The possibility that the regional economies could be affected by global financial developments, as well as financial developments in countries within the region, creates a strong inventive for cooperation to create mechanisms that would pre-empt such adverse developments, and if they do occur, to limit their impact on the regional economies. You would have heard about the resource pooling under the CMIM as well as the regional swap arrangements. These arrangements exist. They have existed for a number of years. But too be truly effective, we need to be looking deeply at global developments and how they can potentially impact the region, and more importantly, vulnerabilities within the region that could have cross-border effects. This requires having a regional surveillance mechanism, and the ASEAN+3 policymakers have set up the ASEAN+3 Macroeconomic Research Office (AMRO) in Singapore to do exactly that. Would the regional mechanisms be better than the international mechanisms? It remains to be seen. We are still building these mechanisms, which provide us the opportunity to ensure that the bricks we put in place today will contribute to strong structures that would be able to withstand the demands placed on them in the future. In this respect, I wish to mention two points. First, we have to ensure that whatever regional institutions we set up must have strong governance. It would be unfortunate if after criticising the governance of existing international organisations we then end up replicating similar governance structures in the institutions that we set up in Asia.

Financial liberalisation and advancements in information and communications technologies have connected the different national financial systems to create a global financial network through which financial resources flow around the world. In such a system, when there are disturbances in the small financial systems, it would merely be a ripple in the global financial system. But, if something happens in a large financial system, its impact would send shockwaves across the entire network. If policymakers, especially in the large economies, do not understand this, or underestimate its implications, it could lead to an overestimation of the effectiveness of national macroeconomic policies and underestimation of the global impact of those policies. The global financial system is in a state of constant evolution with key impetus coming from technological advancements, financial innovation, regulatory changes, financial incentives and regulatory arbitrage. The globalised financial system and what it means to be a part of it So, let me first turn to the implications for Malaysia of being a part of the globalised financial system for there is no doubt that Malaysia has become more financially integrated globally. Malaysia’s financial integration with the world Based on data on Malaysia’s International Investment Position, which is compiled by Malaysia’s Department of Statistics, outstanding non-resident investments in Malaysia increased by almost 4½ times between 2001 and 2014 to reach $ billion. That is the amount that non-residents have invested in Malaysia as of 2014 in the form of FDI, portfolio investments and other investments such as deposits, loans and trade credits by banks and corporates.