This is an edited excerpt of a speech by Dr Tony Tan, deputy chairman and executive director of the Government of Singapore Investment Corporation, at the Swiss Re Forum yesterday. He is also chairman of Singapore Press Holdings.

ASIA has benefited tremendously from post-World War II globalisation and liberalisation trends. Strong growth in the developed world, trade liberalisation and a broadly stable geopolitical environment have enabled Asia's export-oriented development strategy to work.

The post-crisis environment challenges these basic trends which, till now, have been taken almost for granted.

Going forward, growth in the developed world will be modest at best. High unemployment increases the risk of protectionism and a reversal of globalisation. Shifting economic power could lead to conflicts among nations. Asia will increasingly face labour, natural resource and commodity constraints to its high growth strategy.

Can Asia and the West adapt to these challenges?

While we should not underestimate the difficulty of the challenges, I believe the answer broadly is 'yes' as it is in the interest of Asia and the West to work together for mutual benefit.

In the next stage of economic development, Asia's economic growth model is likely to change from depending largely on exports to a more balanced model in which private domestic demand is also a key source of growth. In some countries, especially the larger BRIC (Brazil, Russia, India, China) economies, an expanded middle class will consume more goods and services, such as TVs, computers and tourism. In many countries, extensive infrastructure investment will help meet the demands of massive urbanisation.

Asian countries and sub-regions like Asean are continuing to build strong WTO-consistent and inclusive regional trading and financial relationships and free trade areas. This will insulate them from economic shocks, further raise domestic living standards and contribute to balanced global growth.

As productivity in Asia rises relative to that in the developed countries, real wages will also rise. Asia's better growth prospects will also attract capital inflows. Both factors should, over time, lead to an appreciation of Asian countries' exchange rates.

In finance, Asia's increasing economic wealth and consumer sophistication will demand a wider variety of more sophisticated financial markets, products and institutions.

Financial systems in a number of Asian countries are still dominated by banks, with relatively undeveloped foreign exchange, bond and equity markets. Retirement savings and fund management are nascent. Banks are likely to continue to be the core of many systems, but other markets and institutions will develop.

This crisis gives financial institutions and markets in Asia tremendous opportunities to grow and develop. The globalised Western banking system, hampered by capital constraints and re-regulation, will likely not be able to intermediate the massive capital demand needed to finance Asian growth. This leaves the playing field unusually open for Asian financial institutions and markets, particularly for several years.

Fortunately, given the experience of the 1997 Asian crisis, Asian financial institutions generally came into this latest crisis much healthier than their global counterparts. Capital, liquidity and non-performing assets were at healthy levels while exposures to toxic assets were limited. Asian household, business and government sectors are also relatively un-leveraged. In order to take advantage of this opportunity, however, Asian banks and capital markets will need to quickly step into the breach.

The shift in economic power from the developed world to the emerging world could, however, raise geopolitical risks. However, I do not see Asia aggressively challenging the global order, which has benefited Asian countries for decades.

Asian countries, including China, generally share the view that a multilateral, rules-based international order is critical to their long-term growth and development. Asia's rise therefore is not inevitably a zero-sum geopolitical game where the United States and Europe must decline as Asian countries grow.

Asia will of course assert its views on global political and economic governance but will do so as a stakeholder wanting to strengthen international institutions and cooperation.

For instance, Asia's voice in global affairs will rise in tandem with its economic power. The governance and functioning of the international order - the Group of 20, World Bank, International Monetary Fund, World Trade Organisation and the United Nations - will also be reformed to take into account Asia's rise. But this is a rebalancing to take into account the growing importance of the emerging world and not a supplanting of the older order.

Asia continues to believe in the benefits of open economies and globalisation.

The region also benefits from regional integration, whether through Asean, Asean+3, or Asia-Pacific Economic Cooperation (Apec). For many in Asia, the Great Crisis of 2008-09 has reinforced the benefits of regional cooperation to promote trade, investment, markets, and provide avenues for conflict resolution.

To sum up, Asia is recovering well from the Great Financial Crisis of 2008-09. The crisis seems likely to accelerate the shift in economic power from the developed to the emerging world.

Asia is at the cusp of the next stage in its development. There will likely be bumps along the way, perhaps a few crises, but if we learn the right lessons from history, especially those of the recent Great Crisis, Asia will innovate and adapt.

Source - The Starits Times (http://www.straitstimes.com/Review/Others/STIStory_557145.html)