This growth was sustained with a strengthened balance of payments position. Macroeconomic policies during the year were focused on supporting domestic activities as the main driver of economic growth. Private consumption remained resilient despite the lower export earnings. National savings remained high at about 35% of GNP. Public sector investment increased by 15.5%, while consumption expenditure increased by 11.9%, mitigating the impact of the contraction in domestic private investment. The more diversified economic structure of the Malaysian economy also moderated the impact of the decline in external demand faced by the export-oriented industries. The weaker growth in the export-oriented manufacturing sector which contracted by -10.2% was mitigated by positive growth in all other sectors. Stronger growth in the domestic-oriented industries, which increased by 7.4% compensated for the shortfall from declining external demand. The agriculture and the mining sectors, which expanded by 2.5% and 0.2% respectively, accounted for 15.5% of GDP. Domestic-oriented industries in the manufacturing sector now accounts for more than one-quarter of total output. Domestic content in the services sector is now higher, at about 80%. The construction sector, which has high local content and multiplier effects, also performed better during the year. The pro-growth policies to stimulate domestic activities benefited in particular the services sector which sustained a growth of 4.9% in 2001. The expansion was broad-based, with strong increases recorded for intermediate services, particularly finance and insurance as well as communication sub-sectors. Strong expansion was also recorded in the final services group, particularly government services and utilities sub-sectors.

But the more important question remains whether the institutional framework for overseeing financial markets, seeking to prevent crises and, when prevention fails, to manage them, is adequate. Open financial markets will always be prone to bouts of irrational exuberance, but do we do enough to contain the collateral damage which excessive volatility can cause? Some academics, notably John Eatwell at Cambridge, argue that we need a fundamental recasting of the international financial institutions. He favours the creation of World Financial Authority charged with setting the regulatory framework for financial markets across the globe, and endowed with powers of intervention when crisis threatens. His arguments are persuasive, but it seems unlikely that countries will be prepared to cede sovereignty to such an authority on a scale which would be necessary to make it work effectively. There have been many other less ambitious proposals, both from within the IMF and the World Bank, and from individual countries. For a time it seemed as though the creative departments of every  BIS Review 25/2003  1  Finance Ministry in the world – if that is not an oxymoron – were engaged in a kind of architectural competition to draw up a new set of relationships between the international financial institutions, their member countries, and the key regulatory organisations in the financial sector. On the face of it, the changes made as a result of this frenzy of creativity have been very modest. No major new institutions have been set up.