strategy towards companies with a lower
credit rating, such as Small and Medium-sized Enterprises. The
Bank's assistance in speeding up the banking sector reform would
help SMEs to get back on their own feet, thereby reducing
unemployment and poverty.
- Thirdly, the Bank could expand assistance in building up the
institutional capacity of individual economies to improve
corporate governance in the private sector. Emphasis
should also be made to improve the auditing, disclosure and
transparency standards of publicly-listed companies. As seen in the
Asian crisis and again in the Enron incident, good corporate
governance is critical to restoring investor confidence in the
equity markets.
- Fourthly and lastly, the Bank could assist with the
development of the bond market in Asia. Clearly the
financial intermediation process cannot be dominated by one or two
intermediaries. Earlier, in 1990, when it was the banks in the
United States that seized up as a consequence of a collapse in the
value of real estate collateral, the capital markets were able to
substitute for the loss of bank intermediation. In Asia, there is
considerable room to develop a bond market to serve as a back-up in
case of any systemic disruption in the banking and equity
channels.
- In this connection, I fully support the Bank's Private Sector
Development Strategy which aims at catalyzing private investment
through direct financing, credit guarantee and development of
financial intermediaries. I also note that the Bank's loan
contribution to the finance sector has seen significant increase,
from 3% in 2000 to 11% in 2001.
- Mr President, I am confident that under your leadership, the
Bank will help Asia return to stable and sustainable growth and to
enjoy prosperity. Thank you.
