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.

To avoid that mistake today, under the structural impediments scenario, the Fed should revert to a “business-as-usual” monetary policy and begin to consider removing excess accommodation before inflation rises above its target and inflation expectations start to creep unalterably upward. There is a second competing storyline – one that I refer to as the “liquidity trap scenario”. First, consider what occurs during normal times when nominal rates of interest are considerably above zero and real rates of interest are positive. If the supply of savings increased but the demand for investment remained unchanged, market forces would drive down real interest rates to some natural rate of interest that equilibrates savings and investment. This market dynamic is thwarted in the case of a liquidity trap. Here, cautious behavior holding back spending – whether it is due to risk aversion, extreme patience or deleveraging – causes the supply of savings to exceed the demand for investment even at very low interest rates. Today short-term, risk-free interest rates are close to zero and actual real rates are only modestly negative. But they are still not low enough – because short-term nominal interest rates cannot fall below zero, real rates cannot become negative enough to equilibrate savings and investment. As I weigh the evidence, I find the case for the liquidity trap scenario more compelling than one for the structural impediments scenario. My assessment has been influenced by the book titled This Time Is Different: Eight Centuries of Financial Folly3 by Carmen Reinhart and Kenneth Rogoff.