Joseph Yam: HKMA congratulates the Central Bank of Malaysia on 50
years of achievements
Address by Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority, at the
Ceremony for the 50th Anniversary of Bank Negara Malaysia: "50 Years of Central Banking -
Stability and Sustainability", Kuala Lumpur, 8 February 2009.
* * *
YANG AMAT BERHORMAT PERDANA MENTERI MALAYSIA Dato' Seri Abdullah Haji
Ahmad Badawi
YANG BERBAHAGIA KETUA SETIAUSAHA NEGARA Tan Sri Mohd Sidek Haji Hassan
Dear Governors, Distinguished Guests, Ladies and Gentlemen,
It is an enormous honour and pleasure to be invited to speak at today's ceremony. The
honour is a special one because over the years Bank Negara and the Hong Kong Monetary
Authority have worked in close partnership on many projects, to the extent that a deep
friendship has been built between our institutions: with that friendship has developed great
admiration on the part of my colleagues and myself for Bank Negara's many achievements.
The pleasure is not just in having the opportunity to visit once again this beautiful and
hospitable country, but also in being able to pay tribute to a valued colleague and dear friend,
Governor Tan Sri Dr Zeti Akhtar Aziz. Governor Zeti's strong and inspired leadership of Bank
Negara for most of the last decade has turned it into a first-rate central bank and a great
force for good in this region.
We are all mindful that we celebrate this 50th anniversary in the midst of intense global
financial crisis. This will not - and should not - diminish the happiness of the occasion.
Indeed, much of the history of Bank Negara Malaysia is the history of timely, productive, and
often courageous response to crisis, and examining that history gives cause for optimism in
our present circumstances. In my comments today, I shall touch only briefly the current crisis.
Instead, I shall reflect on the achievements of Bank Negara during the decade or so that
followed the last great crisis - the Asian financial crisis of 1997-8. As I hope I shall
demonstrate, these achievements are more than of merely historical interest.
It is clear to any observer that Bank Negara Malaysia has been a driving force in the building
of this country. To speak only of its purely central-banking functions, Bank Negara has fully
discharged its responsibilities through keeping inflation under control and maintaining stable
interest and exchange rates, despite rapid economic growth. This has been crucial in
supporting rising living standards and an increasingly diverse external trade. As adviser to
the Government, the Bank has played a key role in formulating economic policies. The Bank
has also been at the forefront of financial-sector development, in particular through building
efficient and advanced payment systems. This work has stimulated a diverse financial
system, with impressive growth in stock-market capitalisation and other non-bank activity.
All of this is indeed impressive, and reason enough for celebration. But Bank Negara's
contributions to the well-being of the country go somewhat beyond the more conventional
central bank functions. Of great interest in any survey of its role in nation-building is Bank
Negara's promotion of forms of financial intermediation that are of special relevance to
Malaysia's needs and culture. The Bank has been a pioneer in the promotion of
microfinance, and a leading participant in the national agenda to promote a strong SME
sector. Considerable funding and expertise have been devoted to these activities in recent
years, with the result that the share of SME financing in total business financing has
increased from 31% in 2000 to 44% in 2007. The experience and networks established in
this field have been of great value in the Government's efforts to mitigate the effects of the
current global financial crisis, which have included the recent launch of a substantial Micro
Enterprise Fund. Like many other economies in this region, Malaysia is a land of small
businesses, but the attention that has, during years of stability, been given to strengthening
channels of finance to the smallest of enterprises offers lessons for all economies at this time
of pervasive credit crisis.
Bank Negara has also taken a prominent part in the development and advocacy of Islamic
finance, which has seen rapid growth in the country since 2003, with annual growth rates in
Islamic banking assets and insurance assets approaching 20%, and Malaysia now
accounting for about 70% of all global sukuk issues. Islamic finance is increasingly
recognised as an important alternative channel of financial intermediation, and not only within
primarily Islamic communities. As Governor Zeti has persuasively argued, Islamic finance
encourages business activities that generate legitimate profits, and rests on principles of
fairness, shared risk and ethical practices.1 There is, I think, much for us all to reflect on in
this when considering how badly things have gone wrong recently in what might be called
"traditional" finance.
No institution with such a long history can have escaped controversy, and BNM has had its
fair share. What is interesting, however, is that perhaps the most controversial action by the
Malaysian authorities in recent years - the response to the 1997-8 Asian financial crisis -
has now come to be understood as appropriate and effective. At the centre of this response
was the imposition of capital controls to contain speculative capital flows, stabilise the ringgit,
and give the economy a breathing space. This was widely criticised internationally as a
retrograde step. Yet it was a limited and temporary measure, which, along with other policies
succeeded in stabilising the system and providing the conditions for economic recovery. The
role of Bank Negara in promoting international understanding of this measure was crucial to
its effectiveness. It is not, of course, my purpose to recommend capital controls as a general
solution to financial crisis. The lesson here is that unorthodox measures can be effective,
provided that they are well thought out and properly implemented. At a time like the present,
when governments around the world have been ready to adopt measures that were barely
conceivable a few months ago, this is perhaps a lesson that has already been quickly
learned.
