YANG AMAT BERHORMAT PERDANA MENTERI MALAYSIA Dato' Seri Abdullah
Haji Ahmad Badawi
YANG BERBAHAGIA KETUA SETIAUSAHA NEGARA Tan Sri Mohd Sidek Haji
Hassan
Dear Governors, Distinguished Guests, Ladies and Gentlemen,
1. It is an enormous honour and pleasure to be invited to speak
at today's ceremony. The honour is a special one because over the
years Bank Negara and the Hong Kong Monetary Authority have worked
in close partnership on many projects, to the extent that a deep
friendship has been built between our institutions: with that
friendship has developed great admiration on the part of my
colleagues and myself for Bank Negara's many achievements. The
pleasure is not just in having the opportunity to visit once again
this beautiful and hospitable country, but also in being able to
pay tribute to a valued colleague and dear friend, Governor Tan Sri
Dr Zeti Akhtar Aziz. Governor Zeti's strong and inspired leadership
of Bank Negara for most of the last decade has turned it into a
first-rate central bank and a great force for good in this
region.
2. We are all mindful that we celebrate this 50th anniversary in
the midst of intense global financial crisis. This will not - and
should not - diminish the happiness of the occasion. Indeed, much
of the history of Bank Negara Malaysia is the history of timely,
productive, and often courageous response to crisis, and examining
that history gives cause for optimism in our present circumstances.
In my comments today, I shall touch only briefly the current
crisis. Instead, I shall reflect on the achievements of Bank Negara
during the decade or so that followed the last great crisis - the
Asian financial crisis of 1997-8. As I hope I shall demonstrate,
these achievements are more than of merely historical interest.
3. It is clear to any observer that Bank Negara Malaysia has
been a driving force in the building of this country. To speak only
of its purely central-banking functions, Bank Negara has fully
discharged its responsibilities through keeping inflation under
control and maintaining stable interest and exchange rates, despite
rapid economic growth. This has been crucial in supporting rising
living standards and an increasingly diverse external trade. As
adviser to the Government, the Bank has played a key role in
formulating economic policies. The Bank has also been at the
forefront of financial-sector development, in particular through
building efficient and advanced payment systems. This work has
stimulated a diverse financial system, with impressive growth in
stock-market capitalisation and other non-bank activity.
4. All of this is indeed impressive, and reason enough for
celebration. But Bank Negara's contributions to the well-being of
the country go somewhat beyond the more conventional central bank
functions. Of great interest in any survey of its role in
nation-building is Bank Negara's promotion of forms of financial
intermediation that are of special relevance to Malaysia's needs
and culture. The Bank has been a pioneer in the promotion of
microfinance, and a leading participant in the national agenda to
promote a strong SME sector. Considerable funding and expertise
have been devoted to these activities in recent years, with the
result that the share of SME financing in total business financing
has increased from 31% in 2000 to 44% in 2007. The experience and
networks established in this field have been of great value in the
Government's efforts to mitigate the effects of the current global
financial crisis, which have included the recent launch of a
substantial Micro Enterprise Fund. Like many other economies in
this region, Malaysia is a land of small businesses, but the
attention that has, during years of stability, been given to
strengthening channels of finance to the smallest of enterprises
offers lessons for all economies at this time of pervasive credit
crisis.
5. Bank Negara has also taken a prominent part in the
development and advocacy of Islamic finance, which has seen rapid
growth in the country since 2003, with annual growth rates in
Islamic banking assets and insurance assets approaching 20%, and
Malaysia now accounting for about 70% of all global sukuk issues.
Islamic finance is increasingly recognised as an important
alternative channel of financial intermediation, and not only
within primarily Islamic communities. As Governor Zeti has
persuasively argued, Islamic finance encourages business activities
that generate legitimate profits, and rests on principles of
fairness, shared risk and ethical practices.1 There is, I think, much for us all to reflect
on in this when considering how badly things have gone wrong
recently in what might be called "traditional" finance.
6. No institution with such a long history can have escaped
controversy, and BNM has had its fair share. What is interesting,
however, is that perhaps the most controversial action by the
Malaysian authorities in recent years - the response to the 1997-8
Asian financial crisis - has now come to be understood as
appropriate and effective. At the centre of this response was the
imposition of capital controls to contain speculative capital
flows, stabilise the ringgit, and give the economy a breathing
space. This was widely criticised internationally as a retrograde
step. Yet it was a limited and temporary measure, which, along with
other policies succeeded in stabilising the system and providing
the conditions for economic recovery. The role of Bank Negara in
promoting international understanding of this measure was crucial
to its effectiveness. It is not, of course, my purpose to recommend
capital controls as a general solution to financial crisis. The
lesson here is that unorthodox measures can be effective, provided
that they are well thought out and properly implemented. At a time
like the present, when governments around the world have been ready
to adopt measures that were barely conceivable a few months ago,
this is perhaps a lesson that has already been quickly learned.
7. The region's recovery from the Asian financial crisis was
nearly as rapid as the unfolding of the crisis itself, thanks to
the vigorous measures taken by authorities in the region and the
underlying momentum and vibrancy of the Asian economies. The
experience of this shock generated a determination in the region to
try to ensure that such a crisis did not happen again, and to
strengthen financial systems against other forms of crisis. It
would be complacent to suppose that we have been completely
successful in these aims. We are, after all, in the midst of a
serious financial crisis that no efforts by this region on its own
could have prevented. The region's financial systems may have been
largely undamaged by the first wave of that crisis. But the second
wave is now upon us, and this second wave may well carry greater
risks to emerging markets. Even so, the determination among Asian
economies in the aftermath of 1998 to build strength against future
crises has placed this region in a much more resilient
position.
