Keynote Address


YAB Dato’ Sri Mohd Najib Tun Haji Abdul Razak
Prime Minister of Malaysia

at the

World Capital Markets Symposium
10 August 2009

Mandarin Oriental Hotel



Distinguished guests

Ladies and Gentlemen

A very good morning to all of you



I am delighted to deliver the keynote address today to this impressive gathering of influential opinion leaders and policy-makers from around the world. To the distinguished guests who have made a long journey to join us at this symposium, let me take this opportunity to bid you Selamat Datang or Welcome to Malaysia.


The global financial crisis has spread far beyond its epicentre. The still developing impact of the crisis has led to a sharp contraction in global economic trade and output. This has resulted in devastating consequences for economies, jobs, people and families all around the world.


Malaysia’s response to this global challenge includes a number of efforts to open our economy and markets. We have aggressively responded through a series of fiscal stimulus initiatives representing 9% of GDP, to be spent over two years. We recently announced sweeping measures to liberalise foreign participation in our services sector. As changing economic circumstances diminish the effectiveness of the export-led growth model, Malaysia is adapting to global requirements and scaling our export focus. We will concentrate on developing a high-income economy driven by creativity, innovation and high value-add services.


These new approaches and the search for new methods of sustaining growth and prosperity make the timing of this inaugural World Capital Markets Symposium particularly auspicious. There is an urgent need for leading policy-makers, regulators, economists and corporate leaders to share their experiences and views on how to best address our current challenges. On how best to guide our local, regional and global communities through this crisis. Certainly, many of you are eminently qualified to offer counsel on how best to address our shared challenges and the appropriate developmental strategies that an emerging economy like Malaysia must adopt to sustain growth. Malaysia welcomes your views and suggestions and I look forward to the deliberations at this symposium.

Ladies and Gentlemen,

Shaping the reform agenda for the global financial architecture


The current financial crisis is having a profound impact on the global relationships that have underpinned two decades of rapid economic growth and on what were perhaps overly dynamic financial activities. Many governments have already responded with the implementation of expansion oriented fiscal and monetary policies. Sweeping regulatory reforms are already at advanced stages of discussion in many countries.


While governments are working to address the domestic challenges they all face, there is still a vacuum in terms of shaping an effective response at the global level. Finding a global solution is a much more challenging exercise. It requires substantial consultation and cooperation. It requires countries to manage respective national interests within the context of addressing problems the world shares. From this perspective, allow me to outline my views on the key issues that should be on the agenda when discussing the reform of the global financial architecture.


First and foremost is the implementation of global mechanisms to manage the impact of sizeable capital flows on a country’s financial stability. There is more than sufficient evidence to indicate that unhindered global capital flows are de-stabilising not only for small open economies but also for large ones.


Governments have a legitimate mandate to maintain domestic financial stability. But in so doing they may create conditions that can be taken advantage of by international investors and financial intermediaries in search of higher returns.


This creates a problem, as the size of these capital flows can overwhelm the capacity of a country to insulate its financial system and economy from large and sudden movements of external funds. The problem is compounded when global financial intermediaries and market centres facilitate capital leveraging to magnify the size of funds entering and withdrawing from a domestic economy.

Ladies and gentlemen,


Asia’s experience with the impact of highly leveraged transactions during the 1998 financial crisis compelled many countries to adopt a more cautious approach toward global capital flows. Many Asian countries – including Malaysia – have retained varying degrees of barriers and controls to mitigate the impact of capital flows so financial stability is not undermined.


In the past, this has led to criticism that Asia is opposed to “free capital flows”. As this crisis continues to evolve, it is apparent that regulatory oversight should take precedence over the pursuit of private profit through the manipulation of unfettered capital. It is also now evident that intense competition among global financial centres led to reduced regulatory oversight and unrestrained lending. Essentially a “race to the bottom”. The outcome of such regulatory laissez faire is clear and conclusive.


Second, is the promotion and enforcement of market transparency. The current global financial markets are exceedingly complex and opaque. How are markets supposed to work when no-one understands them or recognises their larger goals, objectives, or potential? It is not just governments and regulators that are vulnerable to the risks created in the “shadow banking system”, but also investors, intermediaries and even society at large.


