**************************

Following is the speech by the Financial Secretary, Mr Donald Tsang, at the special meeting of Finance Ministers (G-22) Washington, October 6 (Tuesday HK time) 1998:

Mr President, Ministers,

I am grateful that you, Mr President, have taken such a keen personal interest in addressing the crisis we are all facing. That is, the crisis of confidence in our financial system that is deepening as we speak. The financial markets are looking to us for leadership and decisions. The jury is out there. There will be angry markets awaiting us if nothing substantive emerges by the time we leave Washington.

Other ministers have spoken about the causes of the problem and I agree with them. We know the problems, but how to prioritise and fix them? In the short-term we need to address urgently specific problems facing the beleaguered economies like Brazil and Russia. we need a parallel effort with major economies, the IMF and other multi-lateral agencies; and help from the private sector financial institutions in the rescheduling of debt, to provide a period of respite or 'standstill'.

In the medium-term - and by that I mean months not years - we need to establish more soundly-based capital flows. Huge, unregulated, secretive and highly leveraged capital flows are sweeping the international markets. They are destabilising emerging economies and putting financial institutions in mature markets at risk. we need to codify the degree of transparency required of financial institutions generating such capital flows. We also need to establish greater discipline in the extension of credit to these institutions.

In the longer-term we need to renovate the Bretton Woods legacy on global architecture. In doing so, we must preserve much that is good and indeed essential. But these institutions must be able to cope with the new demands placed upon the system by the size and speed of modern capital flows. And we must build into this framework a mechanism for fast, effective international action at times of crisis. And they must harness market forces in their aid. In relation to the shortage of liquidity we need to develop deep domestic bond markets to mobilise domestic savings and investments from outside the region. I have spoken on this subject elsewhere and do not wish to labour the point here.

In short, we as a group need to make decisions quickly on short-term problems. I propose that for the medium and long-term issues we distil from the three reports before us an action agenda to be presented to this group for approval within the next three months.

Hong Kong stands ready to help in whatever way we can, to expedite this process. If Ministers find it helpful, I am happy to make available Hong Kong as a venue for the next meeting of this group.

Thank you, Mr President.

End/Tuesday, October 6, 1998

NNNN