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Oleh/By		:	DATO' SERI DR. MAHATHIR BIN MOHAMAD 
Tempat/Venue 	: 	THE SHANGRI-LA HOTEL 
Tarikh/Date 	: 	05/02/91 
Tajuk/Title  	: 	CONFERENCE ON "LABUAN: AN 
			INTERNATIONAL OFFSHORE 
			FINANCIAL CENTRE" 



 
    It  is indeed a pleasure to be here this morning and to
address this conference.  This, I believe, is the  inaugural
conference  since the time the six key legislations aimed at
launching Labuan as an IOFC came into force in  October  1st
last year.
2.   When the government first announced its plans to launch
Labuan  as  an  IOFC, the initial reaction among many in the
financial circles was one of incredulity.  Some, I  believe,
had to refer to their world maps to locate Labuan.
3.   At  first sight, it would seem to be a far-fetched idea
- the creation of a sophisticated modern financial centre in
an island which was hardly known and without  any  financial
infrastructure.    But since that announcement this has been
remedied, albeit in a small way, with the  establishment  of
six  banks,  five  legal establishments and eight accounting
firms.
4.   Far-fetched ideas if worked at assiduously  can  become
realities.  Most of todays successful business conglomerates
started  as far-fetched ideas.  It was the determination and
commitment of the people involved that  saw  the  idea  take
root  and  grow into what these conglomerates are today.  In
our case, I would like to reaffirm the  government's  strong
commitment  to  develop  Malaysia into an important regional
business centre through an efficient and increasingly diver-
sified manufacturing sector,  as  well  as  through  greater
dynamism  and sophistication in the financial, insurance and
banking services.   Creating Labuan is one  of  the  various
steps we have taken to achieve our goal.
5.   Let  me  say  that  the  government's policy to develop
Labuan as an IOFC was not pulled out of  a  magician's  hat.
Deliberations  on  how best to develop the Federal Territory
of Labuan started a while back.  We took stock  of  the  is-
land's strengths and weaknesses and after assessing the many
alternatives,  the proposal to develop Labuan as an IOFC ap-
peared to have a reasonable chance of success.
6.   Labuan, located literally in the  middle  of  the  fast
growing  Asia-Pacific  region,  has  a  number of attributes
which are necessary and conducive to  the  formation  of  an
IOFC.    We,  in  Malaysia,  are  indeed fortunate.   We are
blessed with a  beautiful  country  which  revels  in  sunny
weather  and lush green vegetation.  Our land is rich in ag-
ricultural and mineral resources.  Our workforce  is  young,
educated and productive.  Our political and economic stabil-
ity  is  well-known among investors.   These attributes have
been identified by experts as some of  the  key  foundations
necessary  to  build an IOFC, and in Labuan, these are amply
evident.
7.   To ensure Labuan's development into an IOFC of interna-
tional repute, a series of development  projects  have  been
identified.    These projects, which will cater for both the
short and long-term needs of offshore investors  in  Labuan,
are  already being implemented in some cases, and others are
in the final stages of planning  prior  to  commencement  of
work.   To provide for a conducive work environment for off-
shore financial institutions, there are definite  plans  for
excellent  office  buildings, fully equipped with the latest
office technology, to be built, some by government agencies,
in an area that is going to be zoned as a Financial Park  or
Banking  District.  To ensure that telecommunication facili-
ties meet the high standards required of  an  IOFC,  various
projects  are  already  being undertaken by Syarikat Telekom
Malaysia to immediately upgrade telecommunication facilities
in Labuan.  Efficient modern telecommunication is a hallmark
of an IOFC, and we are certainly sparing no efforts in  giv-
ing top priority to undertake and complete all projects that
will   improve  and  enhance  telecommunication  service  in
Labuan.
8.   The Government  has  requested  Malaysian  Airlines  to
schedule more direct flights between Labuan and Kuala Lumpur
and  also  between  Labuan and Kota Kinabalu.  If the demand
justifies we will have direct flights  from  foreign  points
into  Labuan.  Our aim is to ensure that a visitor to Labuan
is able to travel in by the most convenient and  comfortable
way,  and within the shortest possible time.  I know time is
precious for businessmen and I have no doubt that  we  shall
certainly see a more favourable scheduling of flights in the
course of the year.
9.   The construction of a modern hospital in Labuan is also
being  expedited.  The hospital should be able to serve both
the residents and  non-residents  of  Labuan  and  be  fully
equipped  for  a comprehensive range of specialist services.
The government is certainly planning to effect a  number  of
other  projects  too,  in the area of housing, office space,
and other support  facilities  which  are  suitable  for  an
expatriate community, such as recreation and education.
10.  The numerous queries and interest shown by various par-
ties  in the Labuan IOFC, indicates that Labuan can create a
niche for itself.   Labuan, in close geographical  proximity
to many Asian capitals, is in an ideal position to be devel-
oped into an integrated financial centre.  We aim to develop
it  to meet the banking and insurance needs of multinational
companies and high net worth individuals and families in the
Asia-Pacific region, who  wish  to  protect  their  interna-
tionally  held  assets  and trusts as well as minimise their
tax liabilities.  Indeed, I am confident that  Labuan  would
be  an excellent domicile for many regional insurers and re-
insurers who are far-sighted enough to take advantage of the
potentials arising from rapid growth in the region.
