Net external demand, exports less imports, actually made a negative contribution to total economic growth in each of the past five years. This is the first time that the external contribution to growth has been negative for a period of five consecutive years since the 1870s. And that negative contribution is likely to continue for the foreseeable future. BIS Review 58/2001  1  Imbalances on this scale are unsustainable, although it is far from obvious for how long they can continue. At some point, the weakening balance sheet positions of the private sector will lead to a slowing of consumption and investment as households and firms, respectively, reduce spending to lower the ratio of debt to prospective income. Household debt to income and corporate debt to profit ratios are at historically high levels. Moreover, within the corporate sector the debt levels of the most highly indebted companies – those in the top decile of the distribution of debt to profits ratios – are even higher than in the early 1980s and early 1990s. That holds true even when the telecoms sector is excluded. Spending might, therefore, be expected to decelerate in response to these balance sheet positions. But, for the time being, final domestic demand continues to grow at above trend rates, exacerbating the imbalances within the economy and adding to the risk of a large adjustment at some point in the future.

The Islamic financial services industry in Malaysia possesses a conducive environment for innovative advancement that is supported by a regulatory framework that ensures not only the stability of the system but also promotes the active and vibrant functioning of the system. These developments and continued evolution of Islamic finance have demonstrated the ability to not only meet the rapidly changing requirements of the global economy, but also to remain competitive in a challenging environment . Following the greater international interest in Islamic finance, it has gained an increasingly prominent role in the international financial system. This is reflected by the active involvement from governments, corporate sectors and global investors from both Islamic and non-Islamic countries. Potential role of foreign Islamic subsidiaries The policy for the establishment of foreign Islamic subsidiaries in our Islamic financial system is also part of the initiative to enhance the outreach of Islamic finance and to strengthen our international linkages. It reflects part of the further liberalisation of the Islamic financial services industry in Malaysia. Foreign Islamic subsidiaries have the potential to promote innovative product development and enhanced international integration of the Islamic financial system. Firstly, by leveraging on the global networks available, foreign Islamic subsidiaries are well positioned to engage in innovative product development in a more cost effective manner. Malaysia provides an enabling platform such structuring of Islamic financial products and instruments. The recent establishment of the International Shariah Research Academy (ISRA) as a premier research entity has further enhanced the infrastructure to facilitate this innovative process.