Now is the Time

For the past few months, markets and economies across the globe have come under significant pressure due to a convergence of factors, concerns over commodity prices, fragile growth prospects in some of the world’s largest economies, as well as recurring geopolitical tensions. These have seen cross currency, equity and bond markets as well as emerging economies facing some of the most challenging conditions since the 2008 financial crisis. Even though we stand at cross-border inter-linkages, both in real and financial sectors, it is of little surprise that a relatively small opening economy, such as Malaysia, would be exposed to some degree of this volatility. Nevertheless, it is this connectivity that has also enabled us to benefit from a range of trade, investment, and capital flotation. We would do well to remember that there will be long-term gains from Malaysia’s integration into the global economy, at the cost of this short-term dislocation. It is essential for policy makers to steady our resolve and steer a course to pursue greater liberalization and openness through the international community. We know the implications of this—more integration and openness to the global economy. This is why we have strengthened our resilience against potential sources of contagion. We translated the lessons we learned from previous crises into an effective and meaningful response to the current market trends and developments. We have initiated measures and actions, including the establishment of a Special Economic Committee chaired by Nazir Razak. The Committee first met recently, and discussed immediate and medium-term plans of action to further strengthen Malaysia’s economic position. I am confident that the collective wisdom and experience of committee members and others will provide sounds and pragmatic recommendations to ensure that our economy remains on course.

Compared to where we were prior to the 1997 and 1980 crises, Malaysia is now in a far stronger position to weather any incoming storms. Over the last 50 years, we undertook important structural reforms in our financial and banking system. These include the introduction of internationally benchmarked regulatory frameworks and rigorous supervisory regimes. We strengthened our potential requirements for market participants, enacted extensive corporate governance reforms, and the fiscal revenue base of the government has been further strengthened with the introduction of the GST. Our local currency bond market, at MYR1.1 trillion, is the third largest in Asia. The development of this market has significantly broadened our financial system. The bond market has also reduced our reliance on short-term foreign currency denominated borrowings, as was the case during the Asian crisis. The differences between 1998 and 2015 do not end there: today the equity market is worth MYR1.5 trillion, compared to MYR175 billion, and with much stronger corporate balance sheets, and that is the government listed companies. The institutionalization of the buy side anchored by Malaysia’s key domestic investor base coupled with a high ceiling price serve as a source of long-term funds for the capital market. Our stock markets now operate in a more structured and regulated way as well. These structural reforms have collectively strengthened the ability of the Malaysian financial system to weather bouts of intense volatility and effect adjustments in an orderly manner. During the recent financial global crisis, for example, our capital market and banking system continued to function without disruptions or failures. This resilience has enabled our financial system to fulfill, without interruption, its most important function, serving as a source of long-term financing to compliment the banking sector. The Malaysian capital market has provided MYR376 billion through IPOs and bond issuances since 2012. This has resulted in capital formation and job creation in sectors that include infrastructure, communications, and agriculture, with gross fixed capital formation reaching from between 26 to 27% of GDP over that same period. The convergence of these efforts with favorable macro-economic conditions has enabled Malaysia to record more than 20 years of robust economic growth. Despite lingering perceptions of Malaysia being reliant on mining, principally oil and gas related commodities, our economy has diversified to the extent that services manufacturing and construction sectors now account for more than two thirds of our economy. At the same time, from the export intensive model, we have successfully rebalanced our economy, with growth now largely driven by private sector lending and domestic demand. Due to our reforms and transformation programs, the foundation of our economy is stronger, and we are on track to achieve our goal of becoming a high-income state nation by 2020.
While I am confident of the strength and robustness of our financial system, we cannot take the current situation for granted and rest on our laurels. Energy and commodity prices are no longer what they used to be, the world’s second largest economy is showing signs of slowing down and global liquidity maybe drying up. This is critical, and is why we are opening up regionally. Regional integration is one of our core priorities. As one of the founding members of ASEAN and its current chair, Malaysia is firmly convinced of the value of a single market and production base, which allows all 10 members to benefit from seamless intra-regional flow of goods, services, and capital. Furthermore, an economically strong ASEAN would have the ability to generate its own internal growth parameter. It could finance its own growth using its own capital, and do not forget, if we can increase intra-ASEAN trade, then our vision will be quite safe. And, of course, we will reduce our vulnerability to external fluctuations as well. As we approach the establishment of the ASEAN Economic Community by the end of 2015, I am pleased to note that regional integration in on course, with the private sector increasingly taking a more active role in unlocking the tremendous promise that the region offers. Integration efforts in the financial sector in particular, have made good progress, as we have seen with the emergence of financial service providers with a truly regional footprint. I was informed that the ASEAN Capital Market Forum met yesterday, Chaired by our Securities Commission, and comprised of regulators from all member countries. I am pleased that they finalized the post-2015 vision for an interconnected ASEAN Capital Market enabling ASEAN’s vast pools of capital to be aggregated and mobilized into financing the region’s development. Malaysia has implemented a series of reforms to strengthen the business environment, with particular emphasis on encouraging business formation, and I am pleased to say that the Securities Commission is playing its part. The commission has taken steps to extend excess capital market financing for smaller businesses through the estblishment of the equity crowdfunding (ECF), and introduction of the SME investment partner’s program in collaboration with SME Corporation. Looking further afield, the Securities Commission has identified a new high potential sector: technology as a new growth sector in the world’s economy. FinTec covers a broad range of financial technology from trading software, to market data, exchange technology, analytics, cloud computing, high-speed networking, and mobile technology. It is clear that this sector deserves our concerted support, and I am pleased to announce the establishment of the Alliance of FinTech Community, or aFINity@SC, which will set up a network of new stakeholders in the field. This network seeks to connect FinTech entrepreneurs with investors, researchers, mentors, as well as with relevant government agencies in order to raise awareness of the opportunities in the sector. The network will also capitalize on business formation and development by establishing hubs to nurture a burgeoning FinTech ecosystem to provide a regulatory environment responsible financial integration and I am supporting the Malaysian Securities Commission in this mission.