1 The economic downturn we face today started as a financial crisis in Asia last year. A combination of asset bubbles and mounting foreign debt in the region led to a loss of confidence among investors and fund managers. As they pulled out, currencies were devalued, banks went bust, companies folded, trade dropped, unemployment rose, and some governments were even replaced.

2 The contagion moved on to Russia and Latin America. Recently, the collapse of Long Term Capital Management brought the crisis right into the US. Americans can no longer see the crisis as a problem affecting remote parts of the world; their own companies are beginning to be threatened. Indeed, giant American companies like Nike and Coca Cola have reported sharp drops in profit and advance orders. Most observers see the root of the problem as revolving around foreign debt, foreign lending, and foreign exchange – in other words, flow of funds around the world.

3 But there is a divergence on the solution. One school of thought advocates giving the IMF, World Bank and other institutions more money quickly to help the economies out of trouble. Some argue that there should be supervision over flows of funds to prevent destabilisation in the foreign exchange markets. Others want to impose exchange controls to stop currency fluctuations. In an article that appeared on Wednesday, Prof Milton Friedmen declared instead that the IMF should close shop and let the market look after itself.

4 The G7 countries, the IMF and the World Bank held meetings last week. The economic crisis was at the top of every agenda, and the subject of many hours of consultations. However, no decisive plan or concerted actions came out of the meetings. There was great disappointment all round.

5 But the lack of new initiatives was understandable. The IMF needs funds to lend to stricken countries, but there are not many countries left that are able or willing to let the IMF have more money. The developed countries have their own domestic concerns to look after, so a proposal to lower interest rates, boost domestic consumption and reflate the economies together in a co-ordinated effort did not meet everyone’s needs and could not be agreed upon.

6 Furthermore, the economic theorists are divided into several camps. There is some consensus on what caused the Asian crisis. But there is no agreement on what would be an effective, robust framework that will encourage global economic growth without inviting the adverse consequences of currency gyrations and flows of "hot money" on the countries that cannot cope with the pressures.

7 In the absence of a common policy framework supported by a solid economic model, it is no wonder that governments are attracted to the option of closing their markets to the outside world, so as to isolate the domestic market from international fluctuations. I think this is a wrong direction to take. For Singapore, we have to learn to live within the free and open market system, and learn to thrive on it.

8 In the last 20 years, the world of international finance has grown more extensive and complicated. Except for just a few years, there has been a continuous period of growth all over the world. The amount of private and public funds available for investment has grown in tandem. Satellite television and tele-communications allow quick access to information and quick reaction by the decision-makers. Super-computers work out the permutations, forecast trends, and recommend lines of action in an instant. High speed data-transfer then allow huge sums of money to be zipped across the continents. The money is multiplied many times by the amount that can be borrowed from the banks and investment houses, which have also grown much bigger in the meantime. Face with this combination of information technology, abundant funds and easy credit, it is not surprising that the old methods that solved the problems in the era of typewriters and fixed exchange rates cannot cope with the new situation.

9 But we must not hide from the difficulties of operating in the new era. We must move forward. The advances in IT and communications help to increase wealth in the world. We must use these tools to progress and prosper. At the same time, we must not let technology and easy credit lead us astray. A Formula One racing car is a technologically advanced machine. If we learn to drive it properly, we can go very fast. However, even an expert driver must drive it with care and never exceed his own or the car’s limits, or he will end up in a sorry state. The same goes with the market of today. Whether it is as an individual, a family, a business, a community or a country, we must exercise prudence in our choices. We must guard against quick fixes, and always think for the long term.

10 Because of our prudence in the past, Singapore is less affected by the crisis than the other countries around us. Financial prudence brought us financial stability. We built up strong reserves, even in the face of public criticism that we had put aside too much reserves. We maintained healthy budget surpluses for many years running, and removed market distorting subsidies. We implemented public projects only if they were financially viable. We owed no foreign debt, and spent only what we could afford. Our banks exercised caution, and did not take wild risks in their lending. The best thing we have done was not to over borrow and not to over lend.

11 Throughout the crisis, our currency was not seriously attacked. On the contrary, it has gained in value against that of our major trading partners. Financial prudence gave us stability, and will continue to give us stability, in this risky and uncertain world. Our prudence in having invested in a strong defence capability is the other key factor in ensuring our long-term stability. In times of trouble, more trouble can brew. We must be ready to defend our assets and interests, so that those with unfriendly intentions will know that it is unprofitable to try to hurt us. Because of the strong support from Singaporeans for the SAF and National Service and Total Defence, we will be able to live our way of life unmolested. Our vigilance will ensure our security.

Ladies and Gentlemen,

12 As you explore the subject of "Creative Leadership for the 21^st Century" at this convention, you will be pushing the creative envelope and looking beyond the horizon to pick up the leadership skills and knowledge to give Singapore, your businesses and yourselves a competitive edge in the future. The future is still promising. The regional and global economy will turn around in the next 2 to 3 years. We will see a recovery for ourselves and our neighbours. However, recovery will not mean guaranteed safety for all. The market will continue to be risky, with changes occuring at an ever increasing speed. In good or bad times, we must continue to be prudent. Prudence will give our economy an underlying strength and resilience. If we continue to apply the market test to our projects, avoid borrowing more than what we can afford to return, maintain strong reserves, and be fully committed to defending what we have achieved, we will be able to thrive in the economy of the 21^st century.

13 I wish you a most fruitful convention and all the best in your future endeavours.