Monetary policy did not get traction quickly, in part because the authorities were worried that producing higher real interest rates to stem the decline in the exchange rate and offer a higher return to attract flows back into the country would exacerbate the confidence problem, by causing a deeper contraction in growth. BIS Review 91/2006  1  In some cases, a history of high inflation, fiscal profligacy or default magnified the difficulty of restoring confidence. In almost every case, this dynamic was exacerbated by political conditions, a looming election or leadership succession that raised uncertainty about the competence and credibility of future economic policy. Things look dramatically different today. If you compare an aggregate or typical emerging market balance sheet today with the equivalent from a decade ago, the improvement is striking in a number of dimensions. Current account balances have gone from substantially negative to positive. External debt has fallen as a share of GDP. Reserves have grown to remarkable heights and are now a substantial multiple of short-term external debt, annual external debt service, or other traditional metrics of the scale of potential claims on reserves. Public debt burdens are higher, but the composition of debt is less risky, with longer maturities, a greater share denominated in the currency of the sovereign, and more fixed rather than floating interest debt.
Access to Markets Third, Southeast Asian economies need to boost external demand by strengthening their access to the major developed markets. In the short term, there is little we can do about the cyclical downturn. But for the longer term, favourable and assured access to key trading partners will allow Southeast Asian countries to maximise benefits from free trade and globalisation, and make themselves more attractive to investors. One basic approach is to promote multilateral trade, and contribute to a successful outcome of the Doha Development Agenda of the World Trade Organisation (WTO). But we need to complement the multilateral approach with bilateral Free Trade Agreements (FTAs) with our key trading partners. This is why Singapore is actively pursuing an FTA strategy. We have concluded FTAs with New Zealand, Japan, and the European Free Trade Area (EFTA), and hope to conclude agreements with the US and Australia very soon. Singapore’s aim is not just to boost our own trade links with our FTA partners, but also to catalyse broader economic engagement between ASEAN and its trading partners. This is indeed happening. After New Zealand concluded its FTA with Singapore, Australia and New Zealand proposed starting a Closer Economic Partnership Agreement with ASEAN. Last year, ASEAN and China agreed to set up an ASEAN-China FTA within 10 years. Weeks later, Prime Minister Koizumi of Japan proposed a Japan-ASEAN Comprehensive Economic Partnership, to be modelled on the Japan-Singapore bilateral agreement.