productivity improvements will become a critical determinant of our future growth prospects. continuous increases in productivity characterised by greater innovation and efficiency in production and business processes, are vital to achieve this transformation. indeed, such productivity improvements are taking place in the financial sector. the comprehensive efforts in capacity building and institutional development in the early part of this decade have resulted in the opportunity to achieve scale, and thus allow for increased investment in technology and in people. increased competition also facilitate this trend. the higher productivity levels and thus the value added to the economy by the financial sector has increased to 11. 7 % of gdp in 2009, compared to 9. 2 % in 2000. commensurate with the higher value added by the financial sector is also reflected by the higher average wage in the sector which is about 70 % higher than the national average. this trend towards higher productivity levels needs to be generalised throughout the economy. for the successful shift to higher value added activities and for productivity to become an important driver of growth, new talents are required to achieve this. human capital development is, at the heart of malaysia ’ s transition to become a high value - added economy. physical capital accumulation will no longer be sufficient for malaysia to make the transition into a more innovative and entrepreneurial society. a fundamental rethinking of our education system is thus crucial for the effective development of talents with the necessary skills and competencies required to achieve this. the cultivation of continuous learning is needed for the constant upgrading of talents. in the financial sector, there is now a comprehensive institutional arrangement to generate the supply of the right kind of talent required by the industry – from pre - employment to leadership development not only to focusing on the development of technical skills but also on the capabilities that practitioners require in the context of an emerging economy. the fourth critical factor is the extensive enabling infrastructure to facilitate private sector economic activity. malaysia already has in place high quality physical infrastructure but considerably more is needed. steps already being taken include the development of an efficient urban public transportation system, reliable and seamless broadband connectivity and energy efficiency - related infrastructure. this also needs to be reinforced by the transformation of the government machinery to support the transition to a high value added economy. the final and fifth factor is the ability to effectively participate in the economic and financial integration with other emerging economies in particular with that of the region. asia, in particular, offers immense opportunities for increased participation by malaysia. indeed, there is already rising investment into the region by malaysian companies and

a speech last fall, one possible reason for such common changes in monetary policy may have been greater currency competition ( kroszner, 2006 ). in broad terms, the idea is that increased globalization, deregulation, and innovation raised the returns to low inflation – and increased the penalties for high inflation – relative to results obtained twenty or thirty years ago. for example, deregulation has led to an opening of capital markets, and hence financial globalization, which has in turn boosted innovation and helped to increase global competition by shrinking barriers of time and woodford ( 2003 ) includes results of this sort. distance. accordingly, trade and financial linkages between countries have tightened tremendously in recent years. meanwhile, substantial financial innovations – including advances in electronic payment systems and trading systems as well as more widespread credit card networks and increased use of mutual funds – have facilitated the movement of wealth around the globe. as a result, deregulation, globalization, and innovation have made it easier for citizens to move their wealth out of nominal assets in their local currency and thereby avoid any inflation tax should their government show signs that it might resort to inflationary tactics to finance spending. 6 at the same time, the public ’ s understanding of the costs of inflation has increased, in part because of experiences of high inflation in many countries in the 1980s. almost everywhere, public opinion eventually turned against allowing inflation to continue. this public pressure has reinforced the trend against inflationary policies. increased competition among currencies, driven by the confluence of factors that i just described, has limited the ability of governments and central banks to pursue high - inflation policies. moreover, currency competition has raised the costs of poor policy and thus increased the incentives of the monetary authorities to maintain low inflation. many of these arguments will apply with greater force in developing economies, where the costs of poor policies have been demonstrated quite clearly. nonetheless, i think that currency competition has played at least some role in disciplining policy in the united states and other developed countries. other explanations for the change in inflation dynamics of course, monetary policy may not be the whole story, and we need to resist embracing any single explanation too wholeheartedly. there may be other reasons for the changes in inflation dynamics. for example, the reduced sensitivity of core inflation to oil and natural gas prices likely also reflects both the increased energy efficiency of the economy and the fact that shocks to the prices of these goods since the mid - 1980s have, at least until the latest episode,