 No, thanks. Good morning, everyone. Good morning, everybody. Welcome to this session on the financial aftershocks that may lie in the region in East Asia, of course, Indonesia, where we are at the moment, a remarkable transformation. One of which has been, well, started off in two decades ago with the liberalization that we saw in India, and then in China, and of course this is where we are now in a region which has fabled demographies and things that basically the developed world just doesn't have at the moment, and all of this is moving into this wonderful, well, seemingly inexorable straight line of growth, or is it? That's what we're here to decide. Jamie Diamond's daughter asked him once, Dad, what's a financial crisis? And he said, it's something that happens every seven years. Well, what's going to happen in the next three or four years? Well, my panelist today, I'm joined here by, well, the Minister of Finance for Indonesia. We have the Honourable Aga Samutudha Dojo, and to my left, Michael Buchanan from Goldman Sachs, Stuart Gulliver, Chief Executive of HSBC, and then we have, of course, Omar Lodi there. He's from Abraaj Capital. Jeff Riddle from Zurich Financial and the Deputy Governor of the Bank of Indonesia there as well, Molinan Khadad. I'm going to start off with everybody just giving a couple of minutes of their viewpoint of the subject material, and then we'll move on from there and perhaps shed some light as well as I hope a little bit of a heat as well. So I'm going to start things off with my left, Michael Buchanan. Thanks very much. Good morning, everyone. I thought I would just try and separate it a little bit into two key issues. One is in the short term for the region, where I think in a number of countries in Asia, interest rates remain below at least where we think they should be for long-run equilibrium, and that is leading to some pressure in terms of asset price bubbles, in particular in some of the housing markets. And so I think to some extent the longer-term developments that are required as well will help with these issues, but in the meantime, in a world of very, very low U.S. interest rates, which we expect will continue through until 2013, it's going to be very important for Asian monetary authorities and governments to maintain a focus on managing monetary policy in a world where interest rates are below equilibrium. And that, of course, means macro-prudential measures. And so I think we'll continue to see more of that. But in the longer term, I think one of the key issues is about harnessing the high savings rates within Asia. Now, often that, including from well-known central bank governors in the West, that's described as the Asian savings glut. And I think outside China it's much more an investment dearth than a savings glut. And that brings us back to the need to develop local bond markets. You've got a lot of savings, but they're not really being channeled necessarily in the most efficient ways. And I think this region knows very well the risks from having FX exposures, having maturity mismatches from the Asia crisis, and a lot of progress has been made. But I think to harness the savings in the region to get that into infrastructure, further development of the local bond market, clearing our processes and so on is absolutely crucial to making the most from the savings rates here. Let's move to Stuart. Stuart, I think, comes from a similar sort of viewpoint, don't you? Yeah, I think our view is that clearly Asia actually hasn't decoupled from the rest of the world that some of the capital flows that have come from Asia are as a result of the lack of investment opportunities in the West, possibly also as a result of QE2 and the actions that have been taken in the U.S. and in the West in response to the global financial crisis, that that has caused some of the currency appreciation that we've seen in Asian currencies over the last 12 months or so. And although some of the Asian countries, Indonesia's one, are beneficiaries of therefore the apparent boom in India and China to commodity prices rising, there are inflationary pressures around. And there is the need to anchor the financial stability of the Asian countries by building out particularly bond markets, particularly harnessing the need to capture some of the savings that now exist within a growing middle class in Asia Pacific and recycle it from simply sitting in bank deposits. I mean the high savings rate partly reflects a lack of social stability, a lack of social welfare network underpinning in this part of the world, but it also reflects a lack of investment opportunity. So if you start to build out bond markets and contractual savings, that also helps solve things like the bottlenecks and infrastructure that exist in this part of the world. But I think our point is Asia hasn't decoupled itself from the rest of the world and actually Asia still needs in many, many countries to build out strong bond markets. It's interesting if we go back to the Asian crisis and actually I was in Hong Kong at the time, the places that survived best which was Hong Kong and Singapore did so because they actually had developed bond markets. Minister of Finance. Thank you. Good morning everybody and welcome to Jakarta Indonesia. Of course I will start with review about Indonesia. Indonesia for the last five years, our economy continue to grow, average we grew 5.7% for the last five years. Even though there was a global crisis in 2009, we still can grow positive 4.5%. And the economic growth of Indonesia for the next five years will be around 6.3% to 6.8%. And in 2014 we hope we can grow 7.7%. In Indonesia basically we have a good economy starting from the balance of payment. Our balance of payment in 2010 was $30 billion and it's really improving because last year in 2009 it was $12 billion. And with that balance of payment, we can improve our foreign exchange reserve. In 2005 our foreign exchange reserve was still $30 billion. Now it's already $116 billion. In the area of fiscal, Indonesia very strong and disciplined in monitoring the fiscal. Our budget is a budget deficit. But for the last 10 years we keep and manage our budget deficit never exceeding 2%. Last year it was 0.6% and this year is 1.8%. Hopefully 2012 will be 1.4 to 1.5%. We believe to have a healthy fiscal is important to convince the global community that will continue invest in Indonesia. One other thing that I would like to share with you is regarding the total government debt over GDP. In 2001 that was still 77%. In 2005 it was 39%. But in 2011 it's already 26%. So we continue to decrease total government debt over GDP. And we believe with that indicators it will prove that even though we have a budget deficit it's still healthy. Another point that I would like to share and probably Mr. Haddad will then elaborate is banking sector. We have a healthy banking sector because crisis can come from the banking sector. In Indonesia the total credit growth last year was still 22%. Non-performing loan is around 2.6% gross basis. Well, liquidity, loan to deposit ratios and others are healthy. Look at the capital market of Indonesia. Last year our capital market can grow 46%. The best in Asia Pacific. Now year to date still around 4%. So capital market, fiscal, monetary are in healthy position. But we need to be careful. Indonesia has some challenges. Indonesia has to improve the infrastructure. Indonesia has to improve the coordination between central government and local government. And we understand that in the region