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Following is the full text of the speech (English only) delivered by the Financial Secretary, Mr Donald Tsang, at the breakfast meeting of Confederation of British Industry, Birmingham today (Tuesday):

Distinguished guests, ladies and gentlemen, good morning to you all.

It is a great pleasure and privilege to speak with you during this extremely important and influential annual gathering for British industry. Although it is early in the day, I know that some of you must have been awake for hours attending to work matters.

I have read that on this day, in 1942, Field Marshal Montgomery launched the decisive attack at El-Alamein which ended Rommel's presence in North Africa. As many of you may know, 'Monty' insisted on a full English breakfast every day, with all the trimmings for that matter, hence one of the explanations for the expression 'The Full Monty'.

I am well aware of the more contemporary use of the expression, given the success of Sheffield's contribution to the movie world. But it is the more 'traditional' meaning to which I refer today. From my understanding, 'to go the Full Monty', means going all the way and finishing something you have started.

And the mental roughage I will ask you to digest this morning relates to just that. The question I pose is this : Does the global village have the fortitude to finish what it started two years ago? As East Asia emerges from the financial crisis, and positive signs return to the region, is there still the international will to press ahead with initiatives that will decrease the likelihood of such a crisis recurring?

As the UK deliberates on the future of its currency, should it not consider factors beyond the simple political and commercial advantages and disadvantages on joining the Euro? Is there not a more fundamental issue of whether the pound sterling will continue to enjoy stability, or indeed durability, as a sovereign currency independent of the Euro if the so-called international financial infrastructure does not embrace the initiatives that I have talked about?

Have we all indeed learnt the lessons of the Asian financial crisis - or for that matter, the earlier crises in Europe and in Latin America?

In the past few months you can almost hear the sighs of relief across the region. For the first time since the last quarter of 1997, GDP in all the East Asian economies is in positive territory. Investment is starting to flow back into the region as confidence levels also edge upward.

But the real danger that confronts us now is that with all the good news - after such a long period of bad news - there will be a temptation to become complacent with what has already been achieved, rather than to be content with what needs to be achieved. In other words we might only get a 'Half Monty', rather than a 'Full Monty'.

If this is the case then recovery in East Asia will surely be transient - whether is be three, five or ten years down the track - and the events of the past two years will come back to haunt us. As an old Malay proverb cautions : Don't think there are no crocodiles, if the water is calm.

It is important to understand that what happened in East Asia is not just an Asian problem. Good corporate governance, adequate and prudent risk assessment by lenders, open, efficient and well-regulated financial markets, a clean and accountable government are benchmarks that are equally important in any economy. It is true that some, if not all, of these prerequisites were sadly lacking in some of the Asian economies worst hit. Reform was badly needed in the region, and that is now taking place.

But Asia's problems were exacerbated by an ailment that has struck before in Europe, Mexico, Latin America, Russia and even the US. And that is huge and secretive, international and unregulated capital flows.

In the years preceding the Asian crisis, billions upon billions of dollars flooded into economies such as Thailand, Malaysia, Indonesia and South Korea. But on July 2, 1997, when Thailand suddenly devalued its currency, liquidity evaporated from the region as fast as a cold beer disappears on a hot summer afternoon.

In Hong Kong, almost US$100 billion was sucked out of our banking system within a year. In Singapore, it was something like US$45 billion. In all, it has been estimated that almost US$200 billion was taken out of circulation within Asia in 1997 and 1998, mainly due to Japanese banks pulling back their loans.

The ensuing credit crunch - and a newfound cautiousness on the part of lending institutions - severely hampered recovery in the region. The sudden withdrawal of hitherto easy capital, coupled with speculative attacks by hedge funds against weaker and devalued currencies, was too much to handle for some Asian economies. And that was why IMF assistance was eventually required.

I would hope that the lessons learned from the Asian crisis would set the alarm bells ringing if similar conditions emerged in the future. But if history is anything to go by then unfortunately the lessons may go unheeded.

Remember the ERM crisis in 1992? The Mexican peso crisis in 1995? Problems in Latin America and Russia in more recent years? Even a super-liquid market such as the US is not immune. The Federal Reserve was forced to intervene in late 1998 to prevent systemic risk to the banking sector when a series of aggressive hedges went terribly wrong, and Long Term Capital Management (LTCM) was left with an exposure of more than US$100 billion from an asset base of barely US$4 billion. The question that everybody was asking then was: How could a single corporation be allowed to amass such huge positions?

And this is what really lies at the heart of the problem. Nobody knows what these secretive, highly leveraged institutions are up to.

Many emerging market economies - because they are small, open and transparent - are open and vulnerable to manipulation by large and aggressive highly leveraged institutions, or HLIs as they are called. The problems these HLIs pose is akin to an elephant in a pond. If vicious, a large and aggressive HLI could squash minor players and destroy small or emerging markets. Even if benign, the sight of a huge elephant lumbering into a small, open market could be enough to scare away many smaller players, which in turn could lead to a run on the market. Unfortunately this scenario has not received sufficient attention in any of the international fora.

