Business

Saturday August 8, 2009

Masterplan makes great strides


SBW: What are the key achievements of the Financial Sector Masterplan in the past 10 years? Moving forward, will there be a new blueprint for the financial sector?

Zeti: There has been tremendous achievement in the development of our financial system as outlined in our Financial Sector Masterplan.

Within nine years, more than 90% of the recommendations have been implemented.

The financial system has been transformed from being over-concentrated to being more diversified, from being fragmented to being consolidated, and from being vulnerable to becoming more resilient.

The reforms implemented include the shift to a more competitive environment that accompanied deregulation. This has also been accompanied by a more comprehensive consumer protection framework.

Islamic finance also became more developed with an increased international dimension. More recently, the financial system has become liberalised.

We are now working on the blueprint for 2011–2020. The aim is to continue to evolve a financial system that will best serve Malaysians as we make the transition to become a developed nation.

Important will be the leverage on technology and the migration of e-payments as well as greater regional financial integration.

Equally important will be the development of the domestic financial markets, including the foreign exchange market.

Attention will also be given to developing an inclusive financial system that brings participation by all economic activities, income levels and geographical outreach.

People have asked, we already have economic integration, for example, 60% of our trade is with Asia. So why do we need to push ahead with financial integration?

The fact that we did not have financial integration as fast as economic integration had not inhibited the pace of economic integration. Asia is a high savings region and for greater global financial stability, it is very important to not generate instability as a result of our investments. Furthermore, Asia should look at directing its savings back to the region.

This has not happened because the financial markets are not as developed, and this is something that we will aggressively push in the regional financial markets.

Malaysia has a well-developed bond market where we allow foreign players to raise funds and invest in the papers issued out of our market and these can be issued in any currency.

Can you elaborate on your plan to aggressively develop the Asian financial markets?

Asians can raise funds from our market and we can also invest part of our savings in our own markets. We are looking at developing an Asian bond market.

For Malaysians, we are also looking to develop our forex market, a major pre-condition to the internationalisation of our currency.

What is the timeframe you are looking at?

Such a move would not happen in an unstable financial and economic environment. All our liberalisation has been based on pre-conditions that would result in a smooth transition to a changed environment.

We have transitioned into a more flexible regime without major disruption.

Internationalising the ringgit

Why are you internationalising the ringgit? Has Singapore done so?

They have, under their plan to be an international financial centre. But there is no great urgency for us to internationalise our ringgit at this point in time.

It obviously will add more volume to the trade and contribute to the effective pricing of the currency. Right now, it has not inhibited our trade and investment volumes because any amount can be traded and there are no restrictions on the volume.

It obviously means that the currency might come under speculative trade?

Even now, it can come under speculative activities but what it cannot come under is raising of financing of the currency for speculative purposes.

This is what happended before … they borrowed in the offshore market and then sold. They were not selling their holding of the currency but actually financing the speculative attacks from offshore sources.

That was highly destabilising to us. The outflows had already taken place but the speculation still continued and there was no end to that because the offshore market grew larger and larger, and the risk was for it to deteriorate and the currency to collapse to meaningless levels.

Our assessment was that Malaysia did not deserve to experience those kinds of levels for our currency, because by then the resolution for our financial sector was already taking place at a very early stage of the crisis and yet, there was no end in sight for the speculators.

That is why we did not internationalise our currency until our market becomes the largest market for ringgit transactions. We are a trading country. Our volume of trade is twice the size of our economy. It seems rather unusual that we don’t have a well-developed foreign exchange market.

Even before the Asian financial crisis, we were already working on developing the forex market. One of the proposals was the internationalisation of the currency.

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