Asia Society Hong Kong Center

"The Asian Financial Crisis: Ten Years On"

A Panel Discussion with
STEPHEN SCHWARTZ, Senior Representative, IMF;
MICHAEL SPENCER, Chief Economist, Asia, Deutsche Bank;
JIM WALKER, Chief Economist, CLSA;
and MARK CLIFFORD (moderator), Executive Director, Asia Business Council

Sponsored by Heidrick & Struggles

J.W. Marriott Hotel, Salon 4
Friday, November 2, 2007

MARK CLIFFORD (MODERATOR): Thank you very much, Alice, for that kind introduction. I'm not sure I'm the most qualified person to moderate this panel, but I do know we have three of the most qualified people to talk on this subject. Two of them, in fact, have actually worked for the IMF. Well, Steve Schwartz obviously still works there as the country head in Indonesia. Michael Spencer of Deutsche Bank had previously work at the IMF. Well, Jim Walker's the guy who hasn't worked at the IMF. We're going to start with. I'm going to be very brief in the introductions because we have a lot to cover.

We have some of the best assembled brain power on this subject to my right. You all have the speaker bios, but very briefly, Jim Walker is CLSA's chief economist. He's based in Hong Kong. He's been with CLSA since 1991. And he has studied economics in Scotland, which is I believe his native land. For anyone who follows the markets and looks at research, he is often among the boldest commentators and sometimes one of the most bearish as well. Why don't we start with Jim, who will talk for about 15 minutes about the lessons that have been learned from the past and answer the question of whether of not the region is prepared for another shock. So, Jim. Thank you very much.

JIM WALKER: Thanks, Mark. You'll be able to tell maybe already that not only did I study in Scotland, I was born in Scotland and grew up in Scotland and occasionally I still have a Scottish accent. And yes, I've never worked for the IMF and I doubt very much whether they'll ever ask me to go and work for them. Maybe some things will change if we get an Austrian as the head of the IMF at some point. I can explain that comment later.

Let me take you back to 10 years and four months ago to the day, because if we were having this meeting at that point, everybody would be sitting, talking about what just happened in Thailand. The, I suppose, earthquake that was known as the collapse of the Thai baht. [Say] This is a meeting taking place 10 years and five months ago, rather then 10 years and four months ago. Because 10 years and five months ago, we would have been debating the future of Asia as if nothing in the world could go wrong. And when I go round our client base in the UK, in Europe, in the US, in Singapore, in Hong Kong, basically the view at the moment is that nothing in the world can go wrong with the Asian story. And in particular, nothing in the world can go wrong with the China story, because as we all know China's immune to many earthquakes that might affect the US and other financial systems there or indeed in Europe and elsewhere. I'm going to come back to that because I don't think that's quite right.

Let me take you to the lessons of the Asian crisis and what's been learned over the course of the last 10 years. Because some things have been learned and there are some I think major positives about the region now that didn't exist 10 years ago. The main thing is that the clean up in corporate and household and bank balance sheets has been quite extraordinary since the Asian crisis.

Debt levels were in many countries running at over 100 percent of GDP. We were looking at the position in 1997, foreign borrowing was a huge part of those debt levels and countries had basically mismatched their own currency with the US dollar. It was cheaper to borrow in dollars than in most currencies around the region. That encouraged people to do the borrowing. And it doesn't take an awful lot of encouragement when people think they have a fixed exchange rate to undertake borrowing and actually put currency than the one they actually make and live with.

So the big [result] in Indonesia is people have become a lot more cautious. Particularly this has been true on the individual and the corporate level. And today perhaps a slightly worrying feature on the other side is just how low bank loan to deposit ratios are across the region and how much they've been falling for the last 10 years with one or two exceptions—Korea is a very significant exception—but almost across the rest of the region we've seen bank lending low relative to deposits. And what that means is that people's debt levels are very manageable, profit debt levels are very manageable. This certainly would be the case with another view of the world- we go into a very significant global recession over the course of the next 12 months, then Asian corporates and Asian individuals are in extremely good shape to withstand that slowdown. So the good lessons of 1997 and prior to 1997 are that people basically have become much less debt loving, much more? risk averse in terms of their credit standing. That's actually very similar to the process that took place after the Great Depression in the US.

We wrote a piece a few months ago about the way that markets are and the way the people are in Asia today following the Asian crisis. The piece is an invented one, as you know. We sometimes we like to do that. But the invention is that people are scared of the good times, and they're not willing to take on too much risk, even when things are doing well. So it took Americans 30 years to start re-gearing after the Great Depression in 1929. The corporate sector debt to GDP ratio had fallen to 29 percent by 1955, having been over a 100 percent in 1929. And it was in the 1960s that they started borrowing again.

Most people around the room probably think that Americans never have stopped borrowing. That's not the case. It certainly is a relatively new feature that we borrow increasingly and worryingly. In Asia the borrowing levels were extremely high, and now the borrowing levels are very reasonable. The good news is for any shock to the global financial system, to the global economy, households and corporates in Asia are in great shape to actually take advantage of that and to withstand the earthquakes.

Now the bad news—the next prop. This is yesterday's Wall Street Journal—it's well worth digging out, reading again. Especially two of the stories on the front page because they tell you that while households and corporates and banks have learned a lot from the Asian financial crisis, governments in this region have learned nothing, which is a real pity. One particular government has learned very little, and that's the Chinese government. More on that in a second.

In Hong Kong, we have a formal peg. The story in yesterday's front cover is about ‘Hong Kong Fuels Strain against Flood of Money.' During most of the early 1990s, the mid 1990s, up until 1997, that was the same story in the rest of Asia. The whole region was feeling the strain of a flood of money that was coming into a high growth area of the global economy. Sounding familiar? Ten years ago that was the story. Today it's exactly the same story, and the biggest country in the region, which is China, and where all of the attention is focused, is making exactly the same mistakes as governments in the rest of the region made in the mid-1990s, and that one government in the region made in the 1980s, which is Japan.

The fixation in Beijing at the moment is with not making the same mistake as Japan during the run-up to the Japanese 10, 15 years of no growth. Well the unfortunate comment about that is they've already made the same mistake. There was a conference a couple of weeks ago and an official from Beijing was talking about learning lessons from the Japanese experience. The main lesson is that the yen was forced to appreciate by the Americans and by others around the world far to fast for Japan's own good and the result of that over the course of a five year, four year period was eventually to run into the Japanese bubble and then the Japanese crisis. The solution of course was to make sure all of the pressure from the U.S. and elsewhere for the RMB to accelerate this appreciation is withstood.