there is a risk of overheating economy and probably credit boom. So that we would like to discuss with you in this session. Thank you. Thank you Minister. Jeff Radle. Thank you. You know, I come from the insurance industry and we tend to look at this through our own lens. But the lens I'd go to is the global risk report which we're heavily involved in creating. And the global risk report brings out a variety of issues. One of the things it recommends is that countries should have chief risk officers. Now that can take many ways. I'd argue that the chief risk officer is in most cases the central bank head. And that the G20 are trying to take on that as a global role. What we would observe is that we're dealing with many of the symptoms of the financial crisis. But some of the deep causes haven't been got rid of. And I'll upset the economists by being too simple here. But if you look at global imbalances we've still got a situation where manufacturers are financing the customers to buy from them. There isn't a long term sustainable situation and it will cause other problems to arise. Because of that dynamic we are in a totally interconnected world. I think Stuart's exactly right there. And as Michael says, interest rates are still very low. Which means that risk isn't necessarily being priced correctly. And we've got other stresses out there which are to do more with growth than with the financial side. We have got restrictions on the volume of food, water, the food, water, energy nexus that we talk about in the global risk report. Those get exacerbated and fiscal strains get exacerbated by subsidies and much of the emerging markets. And our premise would be that subsidies are bad things. So in summary we see an awful lot of risk still out there. We think it's vital that the central banks in G20 take on their role of holistically looking at this. Otherwise we will end up with an unpredictable but future crisis. Deputy Bank of Governor Haddad. Thank you Chairman. It seems to me there are two important initiatives after the crisis. The first one is very much related to how we have to stabilize our financial system. And the second one is how we can support the economic growth. So this is very much the issues that we are involved with so far. As far as the financial stability issues, as mentioned earlier by our Minister, that overall situation is similar in good shape. In banking in particular our focus very much on how we have to improve the liquidity and the capital of the industry which is very much important. It is also in line with the global initiative under the G20 and the Financial Stability Board. We are looking very closely at all these initiatives because we are a member of this group. And then we will be reviewed by our peers as far as the financial situation of our banking industry. So it seems to me up to this point the financial stability issues, very much the issues lies on how we have to improve for the future vulnerabilities. Of course the issues on the inflows, capital inflows very much remain one of our focus at the moment. It is very significant that we have to take into consideration the appreciation of our currency because the capital inflows and also our competitiveness and exchange rate issues related to this. That's why then it is part of our day-to-day monitoring very closely on these particular issues. So in overall very much the issues on not on the macro but very much on the micro side, how we have to improve the governance of the industry for example. It is very much important in particular related how we have to improve the capacity, how to manage the risk for example is part of the major initiative. As a G20 member I think we are also concerned on the discussion as far as how we have to manage the G-CVS. I mean the global CVS that now being discussed at the global level. We are hosting a lot of G-CVS here in Indonesia because of our open economies and our open financial system. But this is creating a little bit concern from us as a host country because something happened in head office over there somewhere around the globe. But you know it's maybe creating kind of spillover to our financial industry here in Indonesia. That's why then we are thinking how we have to manage this situation. People in other part of the world thinking about the kind of ring fencing activity into this global spillover issues. That's why then it is very important. Managing the healthiness of the industry and individual bank is important. Not only domestic bank but also the foreign banks here in Indonesia. Thank you very much. Just quickly I mean I think it's important to recognize where Asia has come from in the past ten years and today going where we stand yes the heady sort of economic growth the cheap credit from the US etc. The question around asset bubbles is a important one. As a private equity firm you know with the five six years sort of investment horizon and the investments we make we think that the fundamentals of the Asian economies is strong so that it's not necessarily a hard landing but perhaps a slowdown in growth of the next 12, 18 months that we might be looking at. What concerns us more is the fact that as many of you all have said that we are connected with the global world and the situation in the west is not that straightforward. We have dependencies so we can talk about bipolar growth models but we can't talk about a decoupling and I think our economies in Asia need to work harder towards therefore mitigating that risk that might sort of appear over the next two or three years with stack plenary environments in the west through domestic consumption policies and in our opinion infrastructure and capital formation which has been lagging. Thank you very much indeed. I'd like to start off with the opposing question to Finance Minister Agus. With the way Indonesia has been growing you're looking at seven and a half percent growth which is said by in the next couple of years or so. What are the risks you see ahead? Now this is another of the issue. What are the risks you see and how do you actually mitigate against those? We'll come to that in the second part of the debate but what do you think the biggest problem is? QE2 comes through and quantitative easing too so this wall of liquidity is perhaps being taken out of the system. How does Indonesia cope with that? Thank you. I agree with you that even though we plan to improve the economic growth of Indonesia and not only economic growth but make sure that it's equity it's something that can be enjoyed by the people of Indonesia and we believe one of the risks is of course now we have a large capital inflow to Indonesia and there's a possibility when the U.S. or advancing economies improve the interest rate and then there will be a reversal. But as I said we in Indonesia we really would like to make sure that we have a strength pillar especially the monetary, fiscal and the real sector coordination among institutions coordination Ministry of Finance with the Bank of Indonesia with the Deposit Insurance Agency. We continue to have that coordination. And other countries? And other countries too, yes. And basically we have the crisis management protocol and for managing the capital flow we have a bond stabilization framework and we have that bond stabilization framework in coordination with Central Bank. So we have funds basically already been approved by our parliament. It's a special funds for buy back the government bonds. But we also work together with Central Bank and Central Bank will