8. The raw resources for maintaining financial stability -
foreign exchange reserves - have more than doubled in most of the
economies in this region over the past decade. Many economies have
embarked on financial-sector reform, with the aim both of ensuring
that the banking system is well capitalised and of promoting other
forms of intermediation. Central banks have seen a strengthening of
their capabilities and a clarification of their policies and roles.
Most heartening of all, co-operation among central banks in the
region has flourished. Many examples could be cited, from bilateral
swap agreements to payment system linkages.
9. At the centre of this regional co-operation has been the work
of EMEAP in facilitating practical co-operation in all areas of
central bank activity, and particularly in surveillance and crisis
management. I should add that these activities have benefited
enormously from the wisdom and leadership of Governor Zeti and her
colleagues. The Zeti Taskforce - the EMEAP taskforce on Regional
Financial Co-operation - has laid out a comprehensive framework for
enhancing central bank co-operation, which has been adopted by
EMEAP as a blueprint for action.
10. Calls were also made in the aftermath of the Asian financial
crisis for a reform of the global financial architecture. Yet one
of the great disappointments from those years, particularly when
set against the real progress in regional co-operation, was the
general absence of concrete measures on an international scale.
There was, it must be said, a greater determination at least to
pool expertise and discuss possible solutions in various
international forums. But the political motivation for further
reform gradually weakened during the period of strong global growth
for most of the last decade.
11. The present financial crisis has much in common with the
Asian financial crisis in that it has involved massive failures in
financial intermediation, a rapid transmission of problems, and a
strong element of surprise. However, the present crisis is global,
not regional, and it centres on the world's most advanced
economies. At its climax, in September 2008, the crisis raised the
real possibility of a collapse of the world financial system. The
reputations of many leading institutions and individuals have been
damaged or destroyed. Large sectors of major financial systems have
been effectively nationalised. Disillusion has spread, and
fundamental questions have been raised about the future of free
markets, as people count the cost of the excesses of the past few
years.
12. Inevitably, central banks and regulators have been among
those that have faced criticism: for not seeing - or not heeding -
the danger signals; for having allowed financial innovation to get
out of hand, to the benefit of intermediaries but to the detriment
of the public; and for not responding quickly enough when the
crisis began to emerge. Although there are many lessons to learn,
not all of these criticisms are fair. The rapid, unconventional and
co-ordinated response by central banks at the peak of the crisis
undoubtedly averted a collapse of the system, and the vigorous
measures to maintain the functioning of financial systems have been
largely effective - so far. Nevertheless, the crisis itself, and
the very scale of the response, has brought central banks more into
the foreground than ever before. As the full implications of what
has happened unfold there will undoubtedly be questions about their
role and the policies they pursue.
13. The appropriate response to this is for central banks,
international organisations, and government authorities to seize
the initiative for reform so that financial crisis does not become
a crisis of confidence in the system itself. Since, as recent
events have resoundingly demonstrated, the financial system is a
global system, the reforms must be organised along international
lines. The limited achievements in international co-operation
following the Asian financial crisis might make us sceptical. But,
in fact, the signs are positive. Co-ordination among central banks
in crisis management has been effective. Technical blueprints for
regulatory reform on an international scale have already been drawn
up. And the political will has been demonstrated in the commitment
by the world's largest economies to implement far-reaching reform.
One area of progress is the movement towards greater participation
by developing economies in international forums and in the process
of reform. This is important, not just because of the growing
influence of these economies - nor even because the leading
international forums are currently dominated by the very economies
that are now in the deepest trouble - but because the ordinary
people of developing economies are usually the ones who suffer most
in a global financial crisis.
14. International co-operation will also, I hope, act as a
countervailing influence against any repeat of the disastrous
mistakes that were made in the 1930s. There has so far been a
resistance to trade protectionism, although the idea has begun to
gain some ground as a spurious answer to economic distress. There
is a risk that the idea will spread to the financial sector,
particularly if there is political pressure to include
protectionist measures in rescue packages for troubled banking
systems in the developed economies. I need hardly point out that -
no less than trade protectionism - such a trend would deepen the
hardship of the developing economies, many of which rely heavily on
international finance. It would also be a matter for serious
concern in financial markets across the world. One of the central
aims in building a more robust international financial architecture
must be to ensure that there can be no excuse for resorting to
financial protectionism as a solution to global or national
crisis.
15. This will be a year of hardship and anxiety throughout the
world. Much effort will be spent in fire-fighting and managing
expectations. But this is also a time when central banks,
international organisations, and leaders generally must work with
optimism and resolution towards improving the international
financial system. Crisis can provide the stimulus to reform, the
determination to change, and the spirit to co-operate. There is no
better illustration of this spirit than Bank Negara Malaysia. Nor
is there a more happy example of a central bank working in
partnership with the people it serves to the benefit of the
country. It is therefore with the greatest of pleasure and respect
that I join you all in congratulating Bank Negara on its 50 years
of achievements and in wishing the Bank and all who are associated
with it continued success and happiness in the next 50 years and
beyond.
Tahniah kepada Bank Negara Malaysia di atas Ulangtahun ke lima
puluh!2
1 Zeti
Akhtar Aziz: "Enhancing the Resilience and Stability of the Islamic
Financial System": Governor's Keynote Address at the Islamic
Financial Services Board and Institute of International Finance
Conference, Kuala Lumpur, 20 November 2008.
2
Congratulations to Bank Negara Malaysia on its 50th
anniversary.
