the malaysian economy indicating that external demand has thus far resulted in only a modest moderation in our overall growth as the underlying strength of the economy has been able to sustain the resilience of the growth process. this has been underpinned by the strong domestic demand which has become a key driver of growth. the strong growth that has been achieved so far is on account of the robust expansion in private consumption and investment expenditure. malaysia's economic structure has also become increasingly more diversified with increased contribution to growth from the services, agriculture and commodities sectors and the resource - based and knowledge - driven industries. malaysia is also very much part of the regional integration that is taking place. today, about 63 % of our exports are to the countries in the asian region. efforts are also being put into forging stronger trade linkages with other non - traditional markets in west asia and the middle east and these efforts are now showing positive results. the trade links are also reinforced by increased investment flows within and between these regions. the inflow of foreign direct investment into malaysia has remained steady while malaysia's investments abroad, in particular, to this region are increasing. finally, an important factor supporting the resilience of the economy in this more challenging time is the sound macroeconomic fundamentals, the high international reserves and the capacity for policy stimulus to be undertaken to manage the risks to growth. the economy is also supported by the favourable financing conditions and strengthened banking system. ample liquidity amidst a relatively low interest rate environment and declining non - performing loans have sustained private sector access to financing. the urgent issue that may be raised today is to what extent will the price adjustments announced yesterday have an impact on the economy. related to this is the extent to which inflation will increase and whether this would in turn affect the country's competitiveness. key to dealing with these risks is the flexibility of the malaysian economy. malaysia has a proven track record over several decades in successfully dealing with difficult periods in our economic history. each time, the flexibility of the economy, the agility of the private sector to adjust and reinforcement by the policy response, has allowed the economy to emerge stronger. this was demonstrated during the asian crisis. within a period of one year, our economy was able to resume growth, expanding by 6. 1 % in 1999 and by 8. 9 % in 2000. the current conditions are by no means of such threatening proportions. if managed well by all parts of the economy, the economy will in fact emerge

of foreign currency cash flow mismatches over different time horizons. corporate governance will remain an important priority of the regulatory framework in preserving a sound financial system. the progressive adoption of more principle - based regulations has placed greater reliance on the effective oversight by boards and the senior management to ensure that the regulatory flexibilities accorded to financial institutions are exercised in a judicious manner. a revised fit and proper standard for directors, senior management and controllers of financial institutions will be issued, complemented by an improved and coordinated strategy for the education of directors of financial institutions to strengthen their oversight responsibilities in a more complex financial landscape. the recent crisis also brought to light the critical importance of coordinated and prompt response by regulators in dealing with crises, whether through market interventions or in the resolution of banking institutions that are experiencing difficulty. coordinated actions by the central banks in europe and the united states have relieved the liquidity tensions in the financial markets. however, national arrangements for dealing with problem banking institutions are being severely tested. decisive action is vital to ensure the continued intermediation process to stem the spread of the financial crisis within the financial system and to the real sector. such early action will also reduce the cost of the crisis. for malaysia the cost of the crisis ten years ago was less than 5 % of gdp. danamodal in fact recorded a pre - tax profit of rm200 million upon full repayment from the recapitalised institutions. more recently, additional initiatives have been taken to strengthen the safety net, interagency coordination arrangements and the legal framework for interventions. today, we have a holistic financial safety net framework in malaysia which includes a lender of last resort framework and a comprehensive deposit insurance system. the regulatory and supervisory framework is also supported by enhanced intervention framework for dealing with banks under financial stress. the enhanced supervisory intervention powers is to be embodied in the amendments to the various legislations administered by the central bank. the provision of liquidity support by bank negara malaysia for financial institutions in distress is a key component of the safety net. in light of recent international experiences of bank failures, the traditional intervention criterion of lending to “ solvent but illiquid ” banks has been put to the test as it becomes increasingly difficult to determine the necessity for intervention as well as the method and timing of such measures. the extension of such support will therefore be based on a careful balance of various considerations, which include amongst others, its potential systemic implications, the cost of the intervention, the cost of