Lee also advised that in the medium term, they have to strengthen and improve the regulation of financial institutions and markets. But they must not swing to the other extreme of excessive government regulation which will hamper the flow of credit.

"We will need to improve macro-prudential analysis of the global financial system, draw attention to vulnerabilities in both developing and developed countries, and work out effective responses to these vulnerabilities. This will be extremely challenging," he said.

Lee believes that the emerging economies, which are still much smaller than the developed ones, are a growing factor in global prosperity and financial stability.

The emerging economies, which should play a larger role in the international financial system, should also take on more responsibility for upholding the system and solving problems which affect all countries, he added.

With regards to the planned Patty meeting, Lee said that the deepening economic and financial crisis will be high on the agenda, and East Asian countries must understand what the others are doing, and discuss how they can collectively tackle the crisis.

One important objective, he said, should be to issue a strong statement to support free trade and avoid protectionist measures.

"Governments are under strong pressure to protect domestic producers and discriminate against imports. We need to constantly remind ourselves and our peoples that restricting the free flow of goods and services will make all countries worse off and prolong the downturn, " he said.

On the Chiang Mai Initiative Multilateralisation (CMIM), which needs to be operationalized expeditiously, he said that Asian economies are generally sound, but they should take preventive steps to mitigate against confidence crises and capital flight.

"The CMIM will complement the IMF and World Bank facilities as well as bilateral swap arrangements. All these will help Asian economies to cope with any financial turbulence," he said.

For the longer term, they must continue to bring the East Asian community closer together, he said, adding that regional economic integration will help them to weather such economic storms and also deal with other cross-border issues, such as terrorism, pandemics, and food and energy security.

(Xinhua News Agency April 8, 2009)