zeti akhtar aziz : asean – a dynamic region with diverse strengths speech by dr zeti akhtar aziz, governor of the central bank of malaysia, at the international symposium “ ten years after the asian currency crisis : future challenges for the asian economies and financial markets ”, hosted by the center for monetary cooperation in asia ( cemcoa ), bank of japan, tokyo, 22 january 2007. * * * ten years after the crisis, asean stands out as a dynamic region with diverse strengths. with a growing population of over 550 million, asean remains one of the fastest growing regions in the world ( 2005 : 5. 6 % ; world : 4. 9 % ). the combined gdp of the asean economies is expected to exceed usd 1 trillion in 2007. this growth has been extensive and includes all the developing economies in the group. the asean economies have always been highly open economies, with total trade accounting for more than 130 percent of gdp and the value of trade flows now exceeding usd 1 trillion. in view of this high degree of openness, asean has also always been vulnerable to external developments. the asean economies have however demonstrated, time and again, their capacity to rebound from adverse shocks, and to do so within a short period of time. while the 1997 – 1998 crisis was devastating, most asean economies were able to restore stability and resume growth just after a year. asean has also continued to weather other both regional and international shocks that have since occurred. while the current global and regional environment has since the last ten years changed dramatically, bringing with it new risks and challenges, the region has emerged strengthened with greater economic and financial resilience. strong macroeconomic fundamentals have been sustained, and reinforced by enhanced economic flexibility. the financial and corporate sector restructuring and reform that were undertaken during the ten years have also supported these developments. equally important is the aggressive development of the domestic financial infrastructure and financial markets. the asean economies have also developed complementarities with the major regional economies in the asian region including china, japan, south korea and india that has contributed to deepening of regional economic integration, reinforcing further the strong trade and investment linkages that was already present in the region. the issue before us now, is whether the south east asian nations can rise to the challenge of sustaining its dynamism and prospects in this more challenging global environment. allow me to elaborate on the elements that have facilitated the ability of the asean economies previously to successfully adjust to shocks and to take

##ifying the asean export market from over - concentration in the traditional markets. asean is among the few regions to have a significant and growing trade surplus with china, reaching about usd 20 billion in 2005. meanwhile, the total trade between the asean - 5 and india has expanded by more than tenfold from only usd 2 billion in 1990 to usd 21 billion in 2005. in investment activities, japanese investors have had an early presence in most of the asean economies. this has generally reflected the diverse comparative advantage of asean economies that range from labour cost advantages to natural resources and the increasingly more deregulated and liberalised regimes. foreign investors have also leveraged their supply chain networks on the asean platform to take advantage of this diverse comparative advantage. even within asean, there has been an increasing trend of outward direct investment especially by malaysia and singapore, being undertaken to leverage on regional growth opportunities. greater regional financial integration while there has been a high level of economic integration, a more recent development has been the acceleration of regional financial integration. as high savings economies, this would facilitate a more efficient allocation of part of the surplus funds of the region into productive investments in the region. this would contribute towards lower financing costs in the region and reducing the risks while at the same time promoting the economic potential of the region. to facilitate financial integration, the liberalization of foreign exchange rules, the harmonization of standards and the removal of impediments to cross - border investment have been undertaken. the asean roadmap on capital market development has been formulated to foster alliances and linkages in the equity and bond markets among asean exchanges, including the harmonisation of regulations. in the equity markets, multiple listings are being promoted as regional bourses attract domestic companies in the region to list on their exchanges. the ftse / asean index and the ftse / asean – 40 index, launched in 2005, also serves to increase the integration of the regional bourses and to promote asean as an asset class. in the bond markets, the asian bond funds ( abf 1 and abf 2 ) initiated by the central banks aim to broaden and deepen the regional bond markets. meanwhile, the asian bond markets initiatives ( abmi ) aims to enhance the infrastructure, which includes plans to develop a regional credit guarantee mechanism, a regional credit rating agency and a regional settlement link to facilitate cross - border transactions. specifically, the asean roadmap on capital account liberalization, launched in 2003, aims to gradually achieve a freer flow