use the foreign exchange reserve to stabilize the government bonds for instance. And then we have the bond stabilization framework basically 14 state-owned insurance agencies, banks and financial institution they work together to stabilize the bonds if necessary. And then we can use budget surpluses, revenue minus spending if there is a surplus. We have the authorization to use the fund for stabilization the bonds in Indonesia. But in general we will have a good coordination and make sure that we have prudent fiscal macroeconomic and fiscal policy. And we continue to attract foreign direct investment and domestic investment. So we have conferred the portfolio investment to a more foreign direct investment real sector initiatives. I think Micah wants to dive in. I was just going to compliment Indonesia on the way it's reacted to this situation of big inflows and outflows partly from quantitative easing. And I think the framework in which you put that is very, very encouraging because to me, in a lot of the discussions that I have with policy makers in the region, there's an assumption that exchange rate volatility is always bad. Whereas in Indonesia, because you've managed to tackle the foreign currency debt problem from the 90s and you have low debt ratios and you have more credible institutions, then currency flexibility can actually be a very good thing. And so during the crisis, the recent credit crisis, some depreciation can help ease financial conditions. But that only works if you have enough of your debt in local currency, you don't have too much in foreign currency if inflation expectations aren't unhinged and then you get the easing of financial conditions. Then when you get the inflows coming back into the region when the US looks weak and Indonesia and Asia look strong, then that currency appreciation can help tighten financial conditions automatically. And I think Indonesia has done a great job at allowing that currency flexibility and that's being permitted because of the improvements in some of the local currency debt arrangements you were discussing. I think the I word came up there, didn't it, Stuart? Inflation, how do deeper capital markets mitigate inflationary expectations, inflationary risks, etc.? Well, I think they have a tangential impact. But the inflationary issue I think in Asia Pacific, I think all of us as business people face it. Both wage price inflation, I think everyone here that's running a business in Asia sees extreme wage price inflation as Asia has replaced, in the eyes of most Western businesses, their domestic market as an opportunity to invest. And we see it actually rather more alarmingly at the grassroots level in the context of both energy and food, therefore, inflation. And it is worrying for countries that have still a large sector of poor people that obviously food and energy as a percentage of their disposable income is a dramatically higher percentage and therefore has a dramatically higher impact. So I think the inflationary pressures are very, very real. As you say, Indonesia has benefited by letting the currency appreciate 14%, 15%, that has had a tightening impact. But the inflationary pressures that we see in the emerging markets are actually a product of the global imbalances that take place. So you have got this huge wall of rather hot money that's come in seeking higher returns, fueled in part by the QE that has taken place in the Western world. And there isn't an obvious and easy solution to that other than, frankly, letting the currencies appreciate and letting interest rates rise unless we're at a point where the cycle starts to turn and actually the US dollar itself starts to come back, which is a possibility given that the weekly of the US dollar is now a fairly mature trade. Omar. Well, I think certainly the sting out of the inflationary concern has dissipated somewhat in the past six weeks or so with the come down and asset price and commodity prices, food prices and I think prudent sort of monetary policies that have been implemented in a number of countries and today the debate very much here, India, et cetera, is a trade off between high interest rates and a come down in growth. And I think that's an acceptable trade off to make. So I don't think it's that concern necessarily that keeps us awake at night, but certainly coming back to the Western world and our dependencies, I mean if you look at across the ratios, our exports of Asia still today constitute 42%. Of GDP, FDI flows still constitute 3.3% of GDP. We saw all of these volatilities play out in the O8 crisis where our stock markets, property prices fell dramatically as well in line with the Western world. Yes, we rebounded a lot faster. The same thing we've seen happening in our bosses over the last six weeks. So it's these concerns and depending on what view you take of the Western economies, and we don't have a particularly bullish view for the next two, three years, growth and sustained growth at the 7, 8, 9% levels in Asia is going to be impacted by that and hence the mobilization around domestic consumption policies, domestic capital formation policies. I mean consumption levels are fairly attractive and high in India and Indonesia sort of 55, 56% but remain low in China and as the Chinese themselves would acknowledge, it's not something that is necessarily going to change overnight. There are cultural factors that are going to take a generational change to spending patterns to come alongside sort of Western norms. There are structural factors and pension reforms, healthcare reforms that until these pillars are not sort of put in place, people, the wider population are not going to necessarily spend freely and widely. And then infrastructure, it's a huge bucket in terms of not just sustained future economic growth but also its impact and its effects as a fiscal stimuli. Indonesia and India, their infrastructure spending over the next five years accounts for 25 and 60% respectively of their 2010 GDP, so these are very significant numbers but that base of infrastructure spending has been thwarted, has been muted given legislative processes, given a lack of harmony and regulatory structures at a federal, state and local council level and frankly speaking, increasing sort of across Asia and a number of economies, transparency and governance issues that don't seem to be easing but indeed have exacerbated like in India today. Deputy Governor, do you think that you really can control inflation? Sorry, would you repeat this? Do you think you can really control inflation? Oh, yeah. Well, very difficult to answer these questions. Well, we're still in the range of the optimist range of our capacity to handle this. The food prices, commodity prices is very much perhaps one of our focus in the future, energy prices but the rest of the items seems to me, well, there is expectation for the consumer expectation and then how we have to guide the expectation so we can manage this inflation into our range. But so far our core inflation is still under-manageable, that level is manageable and then fortunately we got some benefit from strengthening our currency because it will have a good impact to our inflation at the moment. So overall it seems to me we are still optimistic to see that we can manage inflation this year, next year very much related to how we see the future development of the energy prices and food prices and things like that. That's why then it's very much dependent on something beyond our jurisdiction that's why then we are closely, very