a new format focused on issues with long - term strategic implications that need to be addressed in the current environment. it is designed to encourage deliberations from the different perspectives between industry participants and bank negara malaysia. the dialogue will also serve as a platform to reflect on recent economic and financial developments and the major policy initiatives by bank negara malaysia. allow me to take this opportunity to share some thoughts with you in these areas. the outlook for the malaysian economy continues to remain favourable, despite some signs of moderating growth in the global economy arising from the higher oil prices. malaysia has had a track record of solid and steady growth for a number of years now. the diversified economic structure and sound macroeconomic fundamentals have been important in supporting this trend. of importance is that this growth is private sector driven. while price pressures have been contained by improvements in labour productivity and capacity expansion, domestic inflation has begun to edge upwards, largely due to cost - related factors. in balancing these trends, monetary policy has continued to remain supportive of growth. growth in asia has also remained strong with mutually reinforcing effects for regional economies, including malaysia, as regional integration continues to intensify. the global environment, however, is clouded by uncertainties amid the persistence of global imbalances. the united states continues to record large deficits in its external accounts. there is significant discussion in the global community on how these imbalances may be unwound. the consensus, however, is clear that the adjustment should be orderly. there has however, been an over focus on realignment of exchange rates to facilitate this adjustment. but this may risk destabilizing adjustments. ultimately, the structural imbalances have to be addressed by some combination of adjustments in demand, prices and exchange rates. in particular, the rebalancing of global growth can be expected to be a major factor contributing to an orderly adjustment to these imbalances. indeed, it would require more than just adjustments in exchange rates. the nature and breadth of the adjustments will be important to achieve a long - term solution. with its young workforce, growing productivity, competitive and dynamic economies, there is great potential for the asian economies to contribute towards the re - balancing of global growth. with rising income levels in regional economies, particularly among the growing middle income group in china, india and the asean economies, there is potential for an expansion of demand within the region. the rebalancing of global growth across the world will eventually

contribute towards reducing the prevailing imbalances. malaysia's own agility to absorb and respond to the external and domestic challenges has allowed us to efficiently shift resources to new areas of growth, to new areas of comparative advantage and thus, sustain our long - term prospects. going forward, malaysia's economic policy will therefore continue to focus on ensuring that the economy's flexibility and resilience is sustained. with the strengthening of the economy, the financial system and our fundamentals, the opportunity has been taken to deregulate and liberalise the environment further. the most recent policy initiative in this direction has been the shift in the exchange rate regime to a managed float. under this regime, exchange rate stability will continue to be a primary objective of exchange rate policy. malaysia is a trading economy that is highly integrated with the world economy, and in this context, a stable exchange rate environment continues to be important. with changes in the international economic and financial environment, the move towards a managed float was important to enable malaysia to maintain a stable exchange rate against its major trading partners. under this arrangement, bank negara malaysia will now monitor the exchange rate against a currency basket to ensure it remains close to fair value. the transition to the new system has been orderly, with transactions mainly reflecting trade and foreign direct investment as well as portfolio investment activities. as providers of long - term capital and efficient risk transfer solutions for productive economic activity, the insurance and takaful sectors play an important role in supporting the economic transformation process. over the years, that role has increased in prominence with the impressive growth achieved by the industry. in 2005, the insurance and takaful industries have continued to demonstrate resilience and strong performance despite challenging investment and underwriting conditions. premiums and contributions have continued to expand at double digit growth rates in the first half of 2005, with the general sector rebounding strongly after two consecutive years of slow growth. the underlying fundamentals for sustainable growth have also strengthened with stronger solvency positions reported by the majority of players, continued profitability and improved underwriting discipline. the growth has also been accompanied by enhancements to the competitive structure, improvements in innovation and a greater degree of differentiation in the market, offering consumers a wider range of products and services. in particular, the advent of bancassurance and bancatakaful has seen more players packaging life insurance and family takaful with innovative investment options that incorporate banking product features. today, bancassurance and bancat