Coupled with extremely accommodative monetary conditions globally, we can expect increasing inflow of funds to many emerging economies, including those in Asia, in search of yields. Managing this inflow so that it supports growth, and not drive excessive asset inflation, will be challenging. Policymakers will need a variety of tools. Economic restructuring in Asia Beyond the immediate challenges, the second set of issues that Asian policymakers will have to grapple with relates to the re-structuring of their economies. Business-as-usual policy will not work. The world has enjoyed a positive supply-shock with the entry of emerging economies into the global economy. We have had a period of Great Moderation. But this supply shock also creates new competitive dynamics, which will drive changes in the patterns of trade, production and growth in the coming years. The adjustments to these changes will be neither easy nor smooth. As unemployment in some advanced economies mount, the risk of trade and financial protectionism rises. Rapid changes in the real economy will generate greater uncertainty, and potentially greater volatility in financial markets. Over the next few years, Asia is likely to grow more slowly compared to pre-crisis days, when external demand from advanced economies weakens. To sustain growth, Asian economies with big domestic markets will need to continue with structural reforms to boost domestic demand. Smaller Asian economies will have to re-orientate their economies to respond to new opportunities in these markets.
Heng Swee Keat: The next stage – policy challenges in Asia Keynote address by Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, at the Paris Europlace International Financial Forum, Singapore, 26 October 2009. *  *  *  Governor Noyer, Your Excellencies, Ladies and gentlemen, Good morning It gives me great pleasure to join you today at this Paris Europlace International Financial Forum. Let me warmly welcome Governor Noyer and our overseas visitors to Singapore, and welcome Mr Bresson and your team for holding this Forum in Singapore. Policy challenges ahead A year ago, the global financial community was grappling with a severe crisis that hit every part of the globe and every sector. We were on the edge of an abyss. The timely and forceful action by authorities, including the use of unconventional monetary policy tools, helped avert the worst. In recent months, the global economy and financial markets are showing signs of stabilization. Though we are yet to see a firm or sustainable rebound in final demand, there is a sense of relief, even optimism. Now, what’s next? What will be the shape of the recovery, and what policy actions are appropriate? It is difficult enough to make policy judgments in normal cyclical downturns. It is even harder now that this downturn is not a garden variety recession.