Opaque financial markets lend themselves to abuse and do not serve society. Our markets must function not only as a conduit for capital formation but must also promote long-term economic growth even as they facilitate hedgers and speculators to use the markets to manage and exploit risks and opportunities.


Third, if there is one major lesson to be drawn from the current economic challenge, it is that over-reliance on self regulation is a mistake. Regulators around the world must begin to work together to create a comprehensive approach to ensure compatible, sustainable, and effective regulatory surveillance. At the global level, there must be strong oversight of markets and risk-taking activities in common terms, adequate ring-fencing of capital and client assets when such activities are conducted across borders, and shared procedures for intervention when there are signs of exuberance or even irrational excess.


Fourth, it is important to correct the governance structure of global regulators. The current approach favours the traditional economic superpowers. The global reform agenda must ensure there is a more balanced and equitable decision-making process and not a regime that favours global financial institutions. Global regulators should also place priority on ensuring markets do not operate in a manner that jeopardises the financial stability of small and developing economies or impacts the ability of domestic markets to operate in a fair and orderly manner.


Overall, a clear and shared vision needs to be established for the objectives of global regulation. Modern markets are too large, too interconnected and too complex to operate on a lassiez-faire basis. Global regulators should err on the side of investor protection and financial stability rather than rely on a “buyer beware” regulatory regime.


In very much the same way that countries are streamlining their national regulatory architectures, the global community needs to rationally approach regulation and ensure that the outcome represents a truly world-wide financial perspective which promotes financially stable, equitable and socially inclusive growth.

Ladies and gentlemen,

Asia’s emerging role as a driver of global economic growth


The onset of the financial crisis also marks a watershed in the economic positioning between the Asian nations — with high surpluses and savings – and the Western countries – with deficits and cultures of high consumption. A second aspect of the global economic reform agenda must recognise and address this fundamental difference in societal participation and structural imbalance in the global trade for goods and services.


This can be a difficult task as the current economic structures reflect two decades of national policies that have perpetuated the expectation that the West will spend and the East will save. These market stereotypes can most directly be overcome through shifting the focus of global reform efforts from mending damaged balance sheets in the West toward creating new growth opportunities in Asian countries with surplus savings.


It is in the world’s interest to position Asia as an engine of growth so that its relative stability may drive global economic recovery. A consistent and coordinated global policy will be required to ensure that Asia is able to increase its consumption without affecting its creditworthiness. To allow Asia to reduce its current account surpluses without being vulnerable to speculative attacks on the capital account.


The deployment of Asia’s surplus savings and the development of its private sector are also key components of this process. As of April 2009, Asian countries are estimated to have amassed USD2.7 trillion in Sovereign Wealth Fund (SWF) assets. The political interests of these Funds, in conjunction with their size, have generated some tension through their high-profile acquisition of assets, particularly in the resource based and strategic sectors.

Ladies and gentlemen,


The Asian Sovereign Wealth Funds phenomenon is an unintended by-product of economic and development dynamics rather than a deliberately crafted one. The public vehicles that evolved to intermediate domestic savings arose out of expediency and reflect how savings accumulation outgrew private sector capacity in many Asian countries.


As opposed to a threat, the Funds should be viewed as representing the vanguard of prudent national savings management. The evolution of a substantial private sector is entirely dependent on the progress made in developing fully fledged and active capital markets to distribute the ownership of varied assets and to facilitate a diminishing relationship between governments and investments.


The rapid development of Asian capital markets will be a central consideration in the evolution of a genuine and thriving private sector in Asia. As more and more assets make their way into public ownership via the capital market, there will naturally be increased requirements for higher levels of transparency and accountability on the management of these assets.


The rest of the world looks to Asia as the next great opportunity for investment as it offers the brightest economic growth prospects. For the same reason, Asian countries should also seek to invest a higher proportion of their own savings within the region. This changing pattern of capital exports will underpin the changing character of Asian capitalism and will transform Asia from a collection of fragmented markets into a highly connected, and much more stable, network of vibrant capital markets.

