Zeti Akhtar Aziz: Vision of Asia
Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Official
Monetary and Financial Institutions Forum (OMFIF) - "Vision of Asia Award Acceptance
Speech", London, 30 June 2010.
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It is my great honour to be here today to receive this Vision of Asia Award from the Official
Monetary and Financial Institutions Forum (OMFIF). I would like to thank Lord Desai, for his
generous introduction and the advisory board of OMFIF for this recognition. As a policy
maker from an emerging economy in Asia - for almost three decades - it has been both
exhilarating and most rewarding. While being challenged to the limit, in particular, during the
Asian financial crisis, the Asian economies have now emerged stronger and more resilient.
This decade has seen a dramatic change in the nature of the globalisation process. As this
process intensifies, Asian economies have demonstrated their flexibility to adjust and
respond to the opportunities and challenges that have emerged. The initial wave of
globalisation was in the form of trade. This was followed by the globalisation of corporations
and more recently by the globalisation of financial flows. The recent global financial and
economic crisis has called for the globalisation of policy given the limits for policy at the
national level and the need to address cross border developments that have implications on
the domestic financial system and hence the domestic economy.
The global economy and the international financial system have entered a new era. A
fundamental transformation of the global landscape is taking place. Arising from the growing
disparity in growth performance between the developed and emerging world, increasingly the
economic power in the global economy is becoming more dispersed. The Organisation for
Economic Cooperation and Development (OECD) estimates the emerging economies' share
of global economic output will exceed that of the developed world by 2011. By 2030, the
emerging economies are expected to account for 60% of total world output.
The benefits of globalisation are thus becoming more balanced. In 2000, the emerging
economies accounted for 80% of the world population but only generated 40% of global
income. By 2030, it is estimated that 85% of the world population from the emerging
economies will generate 60% of the income. This is reinforced by increased trade between
emerging economies. While world trade has quadrupled between 1990 to 2008, trade flows
between emerging economies increased ten-fold.
Asia is very much part of this global shift that is taking place. Following a decade of
significant economic and financial transformation, Asia has emerged as a major growth
centre in the global economy. Asia now accounts for one third of world output and 28% of
world trade. This progress and development has created employment and improved living
conditions, lifting millions out of poverty. While Asia is one of the most diverse regions in the
global economy, it has been able to take advantage of the complementarities in the region to
generate significant expansion in intra-regional trade, intra-regional investment activities and
increased intra-regional financial flows.
Vision of Asia
This award speaks to the growing importance of Asia within the world economy. Allow me to
touch on three major trends in Asia that are likely to influence Asia's role in the world as we
advance into the future. First, the role of the growing cumulative domestic demand in Asia for
the regional and global output. Second, the role of Asia in the more efficient intermediation of
funds mobilised in Asia arising from the more pronounced regional financial integration.
Third, is the policy strategies being adopted by the region to address challenges and the
model for the management for international relations.
The economic transformation of Asia in this decade has resulted in Asia becoming an
important source of cumulative demand in the global economy. Rising incomes, low
unemployment, a young demographic structure that has higher propensity to consume,
relatively low level of household debt and policies to encourage consumption have spurred
consumption demand. Other measures being initiated include putting in place social safety
nets in the form of schemes and programmes for education, healthcare, retirement and
unemployment benefits. This has not only resulted in significant expansion of the retail trade
sector in the region but Asia is increasingly becoming an important consumer in the global
economy.
Private investment activity has also resumed following a period of excess capacity due to
overinvestment prior to the Asian financial crisis. There are also plans for massive
investment in infrastructure development in the region. While Asia has the internal capacity
from its high savings to finance these investments, the resulting higher import demand that
these investments will generate will contribute to the further unwinding of the global
imbalances. This stronger domestic consumption and investment demand in Asia is also
being supported by the strengthened and more developed financial systems. The relatively
low level of leverage of the corporate sector and the continued access to financing support
this trend.
While regional economic integration has always been part of the Asian economic landscape,
regional financial integration has been a more recent phenomenon. While regional financial
integration will facilitate the already strong trade and investment linkages in the region, a
more important aspect of financial integration for Asia is that it will facilitate a more efficient
intermediation of funds within Asia. Asia's more developed financial markets and continued
initiatives to liberalise the financial sector will also strengthen inter-linkages with both the
traditional financial markets and with new financial centres in other emerging economies.
Going forward, products from Asian financial markets can be expected to increasingly
assume greater importance as an asset class. It will thus increase the potential for the
diversification of risks and contribute towards stability of the international financial system. It
will also expand the options for investors and borrowers and thus, contribute to more efficient
allocation of financial resources across borders. In addition, the development of the capital
markets in the Asia region will have the important role in channelling part of the sizable
savings of Asia back into productive investments in the region. With greater liberalisation of
the financial sector and the capital account, and the increased linkages of the national
payments systems in Asia, and the greater presence of regional institutions in the individual
domestic financial systems, the trend for increased financial flow within the region will
continue. Given Asia's favourable economic prospects and more developed financial market,
Asia is already attracting volatile capital flows.
The route that Asia is taking to forge greater financial integration will however be different
from that of Europe. Unlike in the European Union, Asia has not ventured to have centralised
institutions to coordinate financial integration. Rather, it has leveraged on existing regional
groupings and existing networks to forge greater collaboration in areas of common interest.
Secondly, a common currency is not on Asia's medium term agenda. To minimise exchange
rate risks and facilitate intra-regional trade and investment, countries have ventured into
arrangements to use domestic currencies for trade settlements.
Let me touch on policy and strategies adopted in Asia. Asia has tended to not adhere to rigid
ideologies but rather focus on institutional building and financial market development,
strengthening of the payment systems and the regulatory and supervisory framework.
Indeed, many of the reforms that are now being widely debated to address the weaknesses
observed in the global financial system during this crisis have already been implemented in
Asia. This includes the adoption of sound liquidity frameworks, substantially strengthened
governance and risk management practices, comprehensive financial safety nets, and the
implementation of counter-cyclical measures such as loan-to-value ratios. While a decade of
financial reforms have paid off, increased regional efforts on surveillance, crisis
management, liquidity support arrangement, and financial supervision and development of
regional financial markets continue to be the focus of attention going forward.
Conclusion
Let me conclude my remarks. The global economy is experiencing a significant and
fundamental shift. Asia is very much at the centre of this shift. As Asia becomes an
increasing source of demand and as a more financially integrated Asia becomes more
interlinked with the rest of the world and as Asia further strengthens its resilience, the stage
is set for Asia to assume a more prominent role in the global economy.
In the endeavour to achieve the shared goals of balanced global growth and the common
interest of global financial stability, Asia holds the potential and the promise of a platform for
meaningful collaborations towards attaining sustainable global solutions and progress in this
more inter-connected world.