financial system and our macroeconomic fundamentals, particularly since the asian crisis in 1997 - 1998, has raised our tolerance level for absorbing volatility, enhanced our resilience to shocks, improved the agility to adjust to change and increased our policy flexibility to mitigate any adverse external developments on our domestic economy. going forward, the strong growth in manufacturing and services sectors will continue to sustain growth. the prospects for higher consumption spending is also positive. with the savings rate still high at about 35 % of gnp and the rising incomes, malaysia has the potential to promote a higher level of consumption without undermining the potential for financing of private investment from domestic sources. the higher consumption has also not created risks of increased household indebtedness which has remained within prudential levels at less than 60 % of gdp. ladies and gentlemen, capital spending continues to gain momentum both in domestic and export oriented activities. domestic companies are also forging strategic alliances as part of the strategy to expand to new export markets and leverage on new technologies. the on - going capacity expansion and more competitive business environment will keep inflation low thereby allowing domestic interest rates to continue to remain low for sometime to come. malaysia's trade and investment links with asia, particularly with the large economies in the region, is also expected to strengthen further. there also continues to be steady inflows of foreign direct investment. in addition to sustained inflows into the manufacturing and oil and gas sectors, these flows have become more broad based with higher shares of new flows shifting towards higher value - added activity in the services sector. this structural change in fdi flows reflect the changing opportunities malaysia accords with the services sector now gaining significance as an engine of growth. the new inflows have also tended to be low import content and higher value added. the fdi in services sector has also been increasingly broad based. a number of regional and global business processing centres and other regional facilities have been set up including the ohqs, regional offices, international procurement centres and regional distribution centres. ladies and gentlemen, as part of the government policy commitment to improve the delivery system and reduce the cost of doing business, the central bank has undertaken a progressive liberalisation of domestic rules and regulations to reduce the cost of doing business. an area of focus has been the rules governing the foreign exchange transactions. reducing cost of managing risks associated with such transactions include the recent liberalisation of rules on foreign currency accounts, interest rates swaps and hedging

##sb and the existing standard setting body embraced common objectives, l do not see any difficulty in integrating the international standards with the islamic prudential standards. this will contribute towards the development of a robust and resilient islamic financial system that can effectively preserve financial stability and contribute to balanced growth and development. this will also facilitate the integration of the islamic financial system as a viable component of the global financial system. over the years, the islamic financial industry has adopted the adaptation approach in the formulation of islamic financial products and services. although there are islamic financial instruments that are distinct from the conventional financial instruments, the numbers are still few. in most instances, the islamic financial products are repackaged along the features of the conventional financial products, while eliminating the elements that are not in - compliance with the shariah. while this adaptation can continue, the downside risk is that islamic financial instruments will always have to “ catch - up ” with the pace of product development in the conventional system. efforts should therefore be intensified to develop new financial products that embodied the virtues of islamic banking. this would evolve islamic financial instruments into distinct, innovative and cutting - edge products. innovative instruments such as the sukuk have attracted interest from both the islamic and conventional markets. one of the central issues towards developing a dynamic islamic financial industry is the shariah. the shariah should always be viewed as an enabler to innovation and creativity, rather than a constraint. on the contrary, innovation and creativity is strongly advocated. efforts therefore, need to be enhanced to fully appreciate and maximise the true potential and wisdom of shariah. thus, there is a need for greater collaboration among the shariah scholars, practitioners and researchers to undertake in - depth studies and research to originate products. this would provide the fundamental foundation towards developing a dynamic islamic financial system. an issue that needs to be addressed is the development of a pool of intellectual capital for islamic finance. the investment in adequate expertise for the development of islamic financial instruments and services need to be made. in this regard, there is a need for islamic financial players to intensify efforts in the training and development of expertise in the various specialised areas. such islamic financial programmes would benefit from a comprehensive approach, encompassing both conventional banking and islamic banking, complemented with shariah. the dynamism of the islamic financial industry can only be demonstrated through a pool of talent that possesses convictions and expertise in islamic finance. our quest to create a dynamic islamic financial system