zeti akhtar aziz : why asia? asia ’ s prospects and how emerging markets shall shape the region ’ s future keynote address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the management association of the philippines ( map ) luncheon seminar : “ why asia? asia ’ s prospects and how emerging markets shall shape the region ’ s future ”, manila, 2 may 2012. * * * it is my great pleasure to be here in manila to give this luncheon address. let me thank the management association of the philippines for the invitation to speak here today on asia ’ s future prospects ; why asia and how will emerging asia shape the region. opportunities in asia are now boundless. key in generating these opportunities are the economic flexibility of the region, the diverse nature of the region that has generated the potential to leverage on regional complementarities, and the demographic advantages of the region. these opportunities are also being enhanced by the significant payoffs gained from a decade of reforms, and the intensification of regional economic and financial integration that is now taking place and resulting in a more connected and cohesive region. despite being at different stages of development and operating in different economic systems, the benefits are also increasingly being more widely shared. finally, the region has also benefited immensely from the resilience built, and more recently, from having the policy flexibility to minimise to the effects of the recent global financial crisis. let me elaborate on these prevailing trends that are shaping emerging asia ’ s future. asia ’ s growth prospect is very much underpinned by the transformative momentum that has, for a number of decades, brought emerging asia to its current growth trajectory. the economic flexibility of emerging asia has enabled most of the economies in the region to adjust to the changing conditions and to shift resources to new areas of comparative advantage. emerging asia has demonstrated that it has not been weighed down by structural rigidities and impediments. capital and labour mobility has been strengthened by the economic and financial reforms that have resulted in the shift towards greater market orientation and liberalisation. changing economic structures and transformation within specific sectors, including the participation in cross border production chains, have been gaining significance. emerging asia has also been able to leverage on technology to push beyond prevailing frontiers. firms in emerging asia are also increasingly innovating and allocating resources to research and development, and becoming leading players in their various respective industries. an equally important economic shift that is taking place

patterns of trade have allowed asia to better withstand and emerge with an earlier recovery from this recent global financial crisis. it has also enabled asia to be less susceptible to the ongoing deleveraging in the advanced economies. the more recent efforts have focused on strengthening regional financial integration - not only to sustain regional financial stability, but also to promote more efficient intermediation of funds in asia to support the region ’ s growth prospects. it will allow for the effective rechannelling of asia ’ s sizeable surplus funds towards productive investments in the region. going forward, the intensification of regional integration will mutually reinforce the strengthening of domestic demand in asia, thereby enhancing the region ’ s economic growth prospects. while regional economic and financial integration will intensify going forward, driven by the opportunities it presents and the conscious policies for a more cohesive region, asia will continue to be integrated with the global economy and the international financial system. the external environment for asia has, however, changed significantly. the protracted weakness in global demand can be expected to persist over the medium term, given the structural nature of the problems confronting several of the major economies. any setback in the recovery process, or any severe economic contraction in any of these economies, would affect asia through the trade channel. in addition, the asian region is also affected by the significant and continuous global policy spillovers. this includes the effects of the implementation by several of the major economies, the fiscal austerity measures, the unprecedented quantitative easing, the unintended consequences of the regulatory reform, the effects from deleveraging arising from the efforts by both the public and financial sectors to reduce their levels of indebtedness, and the effects of resolution of stressed financial institutions. these global policy spillovers are affecting international trade and financial flows. how has asia managed these fundamentals forces affecting our region? it is the wide ranging actions that have been taken by asia during the decades before that has well positioned asia to absorb and manage the effects of these global developments. the strengthening of domestic demand, building resilient financial systems, and facilitating regional financial and economic integration that has been reinforced by growth supporting policies, have contributed to particularly mitigate the effects of slower trade on the regional economies. similarly, the development of the domestic financial system particularly the domestic financial markets, the strengthening of the surveillance system and the legal, regulatory and supervisory frameworks, have increased the capacity and capability to manage consequences on access to cross border financing, and from quantitative