GS-8

HONG KONG, CHINA

Joseph Yam, Alternate Governor

I would like to thank the Government of Indonesia and the people of Bali for their warm
hospitality in hosting this year’s Annual Meeting of the Asian Development Bank (ADB). I would
also like to congratulate the successful conclusion of the fifth general capital increase (GCI V)
which is timely and important to ADB to respond effectively to the global financial crisis.

In the midst of the current financial crisis, most of the advanced economies are now suffering
deep recession. While the region’s financial systems seem to be largely unaffected by the first
wave of the crisis, they are now overshadowed by the second wave. Specifically, the
deleveraging process in the global financial market has already led to a reversal of capital flows
to the region, causing abrupt fall in asset prices. The liquidity together with pricing strains is
reducing private investment in the region, at a time when substantial funds are still needed to
support the development requirements. This does not only pose a considerable threat to the
long-term growth prospect but may also reverse the progress made towards the Millennium
Development Goals over the past decade.

In response to this, G20 Leaders have committed to take firm and coordinated actions to help
restore emerging and developing economies’ access to credit, and to resume private capital
flows. Multilateral development banks in particular ADB have swiftly stepped up their counter
cyclical assistance and to offset capital flight. In this regard, I welcome ADB’s recent measures
including the increase and front-loading of financial assistance, and more flexible application of
existing instruments to support investment and private sector operations in the region.

The provision of immediate and more financial assistance to developing economies in the
region is definitely helpful in mitigating the impacts of the current crisis. However, these are
essentially short-term responses. We need something more to lay the groundwork to maximize
the long-term development and to sustain the economic growth of Asia. The crisis which
involved massive failures in financial intermediation of advanced economies has highlighted the
importance of efficient financial intermediation, or the disastrous consequences with the lack of
it, and such lessons are relevant to all including Asia. In retrospect, should there be greater
financial integration and more efficient intermediation of the huge savings of the Asian region,
the region as a whole may have been better insulated from the spill-over effect of the global
crisis. It may have been, in particular, more resilient against volatile international capital flows.
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We definitely should not neglect the significant momentum that Asia has been gathering in
regional financial integration over the past decade. Major economies in the region have made
strong efforts to deregulate and deepen the financial markets and liberalise their capital
accounts. Various initiatives including further development of domestic and regional bond
markets, implementation of international financial standards, and establishment of regional
liquidity support facility are being actively pursued. And I hope that the current crisis can
provide impetus for the policy makers to accelerate their efforts on these fronts to help the
region better withstand any significant external shock in future.

Being a multilateral development bank of strategic importance, there is no doubt that ADB has a
significant role to play in promoting financial intermediation of the region. I am glad to see that
ADB is providing valuable support to the Asian Bond Market Initiative (ABMI) under ASEAN+3
forum. A number of important projects such as the setting up of a credit guarantee and
investment mechanism, and harmonisation of standards among domestic credit rating agencies,
are under way. ADB has also carried out other initiatives to improve the efficiency of financial
intermediation including long-term local currency financing for targeted sectors such as SMEs
and the recent expansion of trade finance facilitation program to support international trade at
this difficult time.

Asia and in particular the developing economies are facing unprecedented difficulties. ADB’s
role in fighting poverty and fostering sustainable development of the region has never been
more important. I certainly hope that ADB could continue the reforms to strengthen its
operational and risk management capabilities, in order to better play its significant
developmental role and to utilize efficiently the substantial increase in its resources. Hong
Kong, China looks forward to contributing positively to the efforts of ADB in meeting the new
challenges ahead.