The need for responsible and prudent action by managers is even more important in the context of the significant transformations financial systems are undergoing. As I have already mentioned, these have raised the profile of a whole set of risks that have been addressed only marginally in the past. In particular, off-balance sheet operations, guarantees and forward operations, for example, require extreme vigilance on the part of financial institutions. This is because, among other reasons, identifying and assessing the risks they entail is sometimes not straightforward. Moreover, international corporate scandals have shown the great importance of reputational risk. In all such scandals the firms involved had excessively complex and insufficiently transparent organisation structures. employing in their operations special purpose vehicles located in opaque jurisdictions. In many of these cases the most basic mechanisms underpinning good corporate governance also failed. The complexity of structure and the lack of firmly established corporate governance mechanisms in organisations is also conducive to operational risk, which has significant potential to cause institutions damage that is hard to repair. The latter have increased their efforts to develop methods to improve the measurement of this risk, but there is still a long way to go before this is achieved. Such complex and opaque organisational structures also make it difficult for the institutions to know their customers properly. That brings me to the second element institutions need to focus on: getting to know, as far as they are able, their customers’ activities.

After the crisis, there was some excitement about domestic demand being the driver of growth, and there was some justification for such enthusiasm. There was certainly a component related to the growth in incomes and private demand. But there was also a significant component related to public spending and the rapid growth of domestic credit. The outcome is higher debt levels for both households and the Government. This is clearly not a sustainable strategy for growth. Indeed, the experience has shown that there are limits to how fast and how sustainably we can grow by relying on domestic demand alone. Therefore, going forward, while domestic demand will continue to support growth, we really need to strengthen our integration with both the regional and global economy, and by implication, strengthen our overall level of economic competitiveness, if we are to achieve sustainable growth over the long term. Returning to the economic outlook, the good news is that we are seeing more sustained growth around the world and that is already beginning to benefit Malaysia and creating more balanced growth of the Malaysian economy. Now what are the potential clouds over this rather sunny outlook? There are several, but in the interest of time, I will just mention five. The first of this is the slow recovery of investment in the AEs after the crisis. It has been noted that this recovery, unlike recoveries from past recessions, has been accompanied by rather lackluster investment. This is despite the fact that companies are sitting on large piles of cash.