Ladies and gentlemen,

Asia’s growth agenda


It is said that “Asia” has its origin in “asu” which means “sunrise” in Greek or “east” in Assyrian. As its name suggests, Asia represents a new dawn, a new hope and a new beginning. Rising affluence in a continent that geographically bounds almost 30% of the Earth’s land area and more than 60% of its population is propelling Asia to become a pivotal region in the global economy. Many have already dubbed this “the Asian century”.


Asia is rapidly transforming into a region brimming with opportunity and confidence and today faces a very different set of opportunities and challenges than the generation of our fathers. The expanding presence of a new middle class, thriving ranks of entrepreneurs large and small, and the increasing role of women in the work force is altering the social and economic landscape of Asia. Decisive action on our economic priorities now will provide our children, and their children, far greater choice and opportunity.


Asia comprises over 50 countries, each possessing a rich tapestry of culture and history. It is home to the world’s earliest civilizations, the cradle of many great religions, and offers the world unique characteristics and perspectives. The respect for our past and focus on our future will allow the best of Asia’s traditions to enhance our pursuit of modern economies, with technology and innovation sitting comfortably alongside our heritage and culture.


But Asia’s rich heritage and vast growth potential mean nothing as long as members of our population live in poverty and struggle. It is up to us to create opportunity for the less fortunate members of our society and work to ensure their place in an evolving, vibrant economic community.

Ladies and gentlemen,


Asian countries have the resources and the capacity to enact an agenda that will ensure a more equitable distribution of growth throughout the region. We must work closely together to seek common advantage, eradicate poverty, and to lift more of our population into the middle income group. The strengthening of our middle class will strengthen our local, regional, and global economic growth.


Just as we must seek a common solution to our global economic infrastructure, Asian countries must cooperate in the building of our water, power, and transportation infrastructures. These “goods that empower” will directly impact the have-nots in our communities and allow them to participate in building an independent future. Creating cross-border opportunity will also increase intra-regional trade and capital flows; permitting the region to benefit from efficient re-cycling of surplus savings.


The Asian growth agenda must also extend beyond the pursuit of income and place greater emphasis on ensuring sustainable development. Through increased focus on social and environmental issues such as healthcare, the use of energy-saving technology, education and through human capital development, women’s welfare and programmes that provide social support.

Ladies and gentlemen,


A major tranche of this growth agenda will arise from the development of healthy, transparent capital markets. In Malaysia, our strategy is based on reforming and opening up the economy to increase investment. We recently removed the 30% bumiputra equity requirements for listed companies. The investment banking and insurance sectors has also been liberalised to allow for greater foreign investment. The intent in all of this is to ensure a more dynamic capital market structure.


We also recognise that to achieve global standards, we must be prepared to look at new ways, such as smart partnerships, to expedite capital market development. Smart partnerships look for synergies between companies, government, or even separate countries that can provide mutually beneficial results. This “prosper-thy-neighbour” view of partnership is a model for healthy business relationships.


Malaysia will continue to drive the growth of its markets by seeking opportunities to expand our partnerships to strengthen the connectivity of our markets with the rest of the world. Already, ASEAN exchanges are in the midst of developing an exchange alliance to provide a regional platform as well as to facilitate an increase in intra-regional cross-border trading of equities. Bursa Malaysia has also forged close cooperation with Exchanges such as the NYSE Euronext and Korea Stock Exchange. Bursa Malaysia in its effort to enhance competitiveness and develop a robust derivatives market is also working with the Chicago Mercantile Exchange (CME) towards establishing cooperative cross link opportunities. I encourage Malaysian Capital Market players and institutions to extend their global reach to explore more alliance and partnerships to take advantage of global opportunities.

Ladies and gentlemen,

Concluding remarks


Finally, we must view the challenges arising from the current crisis as an opportunity to address matters which are not working in our local, regional, and global economic environments. We must focus on strengthening international partnerships and developing common ground from which to pursue common objectives. We must choose to move forward with tolerance, a willingness to resolve problems, and a deep recognition of the value each of our disparate communities provide. By choosing opportunity and cooperation, we can ensure that the rising economic tide will benefit all and, together, we can lay the groundwork for a truly global community.


On this note, I wish you all a stimulating dialogue and a very pleasant stay in Malaysia.

Thank you.