Quite interestingly the person sitting next to the Beijing rep was a monetary policy committee member of the Bank of Japan, who then spoke after her, and his comment was that the biggest mistake that Japan made was not letting the yen rise fast enough in the 1980s. Because by not letting it rise fast enough and holding the yen down, what they eventually did was flooded the whole Japanese system with money.

There was a huge credit bubble, property prices went through the roof. We all know the story about the emperor's palace being worth more than California, etc, etc. The stock market went to 40,000 and then we had a crash, which is unfortunately exactly what is going to happen in China. Because China has been holding down the currency and flooding its system with money. A lot of that flood is channeled through Hong Kong, which doesn't help Hong Kong either in terms of asset prices.

You might think asset prices going up is a good thing. It's a great thing for as long as you get your money in the market and then you take it out of the top. Unfortunately I have yet to meet somebody that managed to get their money out of the top in any of these markets.

The story today is exactly the same as countries, in particular China, are holding the currencies down, they're having to buy local currency to stop the currency appreciating because of the flood of US dollars coming into this region and coming into all countries in this region. The result of that is tremendous asset price appreciation, property price appreciation and eventually it will be general price inflation.

That's the lesson that governments around this region have not learned. The other lesson I'm afraid they failed to learn was the second story on the front page. "The US cutting interest rates" is not a story at all. I'm worried about the second story, "China Rises Price of Fuel Amid Shortage." There's no shortage of oil in the world economy, there's no shortage of oil products in the world economy. But when you hold prices down for whatever reason—subsidising manufacturing, subsidising your production processes and trying to keep inflation under control—what you tend to do is set up systems that make people in markets react to those price distortions.

The reaction at the moment in China is for product producers to keep products off the market because guess what? The input cost of crude oil are much higher than the price they can sell their output. So unless they get a government subsidy, which of course Sinopec does, then they make losses and that means that there's no point in supplying the product, hence the reason they've got shortages. Of course oil prices are going to have to go up. At the moment, China is operating on an oil barrel that is about 50 dollars per barrel. The global economy is operating on 96 at the moment. So there's quite a gap between Chinese domestic oil prices and those in the rest of the world. I'd say that sets up huge distortions. That sets up the wrong industries. It sends all the wrong price signals along with an exchange rate that sends the wrong price signals and I'm afraid along with interest rates that sends the wrong price signals.

The second part of the topic that I was charged with talking about was that is there another Asian crisis on the horizon? And in my view there is. And that Asian crisis is a recession in China, and that recession in China is already set in motion. It will, I think, be finally realised when the demand-side of the global economy can't run fast enough to meet the supply-side of the Chinese economy. And that's already a struggle for everybody else to absorb how much China is producing that it can't demand itself, can't absorb itself. Over the next two years, I think we're going to feel the force of that supply-demand mismatch which has been set up by all these price distortions, which is exactly the same as happened in 1997.

Thank you.

MODERATOR: Well, as I said, Jim always speaks his mind and is sometimes bearish. I guess it's one of those days. I'd like to introduce Steve Schwartz next. Steve has quite a different perspective for many reasons. He is based not in Hong Kong, not in China, but in Jakarta he is the IMF's resident representative. He's been there since the summer of 2004. More pertinently for the purposes of today, Steve was working with the IMF on Thailand during the crisis. And he's been with the IMF since ‘'92. He has a long experience, most of that time in Asia and East Asia. He's also lived in, worked on India, Singapore, and Korea. So Steve is tasked with telling us whether or not the reforms instituted after the crisis have been far-reaching enough and what changes still need to be made. So now that Jim set you up, Steve, please go for it.

STEPHEN SCHWARTZ: Thank you very much, and Mark, thank you for the warm introduction. Thank you to the Asia Society for inviting the IMF and myself to participate today. I think Jim's remarks highlighted a number of risks facing the region and certainly the IMF has pointed to some of those downside risks. I enjoyed listening to Jim's remarks. However, I think he made an already chilly room even colder. But I'll try to be a little bit brighter and warmer, and warm things up in just a moment.

For the past few years, as Mark said, I have been posted as the IMF resident representative in Indonesia. Indonesia is arguably one of the countries most severely affected by the Asian financial crisis of 10 years ago. Indonesia is also an example of how far-reaching the reforms across the region have been and the benefits of those reforms are now very much evident in Indonesia. Vulnerabilities have been significantly reduced. Macroeconomic stability is now well entrenched, and the economy is on an increasingly sound footing for future growth. Beyond Indonesia, we see the results of the reforms across most countries today. Asia as already has been said, is the most dynamic region in the world, accounting for close to half of global growth.

As painful as it was, the financial crisis of 10 years ago proved to be only a temporary setback for the region as a whole. And while new crises, perhaps in a different form in nature, as Jim alluded to, cannot be ruled out, vulnerabilities and risk have been reduced. I've been asked by the organisers to address the question of whether the reforms have been far-reaching enough and what challenges still need to be addressed. My remarks, I should say, draw very heavily on a recent chapter in our just-published latest regional economic outlook, which is available on the IMF's website. We have a chapter in there that looks at this very question about the reforms to date and the changes that still need to be made.

To begin, let me just set the stage by taking a very brief look back at the crisis. As Mark mentioned, I worked on Thailand during the crisis, and some of the memories for me are quite vivid of the turbulent times from 1998 and ‘99 in particular. As you know, the Asia crisis was unprecedented in its nature and severity. With the exception of Thailand and Malaysia, which had large current account deficits, traditional macroeconomic imbalances were not evident beforehand. Rather, financial and corporate sector weaknesses which were not fully apparent at the time were at the root of the crisis. Other causes included pegged exchange rates that encourage excessive, un-hedged borrowing and a lack of policy, transparency and data availability. The specifics of the crisis differed from country to country, of course, with banking and real estate imbalances more prominent in some countries such as in Thailand and Malaysia. Or corporate imbalances more significant in others, such as Korea and Indonesia.

However, a common theme across all of the affected countries was that they had accumulated large, un-hedged foreign exchange liabilities, which were used in turn to support excessively high, corporate debt equity ratios across the region. This left the region vulnerable and set the stage for a sudden reversal of investor sentiment and international capital. While pressure in the form of corporate default has been growing and non-performing loans had been growing for some time, it was the devaluation of the Thai baht in July 1997 that served as a wakeup call to others in the region. With information lacking on the true level of non-performing loans and corporate indebtedness, nervousness spread quickly across national borders regarding the soundness of financial institutions and corporates. This led to a vicious cycle of capital outflows, plummeting exchange rates and imploding balance sheets.