Even open and well-regulated economies like Hong Kong cannot escape the attention of aggressive investors with billions of dollars up their sleeves to flood, or drain, a market virtually at will given the right conditions. Hong Kong became a victim of rogue capital flows in August last year, when speculators took advantage of low liquidity in the stock, futures and money markets to create an imbalance and an uneven playing field tilted in their favour. In the US, there are strict anti-trust laws against this sort of thing.

Our own experience set in train a raft of reforms to strengthen our financial markets and banking system to make them even more efficient and open, and less susceptible to manipulation. Yet, despite the best efforts to reform, rebuild and strengthen markets in Hong Kong and elsewhere in Asia, the risks posed by unregulated and potentially destructive capital flows continue to hang like the sword over all but the biggest economies.

But this is why there needs to be a concerted and ongoing international effort to ensure that the impetus of this reformation does not lose momentum or worse still, stops altogether.

It is, if you like, a 'sweet and sour' challenge that faces the global economy - everything is sweet when capital flows into a market. And everything turns sour when if flows back out, usually at a much faster rate. As The Economist pointed out in a recent issue. Quote: "As international capital has become highly mobile, so the risk has risen that departing capital may cause a financial crisis, as countries in Asia and Latin America have painfully discovered. In a global capital market, the reward for good economic policies has increased, but so too has the punishment for imprudent ones. Efficiency has its price." End Quote.

The main problem with many international capital flows is that they are non-transparent - they come from, and reside within, a 'black box'. Very often they are based 'offshore' - a PO Box in the Cayman Islands or the British Virgin Islands - where there is no compulsion, nor legal requirement, for investors to divulge the extent of their positions, exposure or leverage.

Do not misunderstand me, I do not for one minute believe that capital controls are the answer. Such drastic steps are totally against the free trade mantra that underpins Hong Kong's economic philosophy.

But we do need to know more about the cross-border flow of money - especially the size of exposure in any one market and the extent to which certain funds are leveraged - if the integrity of the open market and level playing field is to be maintained.

The free flow of information is an essential ingredient for free trade to flourish, but it is sadly an inherent weakness that can easily be destabilised when it comes to international capital flows. Banks in particular have a responsibility to ensure proper and prudent risk management when dealing with investors involved in currency trading or other speculative activities.

These issues cannot be dealt with by any one economy. Clearly, international co-operation and consensus is needed on how to improve the international financial infrastructure. Hong Kong is playing a meaningful role in this process by participating in the G-7 Financial Stability Forum, which is looking at Highly Leveraged Institutions, offshore centres and short-term capital flows. Several international bodies under the leadership of the industrial economies have started to pursue new initiatives designed to prevent the recurrence of an LTCM-type situation.

I am under no illusion about the technical, economic and political complexities of devising workable measures to address the destabilizing impact of huge, unregulated capital flows. But if we were simply to put it in the "too hard" basket then we do so at our peril.

Also, we must try not to always blame the ready scapegoat of intrinsic market weaknesses or policy mistakes for a crisis such as that which hit Asia in 1997. There is simply no perfectly balanced economy as long as it remains open and dynamic. So we must take a considered view on whether the international financial system will become more stable or less stable, if once again the concerns of smaller economies are brushed aside when we talk about the aggressive trading activities of some HLIs.

In considering counter-measures, it is taken as given that the trend of globalisation and liberalisation should and will continue. We have already seen how quickly and violently contagion can spread from our troublespot to another, and then from one region to another. Given the increasingly integrated financial markets, when the next crisis hits, the contagion will be more virulent and move much faster. Rather than attempting to reverse the course of globalisation, we should use our best efforts to make the international financial system more robust and resilient to crisis regardless of whether or not it plagues Asia, Latin America or the industrialised economies. We must , most of all, be objective and humble enough to understand the mixed ingredients of global financial crisis.

I welcome the G7's leadership in setting up the Financial Stability Forum. I have no doubt that the Forum and its working groups will take a further look at the HLIs and what we might do in monitoring or harnessing them and to those who bankroll them. I sincerely hope that the Forum will involve the emerging market economies and take into account their experiences and their views in its work. After all the emerging market economies comprise the bulk of the victims of the current crisis.

The Asian financial crisis was a wake-up call for Asia - and I am the first to admit that even well-regulated and open markets like Hong Kong needed a wake-up call. The crisis exposed structural weaknesses and economic bubbles that needed rectification anyway. But the severity of that adjustment was exacerbated by the 'hit and run' tactics of aggressive currency speculation.

Now the region is starting to recover, it is even more imperative to go the 'Full Monty' and finish the job that was started back in 1997. If we do this, then maybe we can ensure that the global trading and investment environment of the 21st Century is fair, open and sustainable for not only the biggest, but just as importantly the small and medium-sized economies like the UK and HK.

You may well ask : what does it have to do with me? The reason is simple, and it very much mirrors the mission of the CBI which, and I quote, is to 'create and sustain the conditions in which business can compete and prosper'. A more succinct description would be 'sustainable development'.

If we can manage to achieve sustainable development in the global trading village of the new millennium then people such as yourselves, and the industries you represent, will be all the better for it.

Thank you.

End/Tuesday, November 2, 1999

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