zeti akhtar aziz : south east asia – potential and perspectives in the new asia luncheon address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the 2010 institute of international finance ( iif ) annual membership meeting, washington dc, 8 october 2010. * * * generating growth and a long lasting recovery is the primary priority for the global economy in this aftermath of the recent crisis. the massive life support that was provided to avert a deep recession was to be temporary – to provide the opportunity to address the weakness in the system and to rebuild the capacity for a self - sustaining recovery. recent indications are that this prospect has not been realised. the emerging world has however performed well with the potential to generate such a sustained recovery. these developments have drawn significant interest to the asian emerging economies and on their changing role in the global economy and in the international financial system. it is my honour and great pleasure to speak at this 2010 institute of international finance annual membership meeting. my remarks today will focus on the challenges in managing such a sustained recovery with specific focus on the potential for emerging asia to rise to these challenges in this new global economic and financial environment. the final part of my remarks will be on the changes taking place in the international financial environment from the perspective of emerging asia. as growth in the developed world slows, weighed down by structural factors, will the global environment of increasing interdependence then dampen the prospects for the asian emerging economies? asia comprises highly diverse economies. south east asia, with a population of more than 500 million people is strategically located south of china and east of india, has been since the 13th century an important trading hub connecting asia to the west. being the most open economies in asia, and perhaps in the world, we, therefore stand to be the most vulnerable to global developments. while economic stimulus is vital for crisis containment, it will not, however, be sufficient to produce a self - sustaining recovery. the challenge is essentially the economic restructuring and transformation, the reform and rebuilding of the institutional capacity so as to remain effective in the new environment and to be well positioned to manage future shocks. as emerging economies in asia transition into this post crisis era, three important structural shifts are transforming the region. the first is the economic restructuring and the strategy to pursue more balanced sources of growth. this has involved significant shifts to new areas of comparative advantage and new areas of growth, and the greater emphasis on domestic demand as a

business, not only in malaysia but regionally as well as globally. the commencement of commerce takaful berhad, which is indeed the first takaful operator to be launched this year, complements bank negara's initiatives of promoting the establishment of a core of strong players that could heighten competition and promote innovation in the takaful industry. this certainly will be reinforced by the establishment, insyaallah by the end of the year, of four additional takaful consortia and joint ventures between malaysia and well - known foreign institutions. these four new institutions have recently been given official approval to conduct takaful business. the progress achieved by the takaful industry as a key component of the islamic financial system has contributed towards the overall development of the islamic financial industry. islamic finance in malaysia has evolved through several phases of development through the establishment of a number of key players and key market infrastructure. the islamic finance industry in malaysia has emerged as a viable and competitive component of the financial system, operating in parallel with the conventional financial system in contributing towards the nation's economic development and growth. lembaga tabung haji, acknowledged to be the first islamic financial institution in malaysia, is now a major institution with a total deposits of more than rm13 billion. the islamic banking industry, that consists of both dedicated islamic banks and islamic banking schemes in the conventional banks, continues to show commendable performance with profitability and assets surpassing for the first time the threshold of rm1 billion and rm100 billion respectively at the end of 2005. the industry has become a major contributor to the overall economic growth, with assets equivalent to nearly 25 % of the country's gross national product. this strong progress is complemented by equally encouraging performance by the specialized non - bank financial institutions and ancillary institutions such as tabung haji and cagamas berhad. structured development of the islamic money and capital markets has further enhanced the enabling environment for the islamic financial system to effectively play its role as an efficient conduit to mobilize resources and provide financing for productive economic activities. today, we have a comprehensive islamic financial landscape underpinned by strong institutional infrastructure and effective legal, regulatory and shariah framework. moving forward in this dynamic global economic environment, it is imperative for our players to take strategic steps towards gaining further sustainable competitive advantage so as to maintain the first mover advantage we currently enjoy. a famous philosopher had once said : " well begun is half done