closely on that particular item. I want to just change subjects a bit now and talk a little bit about what happened of course on March the 11th in Japan and it seemed like a localized issue which could have been dealt with by Japan but as time has worn on it's become exceedingly an event that we're all feeling now or we're about to brace ourselves anyway to feel. And Geoffrey from an insurance point of view and a reinsurance point of view is something you're looking at I'm sure very closely. So I'm not quite sure where you want me to go. I just want to have you know these are natural disasters and of course we can also get the shock from them as well. It's something that we can't really avoid but how do we really stop ourselves from feeling the impact too badly? How much can we build in? Okay, so when the quake happened we got the knee-jerk and conventional reaction of the end must strengthen because Japan has to repatriate to finance the rebuilding and when the dust settled it became clear that Japan actually didn't need to repatriate to do that and was able to domestically finance that and particularly the insurance companies didn't need to bring money back and the insured amount was less than 10% anyway. There will be long-term effects of that refinancing in Japan and I'm not sure I can predict where those are going to go. The piece that I think is more fundamental is it showed up the global connectivities we've talked about in the supply chain, strings that exist which start to create indirect economic effect on a much broader global basis and very tough to predict. GM predicting a shortfall in income because of loss of suppliers in Japan then realizing that actually there was a degree of opportunity there because actually their main competitors were even more impacted than they were so even within an industry it's tough to predict it and so from an insurance point of view we'd say supply chain insurance is vital, you've got to drive down it, you've got to understand it from a more macro view it's the fact that disruption in one country leaks over into disruption in other places in unpredictable ways that we're still not good enough at understanding and have to keep working at recognizing what are the pinch points that are going to cause global problems. In terms of what we've seen with the impact of the tragic quake in Japan, I guess what I remember most is when we were first going through the kind of economic shock that would follow from that, every little bit of information we got kept getting worse so the first question I asked was how important is Japan in terms of overall semi-conductors in the auto industry and the answer was I think around 10-15%, I thought it's not too bad and then you ask well what about in individual parts and so when you went into the nitty gritties like anti-lock brakes it's about 80-90% and I think that's what we've seen a little bit in a couple of countries in the region here including in Thailand and also of course in the US but then I think the bigger question and sort of the broader risk in a way for the US and Asia and global growth at the moment is how much of the soft patch that we're seeing right now is due to that supply side disruption in Japan and when you look at the data in the US and in China I think it's a little bit worrying at the moment, in the US it's a very broad based slowdown including in the labor market and that doesn't really smack of a couple of months of I can't get the right widget and so I think it's perhaps more an issue of a very large output gap, not a huge need to invest corporate sitting on cash balances and so well you've had some improvement in consumption, it's not some building there and in China when you look at the breakdown in terms of the PMIs in China, the sort of business confidence surveys what you find is that orders have fallen at least as much if not more than production in the last few months and that inventories of finished goods have gone up whereas if you really thought this was a Japan related supply side slowdown what you'd expect to see is that orders were holding up very nicely and production was falling because you couldn't get the electricity, you couldn't get the widget from Japan and you're just not seeing that so I think the slowdown feels in China to be a very demand side policy induced slowdown and we don't expect that to change for some months yet until inflationary pressures subside and in the US it feels like a broader slowdown than just the tragic quake in Japan. Let's move it on and Stuart on top of a slowdown in the US we keep on getting the phrase that the can has been kicked down the road in Europe as well with the Greek crisis just being delayed more than anything else if we do see restructuring or a default on bombs there what is the impact and our companies here ready for it and what would be the impact considering also 45% of this region is export driven and the discussions and debate over Greece and therefore Ireland and Portugal continue obviously our expectations is not that there will be a default by Greece but obviously the debate is really turning on whether pre-2013 which was the original agreed date up until 2013 the IMF are standing in there was no sense that there would be any restructuring or reprofiling and it's that that's now effectively being debated will there be a reprofiling pre-2013 and the indication would be that provided Greece can actually get the budget cuts in place and start to probably sell a number of assets it's quite possible that this fresh package of money will be sufficient to get them through to that point in time I think realistically the debate around or the question marks around Greece and then Ireland will remain a chronic problem for Europe for the foreseeable future which from time to time will go through phases which will show up in credit spreads for the preferable countries but the interesting thing is it's not showing up in weakness in the Euro so the quite interesting part is that every time the Euro is weakened actually Asian and Middle Eastern central banks have taken it as an opportunity to diversify out of US dollars and buy the Euro so the Euro actually is stronger than before the Euro crisis began which is possibly an indication of some other bigger trends taking place but to your point about the fact that this part of the world is trade related and therefore depend on how the European economies respond when it's back to the point we're all making that there is an absolute connectivity that runs throughout the world and booming times in Asia are part of a reflection of money seeking higher returns than it can find either in the United States because we would agree that there is a broad slowdown taking place or in Europe where there are question marks over the cost of the bailout in essence of East Ireland, Portugal. The impact though of a reprofiling which is the most terminology used for effectively extending the Greek debt in some way clearly it's been stress test as well I mean that's why the ECB has done and the FSB have looked at stress testing the European banks so I'm not that worried that there will be a considerable unseen second order impact on European banks the seizure of the liquidity in the system that capital markets as a result which can lead to all sorts of problems as we did see 2007, 2008. There is a risk of that happening, the risk of that happening comes from contagion so it comes from how the Greek situations handled. If the Greek situation is handled in such a way as to cause