Zeti Akhtar Aziz: Enhancing financial integration in the new Nusantara Luncheon address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Malaysia-Indonesia Investment & Finance Summit, Jakarta, 18 June 2007. *  *  *  Ladies and Gentlemen: There has been a long history that transcends several centuries in which international trade flourished in the Malay archipelago . The South East Asia region contained the important maritime routes for the trade between the East and West. This had brought with it, robust economic growth and regional prosperity. Today, the South East Asian region – the Nusantara region continues to be one of the world's most dynamic regions. Since the turn of this century, our economies have re-emerged to be amongst the fastest growing in the global economy, amidst new challenges and fundamental economic and financial developments. Our steadfast reform and restructuring efforts have rewarded us with strengthened macroeconomic fundamentals and sound and stable financial systems. These efforts continue to be augmented by the strong the foundations that the region possesses, namely abundant natural and human resources, high savings rates and the ingrained aptitude to persevere and rise to the challenge. The ASEAN 5 group of economies that includes Indonesia, Malaysia, the Philippines, Thailand and Singapore have now for an extended period of time been on a steady growth path. A more recent phenomenon in this decade, has been the increased economic and financial linkages within the region spurring further regional economic and regional financial integration.

In this regard, the emergence of Islamic finance into the mainstream of the financial system is an opportunity for the Nusantara financial intermediaries, in particular, for Malaysia and Indonesia and other neighbouring countries, to open new frontiers and in so doing strengthen further the economic and financial linkages. The building of a Nusantara financial platform would not only facilitate and mobilise the pool of investable funds from the respective economies but also allow for the more efficient allocation of the funds into the productive investments in other parts of the region. This would not only contribute towards lowering the cost of funds but it would also allow for greater diversifications of risks. More recently there has been growing interest in cross border participation in investment activities in our respective economies. Malaysia's capital inflows into Indonesia has increased by three-fold totalling USD2.2 billion in 2006 compared to the previous year. It is estimated that Indonesia requires  BIS Review 73/2007  1  approximately an annual investment of USD22 billion for the next several years for the development of its infrastructure, with a large part of the funding to be provided by the private sector. In the same way, the Ninth Malaysia Plan for the period of 2006 to 2010 has a financing requirement of RM107.6 billion. The development of our regional financial intermediaries and markets will facilitate the mobilisation of resources towards financing these potential activities and thus contribute to sustaining development in the Nusantara economies.