zeti akhtar aziz : asia in the world – sustaining the region ’ s transformative momentum keynote address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the wharton global alumni forum : “ asia in the world – sustaining the region ’ s transformative momentum ”, jakarta, 22 june 2012. * * * the global economy is experiencing a period of profound change. asia is very much at the centre of this global change. asia ’ s changing role in the global economy has not only been in terms of its growing size, but also in terms of its influence in global economic and financial developments. the issue before us is whether asia will continue its transformative momentum over the medium to longer term, to become an increasingly important source of global growth and stability. it is my very great honour and pleasure to be here in jakarta to speak at this wharton global alumni forum. exactly a decade ago, i was actually invited to speak on the same subject on the state and future of asia at the wharton school in philadelphia. then, having just emerged from the asian financial crisis, the region was again being challenged by a series of economic and financial shocks, in particular, the bursting of the dot com bubble in the united states in the year 2000. observers had questioned the sustainability of the region ’ s medium and longer term growth prospects. now, five years into the global financial crisis, asia is faced with an even more challenging and uncertain global environment, as significant spillovers originating from europe and the united states are being felt by the region. again, questions on the sustainability of the region ’ s economic growth prospects are being raised. my remarks today will focus on the new challenges that are confronting asia, and whether its resilience built in this decade will now enable asia to rise to these greater and more complex challenges. challenges arising from global spillovers given the degree of openness of most of the asian economies, asia is highly integrated with the global economy. while asia benefited from this openness, it also resulted in the region being more vulnerable to global financial and economic developments. many previous episodes of economic recession and crisis were triggered by external shocks, which at times exacerbated and amplified domestic vulnerabilities. these include the commodity price shocks in the 1970s and ‘ 80s, the large swings of destabilising capital flows in the 1990s, the bursting of the tech bubbles and the sars epidemic in the early 2000s, and finally the global recession which

have been significantly enhanced in the area of crisis management. the region is now well ahead in the areas of regional surveillance and supervisory arrangement, and in crisis prevention, management and resolution. regional support mechanisms have also been established. there are also regional institutional arrangements in place for the active sharing of information on the emerging risks to regional stability and on building domestic capacities and to coordinate regional responses in the event of eminent risks to the region. these efforts will be further strengthened into the future. islamic finance as a growth area in asia the rapid integration of islamic finance into the international financial system is a growing feature in the financial landscape of asia. developments in several emerging economies in asia have seen the rapid expansion of islamic finance. global islamic financial assets are now estimated to be more than 1 trillion us dollars. while more than 60 percent of the world ’ s muslim population is in asia, the interest in islamic finance transcends to beyond this community. the inherent principle of islamic finance, which requires financial transactions to be accompanied by underlying economic activity, ensures the close link between the expansion in financial assets with the real economy. it also increases its potential in fostering bis central bankers ’ speeches sustainable growth. this has positioned islamic finance to be well - anchored to serve the real economy, and enhances its potential as a sustainable and stable form of financial intermediation. with the intensification of the internationalisation of islamic finance, it has an increasing role in bridging economies through the mobilisation and channelling of funds to productive investment activities across borders. more than 600 islamic financial institutions operate in more than 75 countries. the sukuk market is fast becoming an important platform for international fund raising and investment activities that are generating increased cross - border flows. from an outstanding amount of 33 billion us dollars in 2006, the sukuk market has expanded to 180 billion us dollars by the end of 2011, of which 66 percent originated from asia. there has also been a growing trend for multi - currency sukuk issuances in asia, attracting global investors to participate in this market. in reinforcing the internationalisation of islamic finance, global initiatives have been taken to strengthen its institutional and international infrastructure, with emphasis in ensuring financial stability. international prudential standards and best practices have been issued by the islamic financial services board, which was established in 2002. the industry is also guided by international accounting standards that have been issued by the accounting and auditing organisation for islamic financial institutions, which was established in