2  BIS Review 60/2008  Climate change and environmental sustainability Another longer term issue that the world has to deal with is climate change. This is a topic of increasing importance and it is timely that Merrill Lynch has introduced the environmental theme in this year’s conference. Many countries have come to realize that economic development without taking into account the environmental cost presents a classic case of the Tragedy of the Commons. Problems caused by climate change and global warming affect all of us. As a country lacking in natural resources, Singapore sees a critical need to promote sustainable development. Singapore’s National Research Foundation has dedicated significant resources to facilitate research efforts and encourage commercial spin-offs. R&D initiatives have been complemented by both domestic and foreign investment in the areas of sustainable water and solar energy projects. Some of you would have read about Renewable Energy Corp from Norway, which is building a Euro 3 billion plant in Singapore for the manufacturing of solar modules. By 2010, NEWater, our very own water recycling industry, will be able to meet 30% of Singapore’s water demand. Singapore has also adopted a model to promote sustainable urban design for housing development, environmental management and transportation. For example, Singapore is working with China on a project to help develop environmentally friendly townships via the Singapore-Tianjin Eco-city project. Access to funding for such projects is the key to the success of developing a sustainable model of urbanization and production of renewable energy.
We are also aided by the fact that we are more reliant on traditional banking rather than the capital markets for our debt financing. Beyond the direct impact on banks, the general reduction in risk capital and financial deleveraging will be felt in Asia, through higher costs of capital. This is the downside that many companies and investors will have to confront. On the upside, this should further spur the efforts of Asian countries to make their own financial intermediation process more efficient. This can be done through a lowering of barriers to global capital and the building of channels to facilitate the growth of this capital. Global investors will increasingly look to Asia for investments as Asia remains an attractive area for growth in the long term. On the other hand, Asian companies will continue to require funds as they extend their global footprint. In this regard, lessons from the subprime crisis are timely. As Asian capital markets evolve, investors and risk managers alike will need to understand the innovations and the products as they develop. I believe that some key issues in the securitization markets will also have to be addressed, such as in origination standards. How investor confidence is restored will shape the ability of companies to tap capital market solutions in the near future. US recession and Asia’s growth story Let me now turn to the third issue, which is the impact of the US recession on Asia.