ANNUAL REPORT 2002 / 2003
is proving to be a much more challenging year than 2002. Fortunately, the
war in Iraq was short and its economic impact limited. But the outbreak of
Severe Acute Respiratory Syndrome (SARS) is an unexpected blow to Asian
economies, including ours.
The SARS outbreak is a new and major uncertainty for the region. How lasting and deep the effects of SARS will be difficult to predict. Its impact is felt most acutely in the tourism, hospitality and transport industries, but extends beyond these sectors. We have lowered our Gross Domestic Product (GDP) forecast for 2003 to a range of 0.5-2.5% from the initial 2.0-5.0%. This assumes that the outbreak remains under control and does not become a worldwide problem.
the backdrop of a more uncertain outlook, slower growth and a benign
inflationary environment, monetary policy will continue to be supportive
of recovery in the domestic economy.
such times, our small, open economy is particularly vulnerable to external
shocks. Volatile markets and poor economic conditions have heightened the
risks to financial institutions. Competition has put pressure on margins,
sometimes inducing financial institutions to take on more risk. With
liberalisation, our financial sector is less sheltered from these risks
than before, but also more prepared to meet them.
up walls will not keep out these risks. We have to strengthen our ability
to manage them. The fundamentals are in place. MAS will continue to
sharpen its risk-based supervisory capabilities. We will collect better
information and use it more effectively to produce more accurate risk
profiles of the financial institutions we supervise. Instead of preventing
institutions from taking risks, we are encouraging them to better
identify, monitor, and control the risks they take. Continued vigilance
will help institutions to monitor their own status, and pre-empt
deterioration before damage is done, both to the institution itself and to
the financial system as a whole.
broadly, as global financial conglomerates become more dominant, and as
financial institutions transfer risks more actively across the industry,
regulators need a more holistic understanding of the entire financial
system, to identify what and where its potential vulnerabilities are, and
how exogenous shocks might weaken it. MAS is therefore enhancing its
capabilities in integrated supervision and financial surveillance. We must
always plan a few steps in advance. That is why we emphasised the
importance of sound Business Continuity Plans (BCP) for our financial
system. Dramatic events in recent years gave MAS and the financial sector
opportunities to test their preparedness against operational disruptions.
To further strengthen the financial system, MAS formulated guidelines in
January 2003 on sound BCP practices, which have proved helpful to
financial institutions responding to the SARS crisis.
stay ahead in uncertain times, we must continuously innovate and adapt to
changing conditions. MAS will monitor market developments closely, consult
actively with industry, and refine and update our regulatory and
supervisory framework to maintain and enhance Singaporeís position as a
resilient, competitive, and dynamic international financial centre.
I wish to take this opportunity to express my sincere appreciation to Mr. Khaw Boon Wan for his significant contributions to MAS and the financial sector. Mr. Khaw stepped down from the MAS Board in July 2002, having served as a member since 1998.
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