It is difficult to say in advance what characterises a financial imbalance. A simplified way of describing a financial imbalance is that households, businesses and for that matter also the state base their decisions on increased indebtedness on expectations of the development of wealth and coming real incomes which are then not realised. When this becomes evident, major sacrifices must be made to be able to pay debts. The macroeconomic costs can be high when households are forced to reduce their consumption and businesses their investments to be able to adapt their balance sheets to new expectations. If the problems are so extensive that certain groups quite simply cannot pay their loans, the crisis can spread to the bank system and the macroeconomic costs in the form of unemployment and low growth rise further. These are questions that are discussed frequently and at length with regard to the US economy. There, demand by households and businesses for consumption and investment goods are to a great extent financed on the capital market. Strong growth in wealth and expectations of continued high production growth have driven forward development and this has also been reflected in share prices. A large part of demand has leaked out in imports and there have been continual large American current account deficits. This has been able to happen without inflation speeding up which has to some extent been due to the strong development of the US dollar.
And for the new challenges to be met and the new opportunities to be exploited, there is often the need for new approaches and new initiatives, at both the national and international levels. There is a view, for example, that trade integration in the region has not been adequately served by financial integration, given restrictive controls on capital mobility still being practised in selected jurisdictions. As a result there is some doubt as to whether the long term development potential of the region has been maximised and whether the rapid economic growth the region is experiencing is sustainable. There is further concern from the point of view of the maintenance of monetary and financial stability. New approaches and new initiatives are indeed necessary to promote greater financial integration in the region. I am sure there are many other areas concerning development of the region in which new approaches and new initiatives may be desirable. Being a regional financial institution of strategic importance, it is obvious that the ADB has a significant role to play. I would argue that this should be a role of increasing significance, or even a pivotal role, given the increasing interdependence among jurisdictions within the region and therefore the greater need for regional co-operation. The ADB has the right institutional framework for promoting such co-operation, and I am glad to see that under the leadership of the President there has been increasing involvement of the ADB in regional financial cooperation recently.