Yes, it was the result of hard work, high savings, stable governments and good aspirations. But no one can deny that Asian corporations rank amongst some of the most productive and efficient in the world. Perhaps we were victims of our own success. Global capital inflows were the most sincere form of flattery, and those of us who succumbed to the easy money have now wakened to new challenges and risks. 38. Asia is now in a new growth league, with greater global competition. The adjustments will not be easy, especially building stronger and more robust financial systems to handle the new risks of globalization. There is a new realism in Asia, that however painful the adjustment, BIS Review 109/1997  -8-  we have to make the necessary changes. As competition intensifies at all levels, there can be no reversal to the globalization, and we simply have to recognize that we live in one globe and we share the same growing pains. I am confident that Asia’s basic strength of flexibility, realism and pragmatic policies will see the region through, with a little bit of help from the IMF. In the words of Mr. Michel Camdessus, IMF Managing Director, what has happened is a blessing in disguise. Asia will emerge stronger and more resilient, and it will continue to be a pillar of growth in the new global economy. BIS Review 109/1997
This annual expansionary fiscal impact poses a challenge to stabilisation policy in general and monetary policy in particular. Underlying real expenditure growth has exceeded mainland GDP for the last 4 years. Nominal growth in 2002 is 7 per cent. (The deflator, mainly wages, is 4½ per cent). Measured as a share of GDP, public expenditure is growing rapidly. In 2002 alone, this share will increase by some 2½ percentage points. According to the Revised National Budget, an increase in expenditure of 7 per cent this year will lead to an estimated growth in public sector consumption of only 1½ per cent. The rest will be spent on government transfers and wage growth. This is consistent with close adherence to the new fiscal guidelines. The new guidelines for fiscal and monetary policy were introduced simultaneously, and are not independent of each other. Fiscal policy is geared towards the phasing in of oil revenues; monetary policy has been given a more explicit responsibility for macroeconomic stabilisation. Monetary policy is to be oriented towards low and stable inflation. The inflation target is set at 2½ per cent. Monetary policy affects the economy with considerable and variable lags. The key rate is set on the basis of an overall assessment of the inflation outlook two years ahead. If it appears that inflation will be higher than 2½ per cent with unchanged interest rates, the interest rate will be increased.