But the worst time to introduce them is at the peak of a financial crisis, after the capital has already bolted. And capital controls are not a solution for all economies. For an open economy like Hong Kong they are unthinkable, as well as illegal, since our Basic Law prohibits them. Given that one of the themes of this talk is the dangerous state to which the world financial system has been brought by volatile cross-border fund flows, it is perhaps appropriate for me to restate here Hong Kong’s commitment to economic liberalization and globalization. This is, in my view, the only long-term viable way forward towards a more productive use of resources and more even economic growth throughout the world. The problems that we now face should not cause us to overlook the many advantages that globalization has brought to our region. The current crisis has not demonstrated that this is the wrong path to follow - merely that BIS Review 2/1999  –7–  that there are dangers and instabilities that have to be tackled. And if the imposition of temporary exchange controls is the only alternative available, responsible commentators should at least have the courtesy of giving a little respect to those in the most unenviable position of having to take difficult decisions that they consider to be in the best interests of their people.
We managed to survive this strain by taking, on the one hand, unconventional and controversial measures to prevent market dislocation that could have been very destabilising, and, on the other hand, belt and brace measures to strengthen the defence mechanism of our financial system. I am pleased to say that these actions have been successful, as reflected in the marked change in sentiment in our markets and the sharp fall in the interest rate premium for our currency over the US dollar. Although we continue to endure what has become a very painful economic adjustment, we can now work through this adjustment without it being grossly exacerbated by the kind of extreme market overshooting brought about by the manipulative attacks we faced last summer. The adjustment taking place is rapid and pronounced: we saw a decline in asset values of some 50% at the peak of the crisis, a doubling of our unemployment rate to around 5.5% and a fall in our GDP last year of 5%. However, if this is the adjustment necessary to re-establish our competitiveness we have, and are prepared, to accept it. But we can do without the collateral damage and general trauma of overshooting experienced by so many other economies in the region. We believe that our fundamental strengths can help us through this adjustment, just as they have helped us through the many other transitions of the past few decades, whether economic or political.