Discussions continue, as part of the review initiated by the Financial Secretary, and I look forward to more of the technical scrutiny of ideas which can be quite enjoyable and revealing. 19. Meanwhile, elsewhere in the region, the full doses of the medicine prescribed by the IMF for a number of the Asian economies are being dutifully and courageously taken. If they persevere, they stand a good chance of coming out of this financial turmoil quickly and the damaging contagion that has spread across the world would be effectively contained. And for the longer term, I am hopeful that the new framework for enhanced Asian regional cooperation to promote financial stability, agreed upon at the Manila meeting of Asian finance and central bank deputies, and subsequently endorsed by APEC economic leaders at the Vancouver meeting, would play an effective role. 20. The framework, which recognizes the central role of the IMF in the international monetary system, includes important initiatives: first, there will be established a mechanism for regional surveillance to complement global surveillance by the IMF; second, there will be enhanced economic and technical cooperation particularly in strengthening domestic financial systems and regulatory capacities; third, there will be measures to strengthen the IMF’s capacity to respond to financial crisis; and BIS Review 115/1997  -5-  fourth, there will be a cooperative financial arrangement that would supplement IMF resources on a case by case, contingent basis. 21.
It has also been suggested that  2  BIS central bankers’ speeches  monetary policy should respond directly to capital flows and exchange rate for example. Can a single policy interest rate target all these objectives simultaneously? Of course, in fortunate coincidences where these objectives do not conflict, there is no dilemma. More often than not, however, the policy choices will involve a trade-off between different objectives. Policymakers will have to weigh carefully the costs and benefits of a policy decision. Given multiple macroeconomic objectives, there is a need for supplementary tools to truly minimize the costs of these tradeoffs. As the first example, what policy instruments can be employed to address risks to external stability? In many emerging market economies, one often finds problems of exchange rate dominance, namely the risk that exchange rate considerations dominate the conduct of monetary policy and distract central banks from the main goal of price stability. The simplest way to address this problem would be to allow for exchange rate flexibility as the first line of defense. Of course, this does not and should not rule out interventions to limit excessive exchange rate volatility. That is the next line of defense. Should the situation warrant, some type of capital flow management measures can be deployed in exceptional circumstances of sustained and substantial exchange rate overvaluation.