Private demand, as you know, collapsed and output declined sharply across the region. In response, the international community acting through the IMF provided substantial financing packages in the case of Thailand, Indonesia, and Korea. More broadly, governments across the region adjusted policies taking strong and appropriate action. The objectives were to restore macroeconomics and external stability and to address the weaknesses that had become apparent in the corporate and financial sectors, as well as to improve transparency and availability of data.

Looking back, a central lesson of the crisis, in our view, is that to reap the considerable benefits that financial globalisation has to offer, and to limit the risks, macroeconomic frameworks in financial sectors must be robust. This requires meeting certain standards on institutional quality, governance and transparency—preconditions that were not fully met in the Asian region prior to the crisis.

The reforms instituted since the crisis can broadly be categorised into three areas: First, changes to macro economic frameworks. Second, improvements in banking supervision and accounting standards. And thirdly, improvement in transparency and governance. Turning to the first, macroeconomic framework, the most prominent feature has been a shift toward greater exchange rate flexibility. While most central banks in the region have intervened heavily in foreign exchange markets in the recent past and built up large stores of stocks in international reserves, most of them have allowed for increasing exchange rate flexibility.

The exceptions, of course, are China, as Jim alluded to, and Malaysia. But even in these countries some upward flexibility against the U.S. dollar has taken place since 2005, and we would certainly argue and have argued that it is in the interest of these countries to allow even more upward flexibility. First and foremost, it's in their economy's own interests, as Jim mentioned.

At the same time, many countries in the region have implemented inflation targeting frameworks, which has facilitated their efforts to anchor inflationary expectations and deliver a stable macroeconomic environment. On the fiscal side, policies have taken on a longer term perspective allowing debt sustainability to be more firmly entrenched.

The second reform, significant improvements in supervision and prudential regulation. This has fostered stronger banking systems across the region. The widespread practice of ownership ties between banks and corporations, evident during the pre-crisis period in some countries such as Indonesia, have largely been dismantled. Bank recapitalisation, privatisation and improvements in the supervisory and regulatory framework, along with opening the financial sectors to foreign capital, have led to significant declines in non-performing loans, improvement in capital equity ratios and profitability, and improvements in financial innovation, more generally.

Looking forward, further efforts are needed, and as recent developments with the subprime fallout show, the world is now awash with increasingly complex off balance sheet financial flows that need to be monitored very carefully.

At the same time, while the job is still ongoing, corporate governance regulations and practices have been upgraded, leading to greater transparency and reporting standards. Efforts have centered on improvements in governance by limiting cross shareholding, improving accounting standards and strengthening shareholder rights.

And finally, there have been improvements in transparency and governance. Asian authorities now routinely publish high frequency information, including about their external debts and reserves. The move to inflation-targeting frameworks has been accompanied by statements about monetary conditions and policy developments that are now published regularly.

More remains to be done, we believe, in the public sector as perceptions about governance, effectiveness, regulatory quality, the rule of law and control of corruption continue to lag in many cases. This is based on a number of surveys that have been done about the public's perception of governments across the region.

In short, much has been achieved in the past decade. Most notably, countries have implemented greater exchange rate flexibility, have built up an impressive war chest of reserves. Firms have lowered their debt levels. Financial sectors are more resilient, and there have been improvements in transparency and governance.

Importantly, Asia has not turned its back to the outward orientation that propelled its spectacular rise during the pre-crisis period. That said, these very successes have of course brought new challenges. Some believe, as Jim just mentioned, that credit bubbles are growing. Asset priced bubbles that need to be watched. In addition, and I think Michael will speak on this in a moment, Asia's export-oriented strategy, some say, may be sowing the seeds of new problems with vulnerabilities rising to possible shocks to external demands, as well as the bursting of credit and asset bubbles fueled by capital flows.

In addition, along with emerging markets around the world, the region has been coping with large and sometimes quite volatile capital inflows. And finally, with faster growth, rising income inequality has been a pressing concern in many countries.

Turning first to Asia's rapid export growth, it is true that the region is heavily dependent on external demand. Real export growth in emerging Asia has been around 20 percent over the past few years. While the global economy is expected to slow in the coming months, and prospects in particular for a slowdown in the US remain a concern, the region is better positioned than it was in the past to weather such a shock.

Talk of a de-coupling of Asia from reliance on demand in other parts of the world, however, remains premature, especially given Asia's strong dependence on exports and the growing importance of international financial linkages.

The reliance on exports as a source of growth is due in part, we believe, to weaknesses in domestic demand. In particular, with the exception of China, investment rates have yet to recover to their pre-crisis level. In some countries, such as Indonesia, boosting investment and thereby sustaining medium-term prospects will depend on a country's success in carrying out further reforms to improve the investment climate, including by upgrading infrastructure, improving legal certainty, labor market flexibility and broadening and deepening the financial system. In other countries, such as China in particular, a rebalancing of demand for higher consumption, in part facilitated by greater exchange rate flexibility, would certainly help.

The other big challenge facing the region is how to take advantage of global financial integration while minimising the risks of volatile capital inflows. No one policy tool exists, but mutually reinforcing and consistent policies hold the best promise, including greater exchange rate flexibility, sound macroeconomic management and intervention at times to smooth volatility.

Further liberalisation of capital outflows in some countries could also help and further development of financial sectors is needed to cope successfully with increasingly complex and volatile capital flows.

Finally, the challenge remains of how to share Asia's rapid growth more equitably across the population. While rapid growth has certainly lifted income levels, and the poorest segments of the population in many countries have been lifted out of poverty in record numbers over the past decade, there remains a widening gap between the poorest and the richest segments of the population. This stresses the importance to ensure adequate spending on infrastructure, education, health and to develop adequate social safety nets.

Just to end, let me say once again that we think Asia has come a long way over the past decade. While vulnerabilities do exist within countries, the region today is far more resilient to shock. Nevertheless, important challenges remain. Now in our view, policy makers in the region are acutely aware of these challenges and should remain ready to guard against new and previously underappreciated sources of vulnerability.

Thank you very much.

