Thank you Chairman. It gives me a great pleasure to join the fourth meeting of the Asian Statesmen's Forum. It is truly remarkable experience for me to exchange views personally with Asian political leaders, and I always feel very comfortable with this meeting, maybe because there is less presence of bureaucrats compared with other meetings we usually attend. Indeed, while there are many officially prepared diplomatic meetings, such as ASEAN plus three, I believe, strong personal ties among the statesmen could only solve the challenging problems we are facing with. So I would like to appreciate all who prepared this meeting for their leadership to hold this meeting again at this beautiful place of Kota Kinabalu, Malaysia.

Today my task is to speak about economic integration in Asia and Asian currency issues. Economic integration in Asian countries has been reinforced these days. As a matter of fact, an increase in intra-Asian trade in this five years (25%) has far outperformed that of world trade (16%). Almost ten out of ten people would emphasize Asia as a center of economic growth of the 21st century. I also believe materializing future sustainable economic growth in Asia could be the only way to maintain the stability of the regional security in Asia as well. In this regard, let me make three points required for the purpose of sustainable integrated economic prosperity in Asia.

First, the need to strengthen integration of regional partnership through the Free Trade Agreement (FTA) measure. Asia is a region of diversity with various ethnic, cultural, and religious backgrounds. With this diversity, and as what basic economics tell us, Free Trade Agreement –type regional partnerships can generate net benefits each other. I also think liberalization of foreign worker regulation and immigrant control with respect to both high-end and low-end labor especially in a large economy, such as Japan, will play a key role in this context. For example, foreign worker's training programs not only assist human resource training on the side of developing countries, but also accelerate necessary domestic reform through structural adjustment in industrialized countries, such as Japan.

Second, political leadership in each country is indispensable. While Free Trade Agreement can strengthen integration in regional economy, domestic protectionism especially in the areas of agriculture always put off the movement. For example, in the case of Japan-Thailand Free Trade Agreement Initiatives, it seems to me Japanese government has been failing to express its strong political will to carry out the agreement, although Thai Prime Minister Takshin has expressed his clear intent to achieve it. It is of utmost importance to establish political leadership to set a priority in the policy agenda without meddling of protectionist group, and to have ability to achieve intended goals by exerting the full-scale political power and wisdom to convince those who resist.

Third, Japan's initiatives in Asia will be essential. I believe Japan has a responsibility to provide stable power base in the growing Asian region. At the same time, that is the only way for Japan to survive in the 21st century without shrinking its power. Japan's economic revival, therefore, is obviously crucial. Economic integration in Asia cannot simply be achieved without Japan's strong private domestic demand. Moreover, Asian bond market will never become viable without Japan's economic and financial power.

As the economic integration progress in Asia, it should be quite natural to discuss the issue of currency integration in Asia. But we may have to be mindful that, as Professor Robert Mundell stated in his theory of "optimal currency areas" in the 1960's, several criteria has to be met in order to generate benefits from an introduction of unified regional currency. That is, openness of the national economies in the region, free movements of goods and labor, integration of financial markets, symmetry in the economic structure, and macro economic policy coordination.

Given these criteria, I would like to raise three points.

First, we all must remember that Euro was not created in one day. Compared with Europe, it may be safe to say that Asian countries are disintegrated in the sense of movements of goods and services, and big asymmetry among the economic structures still remains. Euro was introduced after fifty years' history of efforts in the European economic integration initially launched with European Coal and Steel Community (ECSC) in 1958. You may know, an origin of the concept of "United Europe" can be observed even three hundred years ago, when Abbé de Saint-Pierre published a book titled �eProject of Perpetual Peace' (Projet des Paix Perpétuelle) in France in 1713. On the other hand, as far as I know, it was the first time Tenshin Okakura, a well known Japanese thinker and painter, wrote �eAsia is one,' in his book entitled �eAn Ideal in the East' in 1903. Here, we see two hundred years difference in the history of philosophy of integration between Europe and Asia. My conclusion at this moment can be boiled down to one phrase; economic integration first, monetary integration second. That's why we have to concentrate on the domestic reform in each country at the outset.

Second, in the process of economic integration, it is crucial to induce ample domestic savings in Asia into ample investment opportunities in Asia. We have to be mindful of the lessons from currency crisis in 1997. It is of necessity with no doubt to establish regional market mechanism and infrastructure in order for utilizing our own savings into our own regional investment. I think both Asian Bond Initiatives started by the government ministers and Asian Bond Fund created by central bankers in the region will play an active role in this context. Moreover, various forms of regional financial market co-operations should be desirable in order to strengthen regional integration and mutual trust in regional currencies, just like Chiang Mai Initiatives that reinforced currency swap agreements among ASEAN plus three agreed in May 2000, although they are not yet between local currencies.

Third, exchange rate of Chinese yuan (Renminbi) must be adjusted to a proper level. I think it is not only our interests but also China's long-term interests that China to move to a more flexible exchange rate policy, and we should encourage them to shift to a broader band. In this way, we can manage sustainable and healthy economic growth of China and the other Asian countries. Let me note here that I am not necessarily suggesting to give China a pressure to "revalue" Renminbi. Nobody knows which way Renminbi goes under more flexible exchange rate regime and freer trading system with such unproductive sector as agriculture.

In conclusion, Asian economic integration may take long, long way. And Asian monetary integration may take even longer way. We will have to go over lots of trials and errors just as Europeans did in the history of European Monetary System. It is of utmost importance for Asian political leaders to strive for finding Asian model for restructuring our economies and capital markets. As Japan's Prime Minister Junichiro Koizumi stated in Singapore in 2002, we have to build basic philosophy of �eacting together, advancing together.' And I would like to stress that Japan should bear the responsibility to lead Asian economic integration.

Thank you.