zeti akhtar aziz : remaking malaysia - investing in the new malaysia opening address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the euromoney conference - “ remaking malaysia : investing in the new malaysia ”, kuala lumpur, 3 august 2004. * * * yang amat berhormat dato'seri abdullah ahmad badawi, prime minister and minister of finance distinguished guests, ladies and gentlemen, bismillahirrahmanirrahim and good morning, it gives me great pleasure to welcome you to this conference on'remaking malaysia and investing in the new malaysia '. we are most honoured today by the presence of yang amat berhormat dato'seri abdullah ahmad badawi, prime minister and finance minister of malaysia who has graciously accepted our invitation to deliver the keynote address of the conference. this conference takes place at a time of strengthening economic conditions in the global and domestic economy. at the forefront of investors'minds is the sustainability of these trends. there is also much interest on the policy strategies being adopted and how malaysia will reposition itself in this more competitive environment. this conference has brought together key policy makers, investors, fund managers as well as leading corporate and government officials to discuss these issues. building on the economic success that has been achieved for more than three decades, malaysia is now taking the opportunity to reposition its strategies to ensure the sustainability of this strong growth performance. in remaking malaysia, the strategy is essentially to focus on our distinct capabilities and to leverage on the areas of our strengths to secure our competitive advantage. let me touch briefly on the current economic developments : • malaysia has seen a steady and strengthening economic recovery since 2001, with the growth performance strengthening substantially in the first half of this year increasing the potential for growth for the year as a whole to surpass our earlier estimates. • this favourable performance has been accompanied by a rebalancing of focus between external and domestic sources of growth. in the external sector, there has been a greater balance between the traditional and new markets and between the goods and services sectors. • in the domestic sector, there has been a greater balance between the economic sectors. the strategy to have a more diversified economic structure and more extensive markets has aimed to reduce vulnerability of the economy to global shifts in demand in any specific sector or to any particular region. • the positive fundamentals of low inflation, strong external balance, low debt

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