MODERATOR: Thank you very much, Steve. I feel like I can crawl in off the ledge now and I feel much better. And to round out the formal presentations here, let's turn to Michael Spencer, who as I said like Steve, has a background at the IMF. Before joining Deutsche Bank and coming to Asia as an economist in December 1997, he worked for six years for the IMF's international capital markets division. So Michael spent the last 10 years out here. So he's been here pretty much since the crisis started and he's the chief economist for Asia. And he is going to address the issue of how Asian countries can lessen their dependence on export led growth and their vulnerabilities to slowdowns in other regions, which follows on quite nicely from what Steve was talking about this issue of de-coupling, because it's something which is very much in the media and is something that many of us talk quite about a lot. And something that people also talked about before 1997, where Asia's independence from the rest of the world was proclaimed and it was contended that Asia wouldn't suffer if the rest of the world slows down. Now, as Steve said, with the issues in the US, despite strong third quarter growth, the US looks rather wobbly right now. So I'll be interested to hear your thoughts on this, Michael. Thank you.

MICHAEL SPENCER: Thank you very much, Mark. The usual jokes about what happens when get more than one economist together in the room—I'm sitting here with two gentlemen with whom I find myself largely in agreement. Having spent six years at the IMF, I place a lot of emphasis on institutional improvements and changes that Stephen has talked about, and the longer I spend outside the Fund, the more I think that maybe I place too much emphasis on these institutional improvements.

And at the same time, I have a lot of sympathy for the views that Jim has expressed about the vulnerabilities and the risks of the global outlook. I wouldn't go quite as far as he in terms of calling a global recession, but I think I would agree fundamentally about the concerns about the damage that's been done to the credit system in the US and in Europe and what that will do to growth there. And then my long-held view about de-coupling, which I'll get to in my remarks that lead me to be rather more worried about emerging Asia than the consensus. You may actually therefore have two of the most bearish Asia economists in one room at the same time, which I hope your digestive systems are well prepared.

My proposed topic, or assigned topic, is really about this issue of decoupling, which like the word ‘hub' is probably one of the most overused words in the language, and therefore the least understood. So I want to start talking a little bit about what people and certainly what I mean by decoupling, where we got to, why we are where we are today. And then to try to offer some thoughts on how things might improve in the medium and long run. Having spent the last nine years focusing on the absence of decoupling, this is getting to be a bit of a stretch for me.

But what we mean by decoupling essentially is the following, I think. It is an empirical fact that since 2000, the Asian emerging markets other than India and China have tended to grow faster or slower from one quarter to the next, depending on whether the US and Europe as a group of countries has tended to grow faster or slower. In fact, that relationship has been so stronger that on average over the last seven years, Asia has tended to accelerate faster than the EU and US and decelerate faster than the EU and US following that cycle. So over the last seven years or so, if you were thinking about the prospect of a one percentage point slow down in US, EU growth combined – you would have expected about a three or four percentage decline in growth in Hong Kong or Singapore, about a two percentage point declining growth in Malaysia and Taiwan.

There's nothing actually wrong with this. What it says is we are firmly coupled to the rest of the world. That means that Asia essentially benefits from being integrated to the global trading system. Asia has done extremely well from globalisation, another one of those tired words. In fact you could argue that Asia invented globalisation. The whole process of outsourcing your entire production chain started in this part of the world.

But it has to be accepted, therefore, if that's the role that Asia plays that for a group of economies with very large export sectors —on average, exports of goods and services are more than 100 percent of GDP in Asia—that fluctuations in global demand are going to be reflected at least, if not exaggerated, in this part of the world. So all things equal, we should expect that if the biggest risk to the global economy today is slower growth in the US and Europe, we should expect, as a point of departure in our forecast and views of the world in Asia, slower growth in this part of the world.

So far, I've largely been talking about Asia, excluding China and India. That's really the only context in which this decoupling debate up till now has made sense, because frankly speaking if I look over the last seven years, there is no correlation between growth in India and China and growth in the rest of the world.

And as Jim said, and I completely agree, that has led to a very false sense of security, in particular about China's vulnerability. China has become a much more open economy in a very short period of time. The export GDP ratio is now 40 percent. It was 20 percent five, six years ago.

China is now as open as the Korean, Philippine, more open than the Indonesian economies. India may still, I think be still safely regard as somewhat separate to a global story. It is a much less open economy. But of course even in the Indian context, much more open then it was five or six years ago.

Which leads us to the first sort of obvious way that you decouple. You stop exporting. You shrink the size of your export sector relative to the rest of your economy. And therefore, fairly clearly, when export growth slows down, it will have a lesser impact on your economy.

The consensus opinion, I would argue in fact, certainly outside Asia, what in the past I've referred to as the "Washington consensus" or the "transatlantic consensus," is that it is in fact what every government in Asia should do—very quickly adjust their exchange rates towards what is viewed as an equilibrium exchange rate level that is significantly stronger than the current level. This rapid appreciation of exchange rates is supposed to rebalance growth.

If you did nothing else that would in the short term imply sharply weaker growth in Asia. If the exchange rate was an effective instrument at rebalancing or redirecting demand within the world, and it's not entirely clear it is. But if it was the case that a 20 percent revaluation of the RMB and of other Asian currencies did have the result of lessening Asian trade surpluses for a region of countries that are at the moment really dependent on export growth, that's basically a recipe for recession. That's why it is to me, odd to hear people talking about a rapid revaluation or appreciation of currencies in Asia today as being in their interest. It is decidedly not in their interest, which is why they're resisting it as strenuously as they can.

There's also I think a second part to this exchange rate story that is very sort of the opposite essentially of what happened in 1998. One of the things, or some of the things, that have been talked about by Stephen in terms of the improvements to the economic and financial environment in Asia over the last 10 years has been the accumulation essentially of net foreign assets—these war chests of foreign exchange reserves. Of course if you revalue suddenly, those war chests are worth a lot less in local currency. And while it may not make a heck a lot of economic sense, it makes a lot of accounting sense for Central banks to mark those reserves to market. And increasingly in the private sector—over the last 10 years, as companies have invested less, which is something Jim pointed to very clearly, as people have been reluctant to invest in Asia, they've been quite happy to invest abroad. So revaluation has a negative balance sheet effect that is the same kind of effect we saw in 1998. That would be a transition mechanism, an attempt to try to correct an external crisis and create a domestic crisis.

