It has been a promising start to 2004.

The world economy is experiencing a strong, synchronized recovery. The Singapore economy grew a robust 7.5%
(year-on-year) in the first quarter of 2004, up from 4.9% in the last quarter of 2003. The Ministry of Trade and Industry has raised the GDP growth forecast for this year to 5.5-7.5%. Growth is expected to be broad-based
across both the manufacturing and services sectors, while the labour market should register steady improvement through the year. Nevertheless, the favourable outlook not without risks. These include a sharp economic slowdown in China, rising oil prices and security concerns.

Barring mishaps, we expect a sustained upturn for Singapore and the global economy. Confidence is high. As economic activity picked up, early signs of inflationary pressures emerged. Against this backdrop, in April 2004 we shifted the monetary policy stance from a zero per cent appreciation path to a policy of modest and gradual appreciation of the trade-weighted Singapore dollar.

The rapid recovery reminds us how volatile the global environment is, and how important it is to continue strengthening our ability to assess and manage risks. MAS made further progress in risk-focused supervision and risk-based capital requirements. We aim manage risks in our financial system more precisely and sensitively, without placing unnecessary regulatory burdens on well-managed financial institutions. We are also
making progress toward a longer term goal: applying equivalent prudential and market conduct standards to financial institutions across different sectors conducting similar business activities that are subject to similar risks.

In a more risky environment, financial institutions need to understand their statutory responsibilities as well as the desired outcome of MAS’ supervision. To make supervisory initiatives and policies more transparent, we published a monograph setting out our supervisory and regulatory approach for the financial sector.

To benchmark ourselves against international best practice, we completed the IMF/World Bank’s Financial Sector Assessment Programme (FSAP). The report published in April this year endorsed the resilience and robustness of Singapore’s financial sector despite the difficult conditions. It also commended Singapore’s high
degree of observance of international standards and codes. We take heart from the FSAP findings but we will not be complacent. We must remain vigilant to maintain the soundness of our financial system and confidence in Singapore.

We have established good partnerships with industry. The research scheme introduced by MAS and the Singapore Exchange has produced encouraging results. Our consultation papers attracted valuable feedback, which helped us to formulate the new Business Trust Act, fine-tune the Securities and Futures Act and the Financial
Advisers Act, and make other important regulatory changes.

In our disclosure-based regime, corporate governance, market discipline and a well-informed investor community are key to fair dealing. MAS, working with other government agencies, launched a national financial education programme (MoneySENSE) to enhance financial literacy and self-reliance of consumers. We will
continue to work with market participants and industry associations to promote higher standards of market conduct.

Looking ahead, we must capitalise on the opportunities from the global and regional economic recovery. MAS will strive to keep Singapore an attractive regional hub for financial sector activities. Together with our counterparts in the region, we will develop initiatives to further strengthen, liberalise and integrate our financial markets. We will
adapt and respond to market developments and enhance Singapore’s position as a premier international financial centre.

I wish to take this opportunity to express my sincere thanks to Mr Lam Chuan Leong for his significant contributions to MAS and the financial sector. Mr Lam stepped down from the MAS Board in December last year, having served as a member since January 2000. I would also like to welcome Mr Lim Chee Onn back to the board.

Lee Hsien Loong
Chairman
Monetary Authority of Singapore