The following is the opening speech by First Finance Minister Daim Zainuddin during the 35th Conference Of Governors of South-East Asian Central Banks which was held in Kuala Lumpur, Malaysia on 27 January 2000.

On behalf of the Government of Malaysia, I have great pleasure in extending a very warm welcome to the Governors and delegates of the Thirty-fifth Conference of Governors of South-East Asian Central Banks. This gathering of SEACEN Governors reflects the long-standing tradition of co-operation among central banks in this region, a tradition that has served us well in dealing with the challenges and problems we have faced, particularly in dealing with problems of the recent past. I am pleased to note that this year's conference is taking place under much improved circumstances for the region, now that the crisis is behind us and all affected countries are recovering and back on a steady path of economic growth. While we have in the past two and a half years been preoccupied with the challenge of minimising the adverse consequences of the crisis, SEACEN Governors can now turn their attention to further enhancing the close economic and financial cooperation we have shared to position our countries to successfully meet the challenges of the new millennium.

We face several new challenges in reestablishing and strengthening the region's position in the global economy. A major challenge I see comes from the global environment in which we operate. While the global economy has lent considerable support to the recovery process by way of sustained export growth, we cannot assume that this source of growth can continue to be relied on as a major source of growth for our economies. The prospects for a continued strong and unabated growth in the US economy at the pace we have witnessed recently may not be sustained. Although we observe that the strong growth in the US economy has been due to gains in productivity, the recent surge in output growth has been narrowly based on computer manufacturing. In addition, fears of an overvalued US stock market are compounded by global deflationary pressures which are already affecting the profitability of American corporations. Hence, the concern that a major correction may occur. Whether growth in the US economy is sustainable and continue to remain the main source of growth in global demand will no doubt have important implications for our economies.

The global environment will also depend on the outlook for the other G-7 economies. While there are now more positive signs emerging from Japan as private expenditure gradually replaces public investment in fuelling domestic demand, some downside risks remain. Growth in Japan could be constrained by the strength of the Yen and the pace of corporate and financial restructuring although the overall outlook is for moderate growth. More promising signs are, however, emerging from Europe. We see consumption increasing in the UK as growth becomes more broad-based, and in Germany and Italy, growth is seen to be picking up. Corporate restructuring in the EU, together with the latest tax cuts in Germany, should provide the basis for Europe to attain economic growth and assume a larger role in propelling global growth. However, while global growth may continue to be supportive, the current trend of rising interest rates and tightening liquidity conditions in the US and Europe will certainly have implications on capial flows to Asia.

Given the prevailing uncertainties in the global economy, I believe that as a region we need to recognise that we cannot be overly dependent on the developed nations as a source of recovery and growth. To ensure uninterrupted and steady growth, we need to prepare to be economically more resilient to better manage the vagaries of external developments. We can begin by building regional economic resilience to enhance our efforts to effectively manage economic uncertainty by expanding the scope and pace of regional co-operation. In this regard, SEACEN is a forum that can contribute to fostering the required co-operation and self-reliance to reduce our vulnerability to external shocks.

The need for closer economic and financial co-operation is all the more pertinent given the current new environment where competition is expected to intensify in the face of increasing liberalisation and globalisation. The new environment will impact on our access to world markets for goods, our access to foreign direct investment flows and also dictate the way we conduct business. In this new environment, the comparative advantage of low labour costs we are endowed with will no longer attract foreign direct investment to generate the growth and development we have enjoyed thus far. Competitiveness will increasingly depend on the existence of a knowledge-based workforce which will require massive investment in training, education and technology development. We can only compete effectively with the developed nations in terms of knowledge-intensive products, processes and services, when we have successfully restructured our economies to meet the new demands. SEACEN countries would therefore, need to keep pace with the challenges of the new environment to enable them to avail themselves of the benefits than can be derived from the new environment and the advent of information technology.

Keeping pace with these developments will require that Asian countries to step up to the next level of development in order not to be marginalised. To bridge the growing gap between the developed countries and us, we have to be not only pro-active and embrace this new paradigm of technology-based economic policies, but to harness the synergies and benefits we can derive from co-operation and knowledge sharing in the SEACEN region.

The recent crisis has disrupted and reversed many years of economic growth and development for several SEACEN economies. While the worst may be over for many of our economies after having persisted with severe macroeconomic and structural adjustments, we must avoid the risk of complacency now that economic recovery has become entrenched in the region. Just as we have persevered with measures to strengthen our economies and financial systems to avoid a recurrence of the instabilities associated with the crisis, we must also continue to pursue our call for an improved and more stable global financial system that will ensure a safer world of cross border flows. We urge SEACEN economies to persist at efforts to ensure reforms to the international financial architecture.

Various international fora and meetings have been convened on reform of the international financial architecture which have generated much discussion and numerous proposals. Unfortunately, we have yet to see concrete progress in terms of implementation of proposed reforms to address the shortcomings in the system. These reforms are necessary given the fundamental weaknesses of the free market system, the inherent instability of the international financial system and the need to ensure that all economies, alike, are protected from the manipulative activities of currency traders and highly leveraged hedge funds. In this regard, the prudential practices of international banks in dealing with these funds should be strengthened, including setting meaningful credit limits on their exposure to these funds. There is also need to ensure that the transparency required of governments is extended to the private sector as symmetry in good behaviour should be expected from not just governments but also from all market participants. Needless to say, international financial reporting should collect and disseminate accurate and unbiased reports of the economic and political situations of countries. In this regard, I must add that while international financial community has a standard world view on issues, they must allow countries to have different perspectives and approaches in dealing with specific problems and circumstances. Countries should be allowed to undertake measures, including unorthodox selective exchange controls without undue pressure being exerted on them.

We have not achieved much progress in terms of implementation of reforms to address architecture issues because much of the debate on these issues continue to be dominated by a small and closed group of countries, namely the G-7 countries. Of particular concern is also the prevailing view amongst the international financial community that fundamental changes are not needed to the current financial system. There is, therefore, need to ensure that the views and concerns of small economies like ours are given due consideration as well. This is because small and open economies are more vulnerable in a global financial market place when massive and volatile short-term capital flows can continue to destabilise and undermine our economies. In this regard, I believe that SEACEN as a group can play an important role in mobilising the support of developing countries, as a common stance will strengthen our influence on decisions on IFA issues.

Malaysia is proud to be associated with the SEACEN. We see the SEACEN Centre as a leading regional centre of excellence for training and research in financial and supervisory matters. In the face of rapid globalisation and financial innovation, the need to train our central bankers and supervisors to keep abreast of developments and to continually upgrade skills becomes all the more important. In this regard, I wish to assure SEACEN Governors of Malaysia's continued support of the SEACEN Centre, to enable it to become the leading centre for training in the SEACEN-APEC region. I have the utmost confidence that the SEACEN Centre will continue to be a world-class centre for promoting co-operation in research and training in central banking policy and operations, as well as in macroeconomic, financial and bank supervisory issues.

I trust that your deliberations over the next two days will prove to be fruitful and productive. You have an interesting and heavy agenda before you. However, I am pleased to note that the organisers have set aside time for you to see and experience Malaysia. I hope you will enjoy our Malaysian hospitality and visit us again soon.

Thursday, 27 January 2000

The speech was sourced from the National Economic Action Council.

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