Of course serious policy makers don't recommend simply revaluing the exchange rate and walking away from the table. What they talk about is revaluing, which is an expenditure switching policy as we call it, and combining with that some kind of policy that will expand domestic demand. Otherwise you're not rebalancing growth, you're killing it. What typically people mean is fiscal stimulus. And here I think we can be a little bit encouraged. We need to be realistic, however. For a region in which exports are a hundred percent of GDP and I recognise of course that imports are 90 percent of GDP, so net exports are only 10, but this is a very important source of growth in these economies. Governments spend on average about 20 percent of GDP. So if you wanted to prescribe a set of policies in which you revalued the exchange rate, or simply were using fiscal stimulus to offset weaker export growth, you would need to see very large increases in government spending in order not to be forecasting slower growth net-net anyway.

But I think, I know, that we have begun to see governments start to come back to the table with fiscal stimulus. Having spent the last 10 years bringing this 100 percent of GDP debt ratio in Indonesia, for example, down to 35 percent of GDP currently, I would argue and have for some time argued there's lots of room for modest fiscal stimulus in most countries in Asia. We no longer need to be as worried about sovereign credit risks and borrowing external debt or domestic debt ratios in most Asian economies than we were five or 10 years ago. A couple countries I would still be concerned—Philippines, Indonesia and India, for example.

But we've begun to see these fiscal taps getting turned on. Malaysia runs the largest fiscal deficit in Asia outside of Vietnam and Pakistan. Has done for many years and probably will for many years. The risk in Malaysia is that we get, we're turning to sort of what we used to call "dumb growth," pre crisis, where there's a lot of public investment but perhaps not in the most, highest return activities.

But we're also seeing in Singapore a very clear return to our strategy in the mid-'80s and mid-1990s of using the construction factor as a way to support growth. And there's a very real possibility here that Singapore could do actually quite well over the next couple of years. When you start building 10 hotels and two casinos and extending the MTR, or the subway line equivalent, for a small country like Singapore, that can have a material impact on growth. And in the mid-'80s and early 1990s, the construction sector was a main driver of growth in that economy, and I think it has returned to that status and that's likely to continue for another year or two.

Here in Hong Kong two weeks ago, our chief executive essentially unveiled a similar but slightly less ambitious infrastructure program, which I think could have a similar effect, although scaled down. Ten percent of GDP over the next 10 years or so—this is not something to be ignored. But even in the case of Singapore, I would not argue these kinds of fiscal stimulus programs can do more than mitigate some of the downside from the export slowdown that we're seeing.

There's great interest in Indonesia, in India, in Thailand—have similar infrastructure programs and in all these countries, things inevitably take longer and you get less spending than you expected. But the trend clearly here is as currencies appreciated slowly and as growth is expected to slow down, because of weaker growth in the US and Europe, that governments are now finally coming back with a little bit of fiscal stimulus.

In the long run, of course, you're not going to get proper decoupling from global growth simply by turning on the fiscal taps every two or three years, depending where we are in the cycle. So how can you think in terms of over the next 10, 20 years actually properly decoupling? Really this is going to have to lie with the empowerment of the Asian consumer. I can't believe I actually used that word.

First, most obviously in China and India. Here, I think people again need to have a bit of a reality check. China and India have 2.4 billion poor people. Average incomes—1,400 dollars per year. Aggregate consumption in China and India last year at the household level was 1.4 trillion dollars. In the G-3 economies alone, it was 20 trillion. So even a dramatic acceleration of consumption growth in China and India, which we're not expecting. We're expecting if anything slightly slower growth. It's not going to offset at the global level the kind of weakness in consumption we're expecting in the G3.

But those 1.3 or 2.3 billion people have got per capita incomes growing at about 20 percent a year. So over the next 10, 20 years, they will become much more important as a driver of global consumption growth. Today we've got maybe 16 to 20 million—in a G3 context we would call middle class people. In China and India, that's one-tenth of the population of the US middle class. But in 25 years, we'll have as many people in India earning say 10,000 US dollars a year in constant dollar terms as they will be in the US.

So China and India will unquestionably become much more important in the global stage. And therefore for the rest of Asia, likely still to be export-oriented economies. The real opportunity is to shift your market from the US and Europe towards China and India. But be realistic again. There are not that many people in China and India today that can afford an iPhone relative to the number of people in the US and Europe that can afford an iPhone. So that transition will be a fairly gradual one.

Second thing that has to happen, I think will happen, is that governments need to encourage or allow households to save less and to save differently. We have across Asia very inadequate social safety nets, social support systems. And here perhaps my Canadian background and liberal background is coming out, but I do think there is an important role in developing countries for governments to provide education, health care, and some pension support. As we all know, the Chinese government got out of that business 10 or 15 years ago, and fortunately I would argue, is beginning to be aware that that is something that has to become a priority.

As governments create these social support systems, it will discourage the kind of extreme precautionary savings we see in countries like China, where people are led to save too much because we tend to exaggerate concerns about health care, for example. If the government was seen to be there to support you if you got sick, maybe people would save less.

Finally, sticking with the same idea, financial systems will become and need to be prodded to become more supportive for households to save through the cycles. Availability of credit from banks is not necessarily going to make people save less, but it will allow people to save less when their incomes are growing more slowly and then repay the loans when they're growing more quickly. We have seen in places like Korea that that can actually be very a powerful, counter-cyclical factor for that economy. We've also seen in places like Korea how you can get it horribly wrong.

So there is clearly a need for guided stimulus or encouragement to financial systems to increase penetration of credit products into the household sector. Most countries in Asia, and the biggest countries in Asia, have barely begun to allow their households to borrow. Credit and GDP ratios in terms of household debts are five, 10 percent of GDP in India and China. So that, the process of giving access to credit, hopefully providing social welfare systems that allow people to save less will I think over the next 10, 20 years, make the consumer in Asia the driver of growth in this region and globally that people unfortunately today think that it already is.

I'll leave it there. Thank you.

MODERATOR: Thank you very much, Michael. Very interesting presentations. A lot for us to think about. We've got about 25 minutes. I'll kick it off with a couple questions, and then open it up to the floor.

All of you mentioned the US in passing. And I'm wondering if you could you just sort of tie things together, each briefly, in terms of whether we need to worry or not about what's going on in the US. As I mentioned before, the third quarter GDP numbers came out surprisingly strong. On the other hand, yesterday was a terrible day in New York. Citibank stock plummeted. Some of you may have noticed that the so-called mono-line insurers, which insure bonds gapped down—their stocks fell in the order to 20 percent or so. There are three big companies.

