The current account balances are in surplus, the foreign currency reserves are at record highs and the external debt levels are at significantly lower levels, with improved maturity profiles. Government budget positions are broadly stronger with ongoing measures towards consolidation. Inflation has generally been contained, despite the recent adjustments due to the high oil prices. More flexible exchange rate regimes are also now in place allowing for the potential for smooth adjustments to external shocks. In this environment, foreign direct investment (FDI) has also continued to increase reflecting confidence in the ASEAN economies. In 2005, foreign direct investment to the ASEAN economies reached USD 37 billion, exceeding the pre-crisis peak of USD 34 billion in 1997. Economic flexibility in ASEAN has been enhanced Economic flexibility has always been one of ASEAN’s strengths. It has been a major element that has facilitated adjustment to the changing global environment and to external shocks. This economic flexibility of the ASEAN economies has ten years later been further augmented. This has been  BIS Review 46/2007  1  achieved by the increased labour and capital mobility, financial market development, a strengthened financial system, and the extensive institutional developments that have taken place. Economic flexibility has been important in enabling the ASEAN economies to shift to new areas of comparative advantage. Significant changes in economic structures have taken place and shifts to new sectors have occurred in response to the changing global competitive dynamics.
Specifically, the ASEAN Roadmap on Capital Account Liberalization, launched in 2003, aims to gradually achieve a freer flow of capital over the medium-term. Malaysia has since progressively further liberalised its rules for foreign exchange transactions culminating in the removal of most of the rules in April 2005. Strengthened regional financial cooperation During the 1997/1998 crisis, Asia did not come together to collaboratively and cumulatively act to contain the crisis and subsequently to facilitate its resolution. Perhaps, it was due to the nature of the crisis, its severity on the financial markets and the economies. Domestic stability had to be first restored before time could be taken to formulate a holistic crisis management solution. The instability in the currency markets lasted for about one and a half years. There was also no entity in the region during that period that provided any authoritative assessment on whether the programmes that were subsequently being implemented would in fact produce the desired outcomes. While efforts to strengthen the domestic economies and the financial systems will continue, this has now being reinforced by the improved regional surveillance including on cross border financial flows, and by institutional arrangements that would contribute towards crisis containment and management. The regional cooperative efforts going forward will continue to gain momentum. These efforts should not be seen as attempting to substitute but rather as efforts to complement the existing international arrangements.