Interestingly, the higher interest rates have been attracting some inflow of funds into the Hong Kong dollar, as investors took advantage of the higher return and as borrowers chose to finance their activities by raising US dollars and switching them into Hong Kong dollars, being comfortable about a little currency mismatch given our strong commitment to the link with the US dollar. As a result, Hong Kong’s foreign reserves have continued to 19 Foreign currency assets as at end of: $ billion  June 1997 July 1997 August 1997 September 1997 October 1997 November 1997 December 1997 January 1998  82.9 81.7 85.3 88.1 91.4 96.5 92.8 98.1  BIS Review 19/1998  -8grow, contributing further to the easing of Hong Kong dollar interest rates at the longer end of the yield curve. Pain of Adjustment 26. There is no doubt, however, that the discipline of the currency board system requiring rather harsh adjustments through interest rate changes means that there are innocent parties who may rather unfortunately be affected. I am conscious of the plight of, for example, the businessmen who happened to have interbank rate related loans due for interest rate fixing on 23 October 1997, or the home mortgage payers who have now to live with a mortgage rate, after two increases, which is 150 basis points higher than before, or those who have been investing their life long savings in the stock market, the property market and other asset markets, seeing these markets fall under the influence of higher interest rates.
This trend is particularly pronounced in the APEC economies in which the economic activities are now more diversified – with the growing importance of the services sector, with the agricultural sector becoming more advanced and the industrial sector being supported by a supply chain of small and medium scale businesses. In the APEC region, SMEs account for 90% of the total business establishments and 60% of total employment. In Malaysia, SMEs constitute 99% of all businesses and 57% of total employment. In terms of output, the SME sector in Malaysia accounts for 35% of gross domestic product and 20% of total exports. The SMEs have the advantage of having greater flexibility and the ability to adjust more quickly to changes in the market. The SMEs also have the potential to meet the new challenges to raise productivity and performance. There is therefore enormous potential for SMEs to create significant positive value for the economy, and thus contribute towards sustainable and balanced economic growth, employment and social stability. This morning allow me to take this opportunity to share with you some reflections on SMEs in the more globalised economy, and the role of financial institutions and Governments in supporting the SME sector in the future environment. Prospects for SMEs in a more globalised economy Globalisation has been described as one of the defining changes of the 21st century. More importantly perhaps, is the dramatic change in the nature of the globalization process.