So clearly, the subprime. The crisis that has started out in the US housing market and something that continues and just when you think it's gone away seems to come back again. And that, to my mind, brings up the unfortunate parallel with what we saw in '97 and ‘98. And all of you who were here will remember that when the Thai baht devalued, it was a big deal but it wasn't something that we saw as going to lead to a crisis. It didn't culminate for 15 months and didn't hit its peak or its bottom, depending on how you look at it, with the unprecedented intervention by the Hong Kong government in the stock market and the virtual collapse of Russia in terms of its ability to function in international capital markets.

I'm not suggesting that's what's happening in the States, but the subprime thing seems to go away and come back, go away and come back. So I'm just wondering if the three of you can as I said sum up what we should be looking for and where you think the US is, and we're going to see over the next couple months. Steve, I think the IMF is probably relatively sanguine when you and I spoke before I think you would cheered by the GDP numbers. So perhaps you could kick it off.

STEPHEN: Thank you, Mark. We have tailored back our growth projects for the US both for 2007 and for 2008. In our latest World Economic Outlook, we think that the global economy will probably slow as well. We had projected for next year previously growth at the global level of 5.2 percent. We've cut that growth back by about a half percent, largely reflecting the slowdown in the US but also anticipating some slowdown here in Asia, both from the knock-on effects to the trade channels from the slowdown in the US as well as some expected tightening of policy in China to pull back growth, which is now over 11 percent, perhaps about 10 percent next year.

At the same time, I think we recognise that events are still playing out. Really none of us can say for sure how severe the problems you alluded to may become. Again our baseline is a growth of 1.9 percent next year. We've seen some positive signs that the data is not yet. The data I guess is mixed. We have some weeks of some pretty negative news on housing investments and the like and yet the third quarter GDP was quite robust. But on balance, we do anticipate some slow down and I think we recognise that events are still playing out and just need to be watched.

MODERATOR: Michael.

MICHAEL: I'm rather more concerned. Probably not as concerned as Jim will be. Let me just say briefly before Jim takes the more extreme. I think the issue is the following—if all that we had to worry about is the US housing market, I don't think we'd have to worry too much because frankly that's the kind of risk that economists at least pretend they know how to quantify. We sort of take down our construction investment numbers, we have some multiplier, and what that means for consumption and we can work out GDP and we can pretend we know roughly when it will bottom out. And that's essentially, I would argue, what we're getting from US economists, including I would say our own.

I'm much more worried and I find it interesting that emerging markets economists are much more worried about the US. Because what I see is a real impairment of the credit process, the credit system. The originate and distribute model of banking is dead. We are working at levels of securitisation that are 20 or 30 percent below where they were a year ago. Now even if that's as bad as it gets, that's 20 or 30 percent of credit growth that isn't going to be there in the US. What has to happen then, is if you wanted credit to grow as fast as it would otherwise, banks would have to keep the loans on the balance sheet and they don't have the capital to do that.

So we're going to spend a year or so, or two, rebuilding bank balance sheets, expanding capital in the banking system to begin to re-intermediate credit again. And meanwhile, of course, you haven't heard the last of the CEO subprime problems because the headlines talk about opacity and complexity. And they are. They're very difficult to understand. A lot of investors have them on their books, their banking books. They don't have to mark to market. Over the next two or three years, things are going to pop up and you're going to see investors and banks writing off little bits and pieces of this for the next couple of years, which of course complicates your capital-raising problem. So I actually think, I'm not yet saying and expecting that we're getting into a recession of the US, but we're very clearly headed down to a period of I think quite weak growth in the US and Europe for a couple of years.

MODERATOR: Jim, I don't know if I can stomach this. But certainly have a word.

JIM: Michael said earlier it's unusual to get two economists agreeing with each other. It's kind of unusual but I agree with every word that he said, I would just put a bit more emphasis on the down side. But let me first of all start with the third-quarter GDP numbers, which I don't find reassuring at all.

3.8 percent was the second quarter number, which was kind of bizarre, given that it also included the lowest private consumption growth rate we've since 2001 and certainly one of the lowest that we've seen in the last decade. But you get a lot of extra points from the exports from the US when imports are falling. So that's an indication of weakness, rather than strength. But there we go, that's what happens with GDP numbers.

The third-quarter numbers were even worse when it comes to accounting arithmetic. The numbers that were released earlier this week showed the biggest fall in the US GDP deflator since 1997 on a quarter-to-quarter basis. Before that, you have to back to 1962 to get as big a fall on a quarter-on-quarter basis.

Now this might not seem like very much to you talking about the GDP deflator. What the real GDP numbers are constructed from are the nominal numbers because everybody collects the data basically in the first instance in the nominal dollars. And then we start deflating that—economists are actually good at that kind of thing. Actually we're not, but we try and tell everyone that we're good at that kind of thing.

So what happened was that in the third-quarter, the nominal numbers were collected. Oil imports had risen in price by more than 10 percent quarter-on-quarter. And basically the import price deflator in the US went up 10 percent in that quarter. Now here's the bizarre thing in GPD accounting. That means that when you take it off the other price deflators, you actually get a decline in deflation even though inflation has risen.

Oil prices are up, but the way that the import deflator works is that you get a decline in the deflator because you subtract the import deflator from the other deflators. It just so happened that the US domestic deflators weren't rising at the same pace as the import price deflator. So what we had was the lowest in 10 years GDP deflator. If it had been the average of the last five years in GDP deflator terms, the number that would have come out from real growth earlier this week would have been 1.9 rather than 3.9. Now that is quite a big difference. When you go into the actual accounts themselves, there were no domestic components of the GDP growing faster than the headline number, which is quite interesting. The only thing that was growing faster was exports, which held the overall GDP number up.

Investment, which everybody's looking for to be the big savior of the US economy, grew at one of its slowest paces in the last few years except for the negative numbers that have come through from the housing decline—grew at 0.8 percent on a quarter-on-quarter annualised basis.

Consumption's held up reasonably well, which is kind of bizarre but I've come to expect that for a number that's going to be revised down once, as we get the real data out for what's happening in the domestic sector. So the GDP numbers in the US—two quarters are way above trading growth—I think are telling you a very false picture. Because why else would the Federal Reserve on the very same day cut interest rates? If the US economy's growing above trend, why are you cutting interest rates? Why are they cutting them 75 basis points? Well they've cut them 75 basis points for precisely what Michael was talking about—the absolute crisis that's going on in debt markets in the US and in Europe. The scare stories there I can assure you would have you falling off your seats if you really knew what was going on in credit markets at the moment.