the market to assume it's the start of more more being going into countries outside of the three I illustrated and what I'm talking about is when the rating agencies put Italy on negative outlook that had a far greater impact on European markets than any debate about Greece so it's the contagion and the extent to which contagion is unforeseen and to Jess point is hard to map that causes basically to respond to, causes banks and insurance companies and pension funds to respond to that risk by becoming totally risk averse and then hoarding cash which is why you then have this disruption in many markets. As things play out at the moment with Greece there is no sign of that happening but you can see where it will happen if you look at what did occur to credit spreads when Italy was put on negative outlook. Finance Minister Agus, I mean as a minister in this part of the world, how concerned are you by events in let's say the United States or of course as we just been discussing Europe? Regarding the disaster to respond to the disaster, in Indonesia basically we have to live with natural disaster you hear about the tsunami in Aceh eruption in Central Java, earthquake in West Java flood disaster in Papua in Indonesia we don't have special initiative to cover disaster insurance or catastrophic insurance but we continue to increase our budget for natural disaster we have special unit for managing that and then we increase 2 trillion rupiah to 4 trillion but we have initiative with ASEAN especially ASEAN Plus 3 we understand if there is a disaster the disaster can really impact not only the country but can impact the neighbour country or the regional so in ASEAN Plus 3 ASEAN Plus China, Japan and Korea we have initiative to develop the disaster insurance and catastrophic insurance I'm sure it will progress in 2011 and we will have that initiative soon in Indonesia and in ASEAN countries the other thing is in Indonesia we have a special law and basically in that law we need to always involve risk management unit especially for disaster for any development so we really need to make sure that all assessment especially the disaster risk management is there before we can go with the development initiative to make sure that we protect the community and the people of Indonesia I think that's what I want to respond to. Can I get you back to the inter-connectivity of the world and this part of the world so it's fairly well insulated after the collapse of Lehman Brothers I mean does that insulation continue now or are we in a more precarious situation? I think certainly in the context of Asia there are sort of many fundamentals about the Asian economies that bolstered them well even going into the 08 financial crisis certainly yes exports fell 30% property prices fell growth rates halved in East Asia etc etc but the rebound was a lot swifter in the Western world because of structural issues and structural fundamentals here Asia is in a stronger position and I think there's been a continuation of those prudent policies yes there are risks from all the things that we've discussed but I think if governments in a concerted manner continue to sort of be prudent be conservative be tight on the monetary front at the expense of growth I think it can be investigated to a great extent the western world post Lehman I don't think the structural issue around the crisis has gone away the debt has just gone from one coffer to another we are deferring the issue and that will come to a head in some manner or form of the other I mean the US where 70% of the US consumer the US consumer that accounts for 70% of that country's GDP has gone from a negative savings rate to a forced savings rate and that consumer is going to be down and out for the next 3, 4, 5 years so who's going to sort of come and pick up the slack and Europe as you had said you know has its own structural issues and rigidity and you know whether it's a sovereign crisis people talk about a down rating of the US which is Armageddon and probably Farfetched but certainly a deep long stagnationary environment in the western world is in my opinion not necessarily unforeseen Jeff I want to get your views on this as well I think we sort of summarized it already as a group is unless Asia can generate domestic consumption the imbalances don't go away unless the west finds a way to regenerate growth it's not going to discharge the debt issues that Omar was talking about and we have lots of external threats in terms of the water energy food nexus creates lots of stresses exacerbated in fact by the reaction to nuclear in Japan and we've got I'm going to say I'm very negative here I actually cut half full I think we will deal with it but I think that the G20 discussions have to get more and more holistic than they've been and it's the understanding of all the inter-connectivities that is so difficult at the moment that has to be dealt with if we're going to get to the right path forward out of where we are I asked your finance minister about it I'm going to put this question to the deputy governor now as well how concerned are you in Indonesia about a slowdown in the rest of the world well the bottom line is basically we're very concerned on the probability of capital reversal because of all this dynamic that happened in Europe's and other part of the world because it is very much our concern it was happen when the first Greece crisis happened I think we lost around 4 to 5 billion our foreign reserves at that time so it's very much the issues on how we make sure that the stability of financial system in tech and also at the same time we have to take care of very much the issues that mentioned earlier that the economy should grow in more proper way in terms of the stability inflation and bubbles things like that it seems to me we have to take the balance between these two important things but again it's very much the issues and the concern very much on the possibility of reversal because of what happened in recent debate in Europe on the Greece for example profiling, restructuring whatever you name it you know because it's different term that now being discussed but actually reversal is very much the issues of emerging markets Michael you wanted to make a point on this I was just thinking before when Jeff was commenting on the importance of consumption in the region I think something has certainly changed over the last couple of years not for the better in a way in that sense which is that to get out of the crisis China had of course an enormous domestic demand stimulus now admittedly most of that was investment but it's what quasi consumption investment schools hospitals property their investment because they're a durable asset but it's not sort of factories and plant equipment so it's not necessarily labour productivity enhancing in the near term so it's sort of quasi consumption investment and that was a huge part of what got China and then subsequently the rest of the region sort of out of the crisis but when you look at the ability of China to do that again it looks very different now we have a very simple metric to help sort of guide us on this called excess credit growth which is just the extent to which credit is going faster or slower the nominal GDP and when you look at that China was the only major economy in the world that had negative excess credit growth in other words delever in all of the good years of this cycle before the global credit crisis so it was at minus 15 when the rest of the world was at a plus 40 and above but then