, domestic demand has a more significant role in driving the growth. the stronger domestic demand and growth in the services and agriculture sectors have benefited the sme sector since the majority of the smes are operating in these sectors. however, the rising international prices of energy and commodities have confronted economies globally with rising costs and intensifying inflationary pressures. this has prompted several emerging economies to restructure their fuel subsidies in an effort to create more efficient economies and to achieve more sustainable fiscal positions. this has been followed by the consequent adjustments in consumer prices as the gap between international market prices and domestic prices narrow. in malaysia, petrol prices were adjusted by 40. 6 % while diesel prices by 63. 3 %. this adjustment would be reflected in the consumer price inflation in june, which is expected to exceed 6 %. beginning 1 july, electricity tariffs have also been raised by up to 18 % for households and an average of 26 % for some commercial and industry users. while domestic inflation is expected to remain elevated for the remaining part of this year and early next year, it is expected to moderate in the second half of 2009. in the current international environment, the policy response needs to be contextualised to the conditions prevailing in each individual economy. in those economies that are experiencing overheating and strong demand conditions, there is greater clarity in terms of the need for policy to rein in demand. however, for economies that are experiencing moderating growth, the risks to growth and inflation need to be carefully evaluated. in addition, consideration needs to be given to the deflationary impact of the fuel price increases on consumption. trends in consumption and the conditions in the labour market will provide signs of potential second round effects following rising costs and the extent to which a generalised price increases are occurring. in such an environment, smes need to consider repositioning of business strategies and to find new markets and avenues of growth. reengineering of processes would also be required to better manage the higher cost conditions. the key is for the smes to use their inherent flexibility and agility to create new products and reorient the business. given that the current inflationary pressures is a global phenomenon, with many of our trading partners and neighbors having similar or higher inflation rates, the inflation is unlikely to erode malaysia's comparative advantage. in this more challenging economic environment, sustaining growth will also require concerted efforts by the public and private sectors to reduce costs and become more efficient and more

zeti akhtar aziz : enhancing smes ’ awareness on access to financing keynote address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the banking industry seminar “ enhancing smes'awareness on access to financing ”, kuala lumpur, 9 july 2008. * * * introduction it is my pleasure to be here this morning to speak at this seminar, to enhance greater sme awareness on access to financing organised by the association of banks in malaysia. the development of a strong and dynamic sme sector is a priority on the national agenda. it is part of the efforts towards creating sustainable and balanced economic growth. the reasons for this are clear. smes account for 99 % of the total business establishments in malaysia and for 56 % of total employment and contribute about 32 % to gross domestic product and 19 % of total exports of the nation. over the recent five years, smes have also increased their contribution to growth. in several developed countries, smes contribute at least half of the gross domestic product. taking smes in these economies as a benchmark, there is clearly significant potential for smes in malaysia to increase their contribution to the economy. my remarks today will focus on three areas. firstly, the implications of global economic and financial developments on the malaysian economy, and in particular on businesses and smes. secondly, on the strategy adopted by the government and bank negara malaysia to develop the potential of the sme sector as a source of economic growth. and finally, the further measures that need to be implemented by the banking institutions and the smes in a more challenging environment of rising costs. economic and financial developments going forward, the international economic and financial environment is expected to remain challenging with slower global growth and continued uncertainties in the international financial markets. the moderation in global growth is also occurring in an environment of increasing inflation arising from the higher energy and commodity prices. the malaysian economy has been on a steady growth path averaging about 6 % in the recent three years. in 2007, the economy expanded by 6. 3 % and has continued to register a strong growth in the first half of 2008. this stronger growth has been achieved despite the more challenging external environment and increased uncertainties in the international financial markets. one of the important contributing factors has been the successful transformation of the malaysian economy in this recent decade which has resulted in a more balanced and diversified growth, in which the services and agriculture sectors have become increasingly more important drivers of growth. in addition