Banks do not want to deal with each other. Banks do not understand what they have on their own books. If they do not understand what they have on their own books, they sure as hell don't understand what their counterpart has got. And hence the reason why we have a fleeing in the system. Hence the reason why we have in Europe inter-bank rates almost at 10-year highs, despite all the money that the Fed and the ECB has pumped into the system.

This is the biggest crisis in the last 17 years, because of the kind of arcane, mysterious structured finance that we have encouraged, our central banks have encouraged, not me, over the course of the last 10 years that is really quite extraordinary. I don't think we'll be hearing the end of this for another five years.

In our view, what's going to happen is, as Michael said, we're moving into a credit crunch period. We're going to see the credit system at the best of times, we can hope for a slow down in credit growth and that will still have a major impact on economic activity globally. I think we're moving into a contraction on credit, which will have a recessionary impact on economic activity, and the waves of that recession I can assure you will be equally felt in Asia as they are in the US and Europe.

MODERATOR: Good. I think it's time to open it up to questions.

QUESTION: What wanted I wanted to ask was that what we've always said that international capital markets, the US sneezes, the rest of the world gets a cold. What I'm wondering now, it's sort of for the first time a little stubborn. Our business here in Asia is still going strong, I'm busier than ever. What I wanted to know is, I mean looking back 10 years, this is one thing that is or could be different—I wanted to know your opinion—is if now if China sneezes, if Asia sneezes, does the rest of the world get a cold? We spend all this time talking about what happens in the US and how it affects Asia. But what about the other way around? We're much more globalised than we were before. If this supposed recession in China happens, will the reverse happen? Will the US economy feel a slowdown?

MODERATOR: Let's go in the reverse order. Let's start with Jim and then go to someone more optimistic.

JIM: My view fundamentally means that the US is central to the global economy. What happens there, I think, probably is today more important than has ever been the case. And we'll see that through time. And the only reason why you see things in a slightly different light in Asia at the moment is that the whole system takes time for the ripples to move out. At the moment, what's happening in Asia as much as anything is there's still plenty of money out there in the world economy. We know that. People talking billions of dollars of write offs these days, it's just as if "who cares." The numbers just astound me but that's because I'm old, I think. And they frighten me, but that's also because I'm old. They seem to be inflated away.

But the whole point really is that if the US has got problems in its credit system, through a process of time, that will be felt in the credit systems in every other country in the world, not least in China. If you think of the US as an automatic telling machine, a cash dispenser for those of you who don't know what is an automatic telling machine, it's been a very effective cash dispenser for the last, well certainly five years, putting 20 billion dollars a day out into the global economy. And an awful lot of that directly into the Chinese economy, which has been directly printed into RMB and then that directly stimulates investment bank consumption activity in China. So if the Americans stop giving the Chinese let's say five billion dollars a day, or 10 billion dollars a day, then I'm afraid the money creation process in China is likely to slow down. It's likely to slow down sharply. But it takes time.

At the moment what's happening is people are concentrating their debts in what they see as being a relatively immune part of the world. Like you, we've seen an awful lot more business and an awful lot more money flows into the region because that's the last hope of international global managers. They're worried about what's happening in the US, and worried about what's happening in Europe. So it's placing bigger debts on the prospect that Asia will be immune. I don't think it will be.

Would China sneezing cause ripples elsewhere? Absolutely. Especially in the commodity markets and the commodity producers, which by the way is part of the world everybody thinks is also immune from the slowdown in the US economy but they're doing well because of the amount of US dollars that are out there, and if a credit contraction gathers pace, those US dollars won't be there. Everything is circular and everything is global.

MARK: Michael?

MICHAEL: Actually I wouldn't add anything to that.

STEPHEN: Well I certainly agree about the effects in both directions. One way to look at the issue though is interesting from what happened in the 2001 bursting of the dot-com bubble in the US. And then that episode had a very severe knock-on effect in Asia, particularly among countries with strong electronics exports. This time around, we think the direct effect of the slowdown in the US would be somewhat less than what we thought during the dot com period. Partly I think for two reasons. One is that global growth is in general much stronger than it was back in 2001. Secondly, growth within Asia, back then in 2001, the region was still coming out of the crisis. Now growth within Asia has been on a much firmer footing.

Of course the tremendous globalisation that Michael referred to—an increase in exports in the region—has largely come with infra-regional trade. Now a lot of that infra-regional trade is intermediate goods which is meant for a production of final products that are exported to the US, so it doesn't give us much comfort that infra-regional trade is evidence that there's been a decoupling.

But the bottom line is we would expect a slowdown on the US to have some affect in Asia. But we take some comfort in the fact that the impact would likely be less severe than it was back in 2001. The reverse—I think very much I would agree with Jim that a significant slow down in China and in the region would have significant feedback effects on the rest of the world. And that effect is increasing all the time, as Asia is the fasting growing region in the world. As I mentioned at the outset, it has contributed to almost half of global growth in the recent period.

I think looking at the whole picture together, we have a fairly benign baseline outlook with risks firmly tilted on the downside. I think some of our fan charts for global growth would incorporate some of Jim's comments. Jim may be a baseline for a fan chart that we have as a range of the estimates. The thing that would concern us in particular is if there were a simultaneous slowing say in the US, Europe, Japan, and then eventually it hitting the region here, which has been a source of growth.

One thing I just want to say about some of the adjustment that are going on with the possible slowdown in the US—the subprime issue. From a broader macroeconomic perspective, one might see this as sort of an adjustment to global imbalances that many of us have been talking about for some time with large current account deficits in the US matched by offsetting surpluses in Asia and in the Middle East.

This could be a trigger really, the subprime then, in my view, anyway, for the eventual adjustment that we knew had to take place. Some slowdown in the US, if it's orderly, it leads to a reduction in the current account deficit. Jim mentioned the weakening imports - we've already seen the current account deficit coming down. Some of this really could be seen as the adjustment that we've been expecting for a long time.

MODERATOR: Thank you. We've been keeping very close to our schedule, but having three people up on stage means that there's not quite as much room for time for questions as we would have hoped. What'd I'd like to do is if anyone has any questions, raise your hands and then we'll just go through very quickly, have them all at once and then we can sort of hopefully finish on time by everybody answering all the questions at once. There's one question here.

QUESTION: What are your thoughts on the possibility of certain political relationships in this region catalysing future financial crises, for example China–Taiwan?

MODERATOR: Question. We'll do all the questions. Way in the back.

