On this, I see substantial scope for the pace of financial integration in East Asia to be gaining more momentum going forward as the constraints that used to limit the pace of integration begin to unwind. First, the external positions of the economies in East Asia have now become much stronger, with current account surpluses, substantially lower external debt, and larger international reserves. Second, Asian savers themselves increasingly want to diversify their savings abroad in search for better yields while Asian firms also look for better opportunities to lower their costs of fund by tapping funds from external sources. Reflecting these two factors, we are seeing a reorientation of policy in the region to make cross-border capital outflows more liberal without compromising the risk on macroeconomic stability. And the third factor is that Asian financial institutions are now back in good health after a period of restructuring and consolidation. So, we are likely to see Asian financial institutions becoming more active in intermediating cross-border capital flows within the region, as they explore new business opportunities based on their expertise and knowledge of the region. All these factors, I think, will set in train a stronger momentum of cross-border capital flows within the region in the period ahead. And under such circumstances, what then should be the role of policy? Government policies, in my view, have played an important role in the development of East Asian financial markets.
The important ones have been the Asian Bond Market Initiatives under ASEAN+3, the launching of the Asia Bond Funds I and II under EMEAP, and the Roadmap for Monetary and Financial Integration undertaken by ASEAN. The key rationale underlining this cooperation is the desire to develop resilient and robust regional financial markets, especially the capital markets. Such markets will allow the private sector in East Asia to better manage risk, as well as to reduce the dependency of the region on its banking sector. Moreover, better financial integration means saving surpluses of Asia will be better mobilized to support investment activities in Asia, thereby increasing the efficiency of resource use. And more importantly, greater cross-border financial flows will help sustain and expand intra-regional trade and investment onto the next higher levels. But despite the recent progress, many observers have noted that, while the progress is well and good, financial integration in East Asia seems to lag behind that of trade integration. As a result, East Asia as a region continues to be more integrated financially with markets outside the region than within the region. I think this is a valid and fair observation, but such observation needs not mean that financial integration in East Asia, going forward, will continue to be a slow process. In my view, specific factors have come into play in limiting the pace of integration in its initial stage, but as these factors become less binding, one will begin to see a more solid and faster pace of financial integration.