The investment climate has also improved amidst the better economic conditions and more efficient functioning systems that have been put in place. Financial and corporate reforms and restructuring have supported these developments An area in which the payoff has been significant is the financial sector. The banking sectors in the ASEAN region as a whole have increased their resilience and ability to manage risks as reflected by their profitability, asset quality and capitalization, all which have generally strengthened since the Asian crisis. The renewed strength in the banking sectors have been underpinned by recapitalisation programmes, rationalization and consolidation and improvements in banking supervision and regulation. The implementation of financial reforms has not only increased the capacity but the resilience of the financial system. Similarly, corporate balance sheets across the region have strengthened considerably with significantly improved standards of corporate governance. With the more positive investment climate, it has resulted in a resumption of investment activities. A major development since the crisis has been the development of the capital markets, in particular, the bond market. This has led to greater diversification of sources of financing for the corporate sector. In Malaysia, the bond market now accounts for almost 90% of GDP with the size of the corporate debt securities market now exceeding the public debt securities market. There has also been increased attention to greater financial inclusion, to reduce income disparities and achieve more balance growth. The stronger domestic financial sectors in the ASEAN economies have also allowed for greater liberalization and deregulation to occur.

Diverse new sources of growth have now emerged across ASEAN, with the economies now moving beyond their traditional reliance on manufactured exports to expanding the production of resource-based products, and increasingly to the services sector and thus providing greater flexibility to respond to shifts in external demand. There has also been a rebalancing of the sources of growth between domestic and external demand. The role of private consumption has strengthened in the ASEAN economies. ASEAN now possesses a burgeoning consumer market that is valued at more than USD 330 billion. With high savings rate continuing to prevail, there is potential for this trend to be sustained. Consumption demand has also been supported by rising incomes, with GDP per capita having increased to over USD 1,500 compared to USD 1,157 in 2000. In the long-term, these trends are expected to be reinforced by the positive demographic structure in the ASEAN region. ASEAN’s population is not only large but also young with 55% at less than 30 years old and becoming increasingly urbanized. There is also greater involvement of the private sector in the economy following the period of adjustment post-crisis. Private investment which was initially slow to adjust has now shown prospects for a stronger recovery. The potential for greater investment is driven by the rising infrastructure requirements throughout the region that is estimated at USD 160 billion for the period 2006-2010. There has also been growing interest in resource-based industries.