The region's recovery from the Asian financial crisis was nearly as rapid as the unfolding of
the crisis itself, thanks to the vigorous measures taken by authorities in the region and the
underlying momentum and vibrancy of the Asian economies. The experience of this shock
generated a determination in the region to try to ensure that such a crisis did not happen
again, and to strengthen financial systems against other forms of crisis. It would be
complacent to suppose that we have been completely successful in these aims. We are,
after all, in the midst of a serious financial crisis that no efforts by this region on its own could
have prevented. The region's financial systems may have been largely undamaged by the
first wave of that crisis. But the second wave is now upon us, and this second wave may well
carry greater risks to emerging markets. Even so, the determination among Asian economies
in the aftermath of 1998 to build strength against future crises has placed this region in a
much more resilient position.
The raw resources for maintaining financial stability - foreign exchange reserves - have
more than doubled in most of the economies in this region over the past decade. Many
economies have embarked on financial-sector reform, with the aim both of ensuring that the
banking system is well capitalised and of promoting other forms of intermediation. Central
banks have seen a strengthening of their capabilities and a clarification of their policies and
roles. Most heartening of all, co-operation among central banks in the region has flourished.
Many examples could be cited, from bilateral swap agreements to payment system linkages.
At the centre of this regional co-operation has been the work of EMEAP in facilitating
practical co-operation in all areas of central bank activity, and particularly in surveillance and
crisis management. I should add that these activities have benefited enormously from the
wisdom and leadership of Governor Zeti and her colleagues. The Zeti Taskforce - the
EMEAP taskforce on Regional Financial Co-operation - has laid out a comprehensive
framework for enhancing central bank co-operation, which has been adopted by EMEAP as
a blueprint for action.
Calls were also made in the aftermath of the Asian financial crisis for a reform of the global
financial architecture. Yet one of the great disappointments from those years, particularly
when set against the real progress in regional co-operation, was the general absence of
concrete measures on an international scale. There was, it must be said, a greater
determination at least to pool expertise and discuss possible solutions in various international
forums. But the political motivation for further reform gradually weakened during the period of
strong global growth for most of the last decade.
The present financial crisis has much in common with the Asian financial crisis in that it has
involved massive failures in financial intermediation, a rapid transmission of problems, and a
strong element of surprise. However, the present crisis is global, not regional, and it centres
on the world's most advanced economies. At its climax, in September 2008, the crisis raised
the real possibility of a collapse of the world financial system. The reputations of many
leading institutions and individuals have been damaged or destroyed. Large sectors of major
financial systems have been effectively nationalised. Disillusion has spread, and fundamental
questions have been raised about the future of free markets, as people count the cost of the
excesses of the past few years.
Inevitably, central banks and regulators have been among those that have faced criticism: for
not seeing - or not heeding - the danger signals; for having allowed financial innovation to
get out of hand, to the benefit of intermediaries but to the detriment of the public; and for not
responding quickly enough when the crisis began to emerge. Although there are many
lessons to learn, not all of these criticisms are fair. The rapid, unconventional and
coordinated response by central banks at the peak of the crisis undoubtedly averted a collapse
of the system, and the vigorous measures to maintain the functioning of financial systems
have been largely effective - so far. Nevertheless, the crisis itself, and the very scale of the
response, have brought central banks more into the foreground than ever before. As the full
implications of what has happened unfold there will undoubtedly be questions about their role
and the policies they pursue.
The appropriate response to this is for central banks, international organisations, and
government authorities to seize the initiative for reform so that financial crisis does not
become a crisis of confidence in the system itself. Since, as recent events have resoundingly
demonstrated, the financial system is a global system, the reforms must be organised along
international lines. The limited achievements in international co-operation following the Asian
financial crisis might make us sceptical. But, in fact, the signs are positive. Co-ordination
among central banks in crisis management has been effective. Technical blueprints for
regulatory reform on an international scale have already been drawn up. And the political will
has been demonstrated in the commitment by the world's largest economies to implement
far-reaching reform. One area of progress is the movement towards greater participation by
developing economies in international forums and in the process of reform. This is important,
not just because of the growing influence of these economies - nor even because the
leading international forums are currently dominated by the very economies that are now in
the deepest trouble - but because the ordinary people of developing economies are usually
the ones who suffer most in a global financial crisis.
International co-operation will also, I hope, act as a countervailing influence against any
repeat of the disastrous mistakes that were made in the 1930s. There has so far been a
resistance to trade protectionism, although the idea has begun to gain some ground as a
spurious answer to economic distress. There is a risk that the idea will spread to the financial
sector, particularly if there is political pressure to include protectionist measures in rescue
packages for troubled banking systems in the developed economies. I need hardly point out
that - no less than trade protectionism - such a trend would deepen the hardship of the
developing economies, many of which rely heavily on international finance. It would also be a
matter for serious concern in financial markets across the world. One of the central aims in
building a more robust international financial architecture must be to ensure that there can be
no excuse for resorting to financial protectionism as a solution to global or national crisis.
This will be a year of hardship and anxiety throughout the world. Much effort will be spent in
fire-fighting and managing expectations. But this is also a time when central banks,
international organisations, and leaders generally must work with optimism and resolution
towards improving the international financial system. Crisis can provide the stimulus to
reform, the determination to change, and the spirit to co-operate. There is no better
illustration of this spirit than Bank Negara Malaysia. Nor is there a more happy example of a
central bank working in partnership with the people it serves to the benefit of the country. It is
therefore with the greatest of pleasure and respect that I join you all in congratulating Bank
Negara on its 50 years of achievements and in wishing the Bank and all who are associated
with it continued success and happiness in the next 50 years and beyond.
Tahniah kepada Bank Negara Malaysia di atas Ulangtahun ke lima puluh!2