if you look at that situation now particularly if you allow for the off balance sheet lending the banks have undertaken in the last two years it's risen by 50 percentage points of GDP in 09 and 2010 so the ability of China to lever up to finance a surge in quasi consumption types of investment again has I think largely disappeared and so therefore you do need to create sort of true sort of self perpetuating consumption growth and that becomes very difficult because you know again just looking at China you know you've still got massive implicit taxes on the household sector and subsidies to the corporate sector from having interest rates many percentage points for low equilibrium and of course in a perverse way the fact that they have that financial system is one of the reasons they could run such counter cyclical policy because if interest rates are below equilibrium then you as a government can turn the tap on and off very very quickly because everyone wants more credit so it's a very interconnected problem I think and that makes it a little bit more difficult to solve. Thank you guys I want to just kick it out to the floor now and if you put your hands up and wait for a mic and identify yourself and your organisation as well Lisa first and I think it's helpful if you also tell us who you'd like to ask a question. Yes, Rafael Giltienda Marsha McClendon Asia, Richard thank you and the panel for a very concrete and very I think broad discussion of the impact on Asia of the potential risks I had a question perhaps for the minister and for the deputy head of the central bank but maybe also for the whole panel. Now at the Oliver Wyman report beginning of the year one of the assessments on potential crisis by 2015 was if for exogenous reasons and I think Michael was saying China is getting it right but if for exogenous reasons China were to have a significant slowdown you would have a ripple effect in terms of importation of commodities and other resources that would drop prices that would affect the growth in the rest of Asia that primarily has been export oriented and has been very well managed Australia, all of Latin America and frankly it's one of the few good things ongoing in the world. The US is dealing with its problems so it's Europe we concur with Jeff's point that countries ought to have a chief risk officer and that probably the position in there should be somewhere between the ministry of finance and the central bank so I guess my question is how top of mind is this perhaps unlikely but potential slowdown in China through some exogenous event in terms of preparing for financial prudence we're seeing big investments in infrastructure here Stuart was referring to those in India and a lot of that carries long-term borrowing you know and so how effective are we in saying okay if there were to be exogenous how well prepared are we in dealing with that maybe unlikely but potential event thank you. Minister that was to you. Thank you probably if there is debt risk the slowdown of China it will impact not only Indonesia but the region and explain that the economy of Indonesia we are not that dependent on export if you look at our composition to support our GDP 53% come from the household consumption 30% from investment 9% from government spending and only 2% from the net export minus import so we are not that dependent we have to continue to diversify our export we continue to improve the domestic demand so we have to establish a chief risk officer in Indonesia to really monitor that we have the crisis management protocol in each institution and we work closely and in the crisis management protocol that always monitor the development of Indonesia we understand several indicators need to be reviewed for Indonesia the most important thing is the current account deficit because in 97-98 when there was an Asia crisis if the current account deficit is larger than 3% there is a warning signal for Indonesia but we cannot just look at that we have to look at the equity market the government bond market we have to review the property price valuation of capital market etc and these indicators are monitored by the crisis management protocol but it's even better if we have the risk the country risk officer who infrastructure is one of the challenges of Indonesia in Indonesia for the next 5 years we need 1,400 trillion rupiah for building our infrastructure but unfortunately our fiscal has limitation we only have a slight fiscal balance so we need to attract investors foreign direct investment domestic investors 1,400 trillion rupiah investment in infrastructure that we need for the next 5 years the government can only finance 20-30% the remaining need to be participation of government working together with investor or inviting investors PPP initiative public partnership public private partnership we reduced that for the last 7 years we are not that successful but to me I'm pleased that at least we have one PPP in Central Java 2 billion dollar project that can be executed so with that we can then replicate to others so I'm positive I believe Indonesia can solve the infrastructure but infrastructure is one of our challenge thank you finance minister next question thank you to the panel there was very insightful perspectives I had a question for Michael and Stuart perhaps but given that it seems like sovereign risk outweighs corporate risk in today's world how concerned are you about politicians playing to the gallery and putting in further protectionism policies and what does that mean for Asia if there are more protectionism policies in Europe and the western world particularly in terms of protectionist sentiment I guess there are two elements one is pure trade protectionist sentiment and there I think that's been a very real issue although to be honest I'm surprised that it hasn't or it wasn't more of a problem during the depths of the crisis given the unemployment increase in the US one could have feared that the rise in protectionist sentiment there would be even worse I think China is obviously the focal point for that and that is one of the reasons that we are continuing to forecast a sort of 6% annualised appreciation of the currency as we think that's enough to stave off some of that protectionist sentiment but could that pick up if unemployment fails to decrease because growth is running at sort of trend a little bit below yes and that's clearly a risk and one that the strategic and economic dialogue between the US and China is going to be very very important in trying to reduce but I guess there's also questions over the protectionist measures in the capital markets and there I think there is a chance that governments want to keep more of the money at home so that they can control the interest rate environment and effectively have some sort of an inflation tax if you like to erode the real value of outstanding debt I think that that is a risk it's not one that seems to be sort of happening yet but we're certainly alive to those risks and given the history of high sovereign debt that is often a way that the countries choose to get out of that. I think the only thing I would add is a kind of statement rather obvious which is there are such huge global imbalances it's impossible for countries to opt out of a system where capital flows around the world just as it's impossible for countries to opt out of a global trade system in essence if you look at the creditor nations versus the debtor nations the debtor nations can't possibly fund themselves if they put up substantial