Finally, insurers need to adopt prudent pricing policies and investment strategies that are properly matched with insurers' long-term financial commitments as illustrated to policyholders. Malaysia remains committed to strengthening the domestic corporate and financial infrastructure. The corporate sector is expected to continue to restructure to enhance competitiveness, to be in a stronger and better position to support economic growth. At the same time, while a number of large corporations have undertaken rigorous restructuring exercises, focus will also be channelled on SME development in 2002. The SMEs are important in providing the linkages between the various subsectors within the economy and represent a potential source of dynamism and driving force. SMEs also represent indigenous enterprises with potential to grow and evolve into larger and listed companies, with the potential to become regional or global players. For the SMEs, the focus of its development will be placed in creating an enabling business environment that is not confined only to providing access to financing to the SMEs, but also to efforts towards enhancing their technological capabilities, provide training and access to advisory services, as well as channels to market their products and services. The formulation of a comprehensive framework for the development of SMEs will be based on a survey of SMEs conducted by BNM through the banking system. As part of the effort to strengthen the economy's institutional structure further, a new legislation, the Development Financial Institutions Act 2002 (DFI Act), has been enacted and came into force in February 2002.

While the overall growth had moderated during the year, the overall balance of payments turned around to a surplus position of RM3.7 billion in 2001. While the current account surplus narrowed in 2001, the surplus remained large at RM27.4 billion or equivalent to 8.9% of GNP. This reflected a moderate decline in the trade account and an improvement in the income and services accounts. As at end-2001, BNM's international reserves was higher at $ billion. Subsequently, reserves have increased further to $ billion as at 14 March 2002, sufficient to cover 5.5 months of retained imports and cover 5.3 times the short-term external debt. While the external debt increased during the year, the outstanding amount has remained low at 55.4% of GNP. The debt profile also remained sound with short-term debt accounting for only 13.7% of total debt. In 2001, Malaysia's macroeconomic fundamentals continued to strengthen. Inflation moderated to 1.4%; international reserves continued its increasing trend, driven by sustained inflows of trade surplus and long-term capital flows; the overall fiscal position of the Federal Government improved; domestic savings remained high and the financial system strengthened significantly. These stronger fundamentals have increased the economy's resilience in the face of a more difficult external environment. The pegged exchange rate regime continued to be well supported by the fundamentals and facilitate international trade and investments during the year. The stability in the exchange rate  BIS Review 21/2002  1  also allowed for the effective implementation of pro-growth policies and the accelerated pace of banking and corporate restructuring.