This trend has leveraged on the respective comparative advantages in countries of the region. Malaysia 's distinct capabilities in a wide number of areas has increased its participation in this process. In addition, increased economic integration following the rise of intra-regional trade and investment has brought mutually reinforcing benefits in terms of the expanding regional opportunities. The strengthened corporate sector has also led to increased direct investment abroad by Malaysian companies. Going forward, developments in the Malaysian economy will also benefit from the Ninth Malaysian Plan. A major strength of the Malaysian economy has been its economic flexibility. Significant changes in the structure of the economy continues to take place. The manufacturing sector has continued to move up the value chain while the services sector has gained increasing prominence, with its share of GDP rising from 45% in 1995 to almost 60% today. The role of private consumption in the economy has also been enhanced, supported by steadily rising incomes, low unemployment, and access to the financial system. Of importance is the recovery of investment activity. In addition, the small and medium-sized enterprises (SMEs) have increased their role in the domestic economy. New areas of growth are also emerging, ranging from the shared services and outsourcing industry to agrobusiness, biotechnology and Islamic finance. The flexibility of the economy to continually adjust to new areas of activity has been an important factor contributing to the dynamism of the economy. About a year ago, Malaysia took the opportunity to transition into a more flexible exchange rate regime.

This would also include new growth areas such as micro-financing or agricultural lending. The aim is to produce niche players delivering specialized value added products and services that will be able to cater towards specific segments of the market and over time, and thus develop a more comprehensive financial system that would contribute towards the development of a more diversified economy. Given the background of emerging economies, the transition to a more liberalised environment would indeed demand appropriate sequencing of measures and careful management of the liberalisation process that are guided by broad principles that would ensure that there are benefits and opportunities brought about by the liberalisation process. The financial sector is an important and strategic sector that has a significant role in supporting the economic growth and transformation. Liberalisation needs to commensurate with the pace of economic development and strength of the regulatory structure to avoid destabilising effects on the stability of the financial sector and the overall economy. Key considerations for the strategic opening up of the financial sector would be to steer the financial sector towards increased competition whilst ensuring domestic financial institutions are not marginalised by the liberalisation process. Liberalisation should instead serve as a catalyst for domestic banks to further improve their performance and enhance efficiency and capabilities in order to sharpen their competitive edge and elevate themselves to a level that is at par with the international players.