capital barriers as it were however if you're a politician you will always play to the gallery and there will always be a domestic agenda which is driven off unemployment basically which will cause the pendulum to swing backwards and forwards somewhat but the idea that a major country could opt out entirely of the system I think is not possible. And maybe just one last thought on this is that my previous job before I joined Goldman back in 2000 was at the IMF doing bond restructurings and the rule of thumb back then was always that any debt that was in debt was the debt that you wanted to restructure and then you try and encourage new flows that doesn't seem to be the approach being taken thus far which is perhaps an illustration of the political imperative rather than the economic one. Thank you. My name is Pong Sak from Sassin of Jolongkorn Bangkok. Now I would like to ask the panel particularly the minister and the from the center bank do you foresee any possibility of QE3 which going to be surpassed whatever happened in QE1 and QE2 and is there any circumstances that Indonesia like Thailand which is small and open economy would like to contemplate the capital control or any sort of you know in this degree of thank you. I'm going to put that first to the deputy governor very quickly sir. Thank you very much. I do as I mentioned earlier the capital inflow is really one of our focus at the moment and then what we've been doing so far is basically perhaps I will use the term is putting sand in the wheel very much rather than to stop this very much to how all these things the inflows be manageable internally taking into consideration our challenges and also the stability on our macroeconomy. Thank you. I'm going to finish the first and then she wants to jump in. In Indonesia we are certain at the moment we don't have any plan for capital control we believe that we have to strengthen our fundamentals our economy the balance of payment fiscal banking sector real sector and we would like to really attract the portfolio investors so they can convert their portfolio to a more real sector initiatives and in the government we believe that the prudent macroeconomic monetary and fiscal policies and better coordination is the key so we have that position. I agree completely with the minister you don't want to put in capital controls you want to develop your financial markets so that you don't attract hot flows that come into short term assets but you develop your bomb markets effectively therefore the capital flows come in and they can be used in your economy to build out your infrastructure so there's a financial market development requirement which then uses those capital flows productively for the economy of the country rather than responding to hot flows and keeping them out you need to create the opportunities in your country to invest in ways that are productive for the economy so I agree completely with what the minister is saying. Should I ask Goldman Sachs's view on QE3? They'll know. I'm happy to talk to the issue of whether there's QE3 rather than the YouTube but I think the threshold in which the Fed does nothing is very very wide now and so on our baseline view which is that the US continues to grow at 3% and a little bit above out through the end of 2012 there would be no need for them to hike rates certainly so we have them even on our baseline case not hiking until around 2012. If things are worse than that though I think that would have to be a lot worse before you triggered another round of quantitative easing. The climate for additional quantitative measures is very very different now from when QE2 was done and I think also the Fed's view of the success of quantitative easing 2 is sort of lower than their view of quantitative easing 1 and so the sort of marginal benefit for doing it is a little bit lower and the marginal cost of doing it looks quite a lot higher so I think growth could be quite a lot weaker than our forecasts and a little bit stronger than our forecast and you'd still end up with exactly the same answer which is no QE3 but also no hiking out into 2013. Rana Dayal from the Boston Consulting Group it's no, I don't think anybody would disagree with the broad view that we're not in a decoupled world but at the same time intra Asian trade and intra ASEAN trade in particular have been the fastest growing components of trade over the last 10 years and look like they will continue to do so. So in that particular context and this is a particular question for Pak Agus but potentially for other people on the panel as well what opportunities do you see from things like ASEAN 2015 for example does that create the opportunity for a broader based bond market that can serve the needs of ASEAN and help address some of the more specific issues around bond market development in the region as a whole so in general what does ASEAN 2015 do and in particular what might be different ways of going at the bond market development issue that has been a constraint on financing and infrastructure. I know Stuart's got strong feelings on that but I'm not going to ask him to have to begin with and we might get Stuart's views on it. I think intra Asian trade is a fascinating point. What we've got to make sure is that it's not just part of the supply chain cycling around and it's still going to the west and I think a lot of it is actually ingredient driven by them consumption driven which would be healthier. The growth of ASEAN bonds is essential for the reasons we've gone through but unless you're trying to create and I don't think anybody here is going to suggest an Asian euro, those markets have to develop country by country. ASEAN can help fuel some of it a little but I think it's fundamentally a country issue what ASEAN can do is continue to drive intra regional trade and there's many ways that that can be driven forward even more aggressively than it's been done to date. I would echo that and you know also learn the lessons in terms of from Europe etc that the one size fits all policy doesn't work but at the same time there needs to be coordination amongst all the ASEAN countries across trade, across regulatory parameters and how they sort of design their policies because you know hurting one economy or benefiting one economy can hurt the other so I think that they're heading in the right direction. Stuart. I agree with Jeff completely bond market should be domestic currency otherwise you're going to create the foreign currency borrowing issue that existed in 97-98 and I also agree that a lot of ASEAN trades the supply chain so it's slightly misleading. Anybody else there we go. Lady at the maroon. Thank you good morning and echo Singapore Management University great panel I was just wondering last week Tim Geiner criticized the Asian economies for not aligning their regulatory policies according to the guidelines laid out in US so I just wanted a two part question for the Minister of Finance and for the Governor how much of your domestic financial regulatory policies align to ASEAN and how much of it to the US and the rest of the world for the leaders who run banks I think you're one of the most heavily regulated industry right now how do you balance the tension between home country regulations and host country regulations I think we could be here all day for that one Minister first. I think that's the previous question look at ASEAN ASEAN the ten countries in the ASEAN region we are committed to the ASEAN economy community 2015 in the Ministry of Finance