zeti akhtar aziz : developing a strong and dynamic sme sector keynote address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the launch of sme credit bureau, kuala lumpur, 16 april 2009. * * * introduction it is my pleasure to be here this morning to speak at the launch of the sme credit bureau. the development of a strong and dynamic sme sector is a priority on our national agenda to promote a vibrant and active sme sector that will contribute towards generating a sustainable and balanced economic growth. malaysia has therefore adopted an aggressive sme development programme to strengthen the viability and capacity of the smes to increase their contribution to high quality growth of the economy. over the recent five years, the smes contribution to economic growth has increased. indeed, the sme contribution to economic growth in the manufacturing sector has increased from 6 % of real gross domestic product in 2001 to 8. 4 % in 2005. the overall sme contribution to the gross domestic product has increased to 32 % while 19 % of total exports are by smes. experience has shown in several of the developed countries, that smes contribute to at least half of the gross domestic product. benchmarked against this, there is clearly a significant potential for smes in malaysia to increase their contribution to the economy. economic outlook and policy response the year 2009 is likely to be a difficult year for businesses. the global economy is expected to remain weak following the synchronized recession in the advanced economies. while there is significant uncertainty on the prospects for recovery, the stimulus measures being implemented across the globe and the measures to address the financial crisis in the advanced economies are expected to contribute to improving conditions in the second half of this year. however, should there be further delays in addressing the impairment of the financial systems in the crisis affected countries, this would be a risk to the economic recovery process. this would in turn continue to have significant spillover effects on the rest of the world. whilst malaysia has successfully maintained the stability of its financial system during this period of uncertainty, the economy is not insulated from these global developments. despite the high degree of openness of our economy, malaysian businesses are however, less leveraged with significantly less foreign financial exposures and therefore better able to cope with the effects of the global economic downturn. during this recent decade, malaysia has aggressively implemented measures to promote domestic demand as a driver for growth and thus achieve a more balanced growth. while the

- keynesian paradigm with its prescriptive approach to optimal monetary policy. the weakness of this paradigm was, and is, its inability to recognise the importance of financial frictions and the role of credit and money. this has to do with the fragility of the theoretical foundations that formalise the links between the real economy, financial imbalances and the level of confidence. ignoring money is tantamount to assuming an absence of risk and uncertainty. without risk, keynes would have said, there would be no money. the preference for liquidity is not justified in an economy without uncertainty. but the neo - keynesian model excludes the possibility of default. in it, risks in the financial sector can be isolated and therefore have no effect on the real economy. the financial crisis has clearly highlighted the weaknesses of this system. macroeconomic theory has begun to reflect on the neo - keynesian system and these studies are now one of the liveliest areas of analysis. these studies – at least their early results – confirm the farsightedness of some of strategic choices of the ecb. liquidity, money, credit have always been – since 1998, when the bank received its mandate from the founders of the monetary union – qualifying variables of the ecb ’ s reference model and its strategy. the monetary analysis requires a constant monitoring of banks ’ assets and liabilities as sources of information on the assessment of risk in the markets and the economy as a whole. this analysis commits the governing council to adjust the tenor of monetary policy to ensure the the pre - crisis new - keynesian paradigm and the monetary policy strategy of inflation targeting derived from it are outlined in clarida, r., gali, j. and gertler, m., “ the science of monetary policy : a new keynesian perspective ”, journal of economic literature, vol. xxxvii, 1999, pp. 1661 – 1707. these were superbly expounded in woodford, m., interest and prices, princeton : foundations of a theory of monetary policy, princeton university press, 2003. bis central bankers ’ speeches long - term growth of monetary aggregates and credit consistent with the potential for economic expansion. in this sense, the monetary pillar of the strategy can be interpreted as a strategic reinforcement that helps to prepare correction mechanisms in situations where macroeconomic imbalances are having difficulty in manifesting themselves in inflationary pressures. the monetary analysis gave important warning signals in the years preceding the crisis regarding