Capital adequacy ratios were raised and a more risk-differentiated view was taken of bank assets. Risk management systems were made more robust. It was in large part because of these changes, that Asia was better able to withstand the global financial crisis in 2008 and 2009. 18. But much work remains to be done in one important area. Developing Asia needs to continue to develop its capital markets. The Asian financial crisis was essentially due to a double-mismatch in bank financing – currency mismatches and maturity mismatches. This is where strong capital markets can play a useful role in allocating capital in a more balanced and efficient manner. They also help to deepen financial intermediation, so as to facilitate the deployment of the region’s high savings for investment within the region. 19. This was why, nearly ten years ago, the ASEAN+3 countries (namely the ten nations of ASEAN together with China, Japan and South Korea) introduced the “Asian Bond Markets Initiative (ABMI)”. The ABMI has had a good start – the Asian corporate bond market has grown by more than 2.5 times during 2002 to 2010. But it is still too small relative to the size of Asia’s investment needs. It needs to be more liquid and diverse. Access to capital market funding is still mostly restricted to large conglomerates and government-linked companies. 20. Emerging Asia is also under-represented in the equity universe.
Firms are the basic economic agent, since they take most of the economy’s production decisions and their management, strategy, adaptation to demand and use of resources ultimately determine the economy’s growth rate, productivity and competitiveness abroad. Given the weak national demand with which they are faced, firms will evidently give their utmost attention to managing their productive processes efficiently. In particular, the surge in oil prices will force them to review the energy consumed in production. Although oil prices have moderated in the last few weeks, the uncertainty surrounding this market makes it advisable to maximise efficiency in oil use. In this respect, progress has to be made in introducing competition in the energy market and, at the same time, taxation must be revised to stimulate energy saving, since this input represents a significant burden on Spain’s trade balance. Spanish firms are tackling this phase through three lines of action, which the authorities should support. First, firms are reviewing their growth strategy in Spain. They are analysing the markets in which they compete, but also others in which they still do not and to which demand may shift in the future. Firms will try to see beyond the next few years of low growth to identify opportunities and imagine what the forthcoming needs and demands of consumers will be, in order to position themselves advantageously in those business areas.