area we have at least eight groups that discussing the possibility of creating a larger and more effective ASEAN region it starts from the customs and financial institution discussion capital market discussion insurance and others and we have the scorecards so it need to be monitored and it is monitored from time to time so we will have the effective ASEAN economic community 2015 and it's a great potential for ASEAN and the global community. In ASEAN we not only working the ten of us but we also work with the ASEAN plus three including China, Japan and Korea we basically have already established the Chiang Mai initiative mutualization this Chiang Mai initiative mutualization basically mandated us to establish an ASEAN plus three macroeconomic research office and this AMRO basically is an independent unit an independent regional surveillance unit that continue to assess each countries macroeconomic and if necessary they make recommendation and also recommend a solution for the macroeconomic situation in each countries we have pool 120 billion currency swap facility to basically support the stability of the ASEAN plus three community and for improving regulations we are in the process of continuous initiative to improve regulation not only regulation but also standard ethics and also standard procedure need to be aligned. One other thing that I would like to express is the ASEAN bond market in the ASEAN plus three initiative we also in the process of finalizing the ASEAN improving ASEAN bond market basically allowing corporates in ASEAN plus three countries to support them in issuing special currency bonds and the ASEAN plus three will establish a special guarantee unit or guarantee fund to support that initiative the ASEAN bond market probably that's what I can explain thank you. Deputy Governor if you can be very brief on that. Yes the regulatory alignment is something to be discussed in the G20 because I do believe that this is also reflection that some disagreement still remain to some extent over here over there you know in much very much detail but I do agree that the financial regulatory alignment is really something to be agreed on in the future. Indonesia is a member of G20 and then we also subject to be reviewed by our PIL with other members I think we are as our minister earlier mentioned that we are progressing quite well as far as the regulatory reform concern in particular related to the liquidity and the strength of our capital in banking industry we are involving a lot of international based standard on this and then I do believe well at least based on the independent review by the World Bank and the IMF under the financial sector assessment program just been finalized very recently Indonesia quite successful on that adding and then adding you can see on their website because we also discuss this with this group so we don't think we do have a problem with this alignment we of course we have our different point of view from very much emerging market point of view but at least we work very hard to start aligning all this thing with this current regulatory reform thank you. Jeff very quickly as well. Just to go to the home versus host issue which I think is a complex issue it starts with the systemic risk issue and I think the key issue on systemic risk is you've got to look to this activity more than size and activity is what needs to be understood from the systemic risk point of view the other issue that comes into play is guarantees and if we look at Ireland and Iceland guarantees became a big issue in general I don't like guarantees I think they create moral hazard but it's very difficult for us once they're in place we're not going to get away from them if home versus host is going to work I think you've got to say guarantees are host driven rather than home driven otherwise small economies with large institutions have an insolvable problem as a bank boss. We're in 80 countries there are two or three regulators in each so there's 200-odd regulators that regulate us we our industry as you rightly say that's heavily regulated that's perfectly understandable given the global financial crisis and we have to basically hit the regulatory hurdle in both the home and the host notion there's a college of regulators so the regulators themselves who cover HSBC coordinate so it's actually is pretty well organized by this stage the college of regulators who supervise HSBC met last week in London hosted by the FSA and myself and our chief financial officer and a number of the senior colleagues presented to them it's just the way it is just a completely separate point if I may and this is something to think about which is whether institutions of systemic create systemic risk or actually it's asset classes one of the arguments you can make is a lot of the financial crisis that took place in the United States came out of subprime lending it's actually asset classes that create systemic risk and therefore it's popping the bubble by using macro prudential tools that we believe is really one of the ways that the western central banks need to adopt some of the best practice from Asia so for example the things that you saw the HKMA announced this week which is restricting lending on properties above I think 10 million Hong Kong you've got to put 50% equity down and if you're not from Hong Kong itself you've got to put 60% equity down those type of macro prudential tools we totally welcome because we think those get to the nub of asset classes and asset bubbles and it's actually asset classes that create systemic risk not institutions and the way to pop those is macro prudential rather than monetary policy or simply holding larger and larger amounts of tier one equity I'm afraid that's all we've got time for I'm going to ask one more question of the panel I'm going to start off with Omar Lothi and it is within the realms of decency what keeps you up at night in an economic sense obviously I think the west and you know going from a long drawn out sort of low growth anemic growth environment which hopefully is the likely and expected outcome to a more Armageddon type outcome in terms of you know a severe sovereign crisis currency crisis that's probably what I would hold up. Deputy Bank Governor Well I think what happened in Greece and the U.S. economy and also the oil price is very much the very much the what I say is the day to day concern of our system. I sort of agree with Omar but I just add to that but it's the political search for short term answers is dangerous people need to take a long term holistic view before they act I agree energy prices food security is an issue inflation is also a challenge but prudent macroeconomic fiscal and monetary policies and better coordination among region is the key The political environment in the Middle East and its impact on oil prices I agree with all of the concerns already so I guess I'm not getting much sleep tonight maybe just to throw another one in here is the Chinese property market growth nexus clearly what China is trying to do is cap any increases in nominal house prices you get 20% wage growth for a few years and you grow out of the affordability problem that is our baseline assumption but if growth falls enough you don't get the income growth and then all of that could unravel Deputy Bank Governor Ladies gentlemen thank you so much for attending and we just run out of time just please give it up to the panel please and if anybody's got any headphones can you please don't forget to leave them by the door thank you