QUESTION: My question relates to Hong Kong. If China's capital has been feeding US consumers in allowing them to buy Chinese goods and that recycling stops, might that hurt Hong Kong, because Hong Kong has a big role as an intermediary between China and the US. If China is recycling more of its capital to its own consumers, and we're seeing that throughout Asia, might Hong Kong's role become severely diminished?

MODERATOR: Good, question up here.

QUESTION: Very short question, hopefully a quick answer. Jim, may I see on a personal note—very refreshing to hear someone speak with a Glasgow accent. I spent many years in Glasgow.

MODERATOR: So that's why you can understand him, I guess.

QUESTION: Very refreshing indeed. For maybe Jim and Michael. Jim you mentioned something about 20 years ago, the Japanese yen revalued and appreciated very much too fast and too quick. My question is what do you gentlemen think about the RMB—do you see likely free convertibility of the yuan in the near, foreseeable future? If so, five years, twelve years, or longer? And then having said that, what is your position on the Indian rupee?

MODERATOR: Okay. One question here and then one back there. Up in the front row here.

QUESTION: Thank you very much, I'm with the Aerospace Forum Asia, which basically represents the supply chain to aerospace industry. If the three of you were sitting in front of the boards of Airbus and Boeing, should I assume you would tell them to stop production? But seriously, how bad do you think the knock off effect will be because this region is due to take 40 percent of the world's aircraft deliveries in the next five years, and if I understand you directly, you are all seriously doubting the need for that level of aircraft as aircraft demand has always been linked to GDP growth.

MODERATOR: Okay. I think one final question way in the back again. Thank you for taking the microphone around.

QUESTION: I just wanted to ask the panel how they would comment on the argument that there's still plenty of liquidity out there in what might loosely be termed "petro dollars," and in the form of the rising fashion for sovereign wealth funds.

MODERATOR: Okay. It looks like we could go on for quite a long time. But let's stop the questions there. Gillian had kindly given us five extra minutes, so I'm going to have to use a hook if you talk much longer than 90 seconds. But we have a question about Taiwan, we have a question about impact of recycling domestically in China on Hong Kong, on RMB convertibility, on liquidity and on how bad it's going to get, particularly in terms of its effect on the aviation sector.

So why don't I just start to my right and then we'll work over from there. So Jim.

JIM: I think I'll pass on the first question I'm afraid because a) it would take me far too long, and b) I don't really know. So better to say nothing.

In one of my rare moments of being positive about anything, obviously, I wrote a report about three years ago called "Boom Town," which was about Hong Kong and Hong Kong's future relationship with China and the prospects of the Hong Kong economy going forward on a structural basis rather than a cyclical one. And even through any slowdown in China and elsewhere, I'm so confident about the future of this place. It's the conduit for, a good conduit, for money flows into China and will remain, and the conduit for money flows out of China, and will remain so for many, many, many years. I think Hong Kong's future today is better than it's ever been, and the prospects for it.

Which then partly answers the question on the RMB, because that obviously means I don't think it's going to be convertible very quickly. I think we've still got a lot of problems to go over in the banking system in China, unfortunately. I suspect that although the divergence between the Hong Kong dollar and the RMB at the moment, come the point where convertible is possible and the Hong Kong dollar will become the Hong Kong RMB, which is the only sensible course of action for Hong Kong. The exchange rates will be much closer together, around about 7.8 again. Maybe by the time RMB gets to six, but it can always go backwards.

And well down for spotting exactly which part of Scotland I'm from, because not many people can do that.

The Indian rupee—here you have in my view the best central bank in Asia, if not the world, operating monetary policy. The Indian rupee is being used as a way of making sure that capital flows into India are not overwhelming asset markets and the general economy. That means it's going up a length, I'm afraid, for at least six or 12 months I suspect, but maybe no longer than that.

Airbus and Boeing—how bad will it be? Actually the fact is that as Stephen and Michael have said, there's been a lot of improvements in the Asian region, right around the region. China—the story is not going away even into a cyclical slowdown. The fact is that I think this region can afford the planes. We'd be kind of worried if you'd sold them all to the Americans and the Europeans. And there's plenty of liquidity out there. There's nothing like recessions to destroy liquidity.

MODERATOR: Jim, I'm afraid you went over 90 seconds, but I'm sure Michael won't.

MICHAEL: I agree. I agree. I agree. I agree. Where I might disagree—on currencies. I don't think it makes sense for Hong Kong to be considering pegging to the RMB any time, even after the RMB becomes convertible, which I think is probably is a 10-, 20-year story. I think the reality is the RMB and the Indian rupee will appreciate in real terms massively over the next 20, 30 years. Like we saw in Europe post-World War Two, we shouldn't be thinking of five percent a year for five or six years and go down. We should be thinking of sort of five percent a year for 20 or 30 years to get a real appreciation of 40 or 50 percent. And that will be true for India over the next 30 years, it will be true for China for the next 15-20 years. China is further along in that process.

If Hong Kong were to peg to the RMB before that process is materially complete, you will be forcing deflation on this economy because it would be dragged into a structurally strong currency that for all that I like Hong Kong and I agree that it's role as a financially intermediary for China is secure for most of that period of time, it would not be appropriate for this currency to appreciate 30 percent in real terms.

And again, liquidity—yeah, with oil at 90-something dollars per barrel, the Middle East sovereign wealth funds have lots of money before it goes back to 50 dollars per barrel, they're rather poorer.

MODERATOR: Steve.

STEPHEN: Okay, the only question I would address is the airplane question. I think, you know again, the theme that I'm trying to bring out is that we have a fairly solid baseline projection both for the global economy and for Asia, not withstanding an expected slowdown in the US and the heightened downside risks. So my short answer to you is you need to be prepared in the event that things turn out a bit worse than expected, but our projections for Asia have growth this year at about 8 percent, which is the same as last year, coming off to about 7.2 percent for the region as a whole largely because of an expected slow from a very high rate of growth in China. But even with that, we expect China to grow about 10 percent next year. So that would suggest still a lot of room for growth and demand beyond the reasons that Jim mentioned in the airline sector.

MODERATOR: Good, before I invite Gillian up to formally close the meeting. I'd like to thank everybody involved—Alice Au and the whole team at Heidrick and Struggles, for the Asia Society for putting together a very interesting program. You, the audience. Every moderator fears that there's lots of time for Q & A from the audience and not enough questions. I didn't have to worry about that. And especially to Jim, Michael and Steve who disproved the misconception that all economists are boring.

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