11.  Yet, in our enthusiasm to develop Labuan,  let  me  say
that  our  efforts  and overtures should not be construed by
potential offshore companies as a proclamation of  a  'free-
for-all policy' for Labuan.  On the contrary, Labuan will be
a selective suitor and will only woo those who are reputable
and  who are prepared to set up operating offices in Labuan.
I am aware that in some tax havens, an offshore company need
only maintain its presence through a name  or  brass  plate.
Such  IOFCs are treated as post offices by the offshore com-
panies and are at best 'ghost towns' for names without  real
'bodies'.    The Government's vision for Labuan is certainly
not of this vintage, but that of a bustling functional town-
ship.  It may take time and experts have warned us that even
the Cayman Islands took about 10 years to  be  fully  estab-
lished.    But  we  are  confident  that  our vision will be
achieved sooner, rather than later.
12.  However, let me dispel  any  idea,  and  forestall  any
criticism,  that  the Government has created an entrepot for
legalising illegal drug money and  other  laundering  activ-
ities  in  the  region.   Our stand on such matters is well-
known and we will have nothing to do with  facilitating  any
illegal activity, least of all transacting in the ill-gotten
gains  of  crimes that are so abhorrent to us.  In this con-
nection, I should stress once again that it is  the  Govern-
ment's intention to admit only offshore players of integrity
and high international standing into Labuan.  This selective
process  is not limited only to the offshore banks, offshore
insurance companies and offshore investment  companies,  but
will also be the standards set for professionals who provide
the  support  services,  such as legal, accounting and trust
services.
13.  Today's developments in the world economy give us added
reasons for developing Labuan as  an  IOFC.    The  turn  of
events  over the last couple of months underscores the frag-
ile state of the world economy.   Latest indicators  suggest
that  the  longest-running  post-war  economic  expansion is
grinding to a halt.    The  United  States  and  the  United
Kingdom  are already in recession.  These developments, cou-
pled with the breakdown in GATT negotiations  and  the  out-
break  of  war in the Gulf region, have cast a dark cloud of
uncertainty over the global growth prospects in  the  decade
of  the 1990s.  Amidst this gloomy scenario, the silver lin-
ing is that economies in the Asia-Pacific region continue to
expand in the 1990s. The high rates of saving and investment
in this region, coupled with  pragmatic  domestic  macroeco-
nomic  management,  a  willingness  to  undertake  necessary
structural reforms, an educated work  force,  and  political
stability,  all  augur  well for the continuing bright pros-
pects of the economies in  the  Asia-Pacific  region.    The
sheer  size  of the region, which presently accounts for 40%
of world output and 45% of world trade, indicates its  enor-
mous  potential for further expansion.  Its total population
of nearly 2 billion people or 37% of the world's  population
represents a vast potential market which has yet to be fully
exploited.
14.  Malaysia  is  an  integral part of the Asia-Pacific re-
gion.  Much of the upsurge in foreign investment inflows  in
recent  years  emanated  from  Japan and the rapidly growing
economies of Taiwan, South Korea, Hong Kong  and  Singapore.
Indeed,  Taiwan  has emerged as the single largest source of
new foreign investments, surpassing the traditional  leaders
such as the United States of America and Europe.  It is with
this  sense of wanting to forge closer relationships between
nations in the region that Malaysia  has  recently  proposed
the  formation  of  an East Asian Economic Grouping.  We are
pleased to note that many nations have expressed their  sup-
port for this idea which, we believe, once implemented, will
inject even greater dynamism into the region and ensure bal-
anced and free trade.
15.  The  Malaysian  Government,  on its part, will continue
with the current policies which have  proved  successful  in
promoting  Malaysia  as  an investment centre.  Where neces-
sary, new measures, including fiscal incentives, will be in-
troduced to ensure that private investment spending  remains
sufficiently  high  to  support economic growth and develop-
ment.   At the same time, efforts  will  be  intensified  to
maintain  a conducive investment environment for the private
sector to flourish and lead  the  economic  growth  process.
This  includes  increased  allocations in the Sixth Malaysia
Plan for the upgrading of infrastructural and other  support
facilities  in  line  with  the needs of a rapidly expanding
economy.  The Sixth Plan, 1991-95, will spell out  the  Gov-
ernment's  commitment  to providing the necessary support to
ensure that the administrative,  industrial  and  human  re-
source  infrastructure is in place to support private sector
investment and growth.
16.  Indeed, for us in Malaysia, growth with equitable  dis-
tribution will continue to be the major policy thrust in the
1990s.    While  I  cannot  provide the details of the Sixth
Malaysia Plan before it is tabled in Parliament at  the  end
of June this year, I can certainly assure the private sector
that  the favourable business climate that we are witnessing
today will continue to be promoted.  The government aims  at
greater liberalisation.  Our track record speaks for itself.
As  an  initial step, the investment guidelines on 100% for-
eign equity ownership for manufacturing projects, which  ex-
pired in 1990, have been extended for another year.  Further
measures  will be announced later, together with the release
of the Second Outline Perspective Plan in June this year.
17.  In the years ahead, priority will be given to the  fur-
ther development of the financial services industry.  A more
efficient,  innovative  and  competitive financial sector is
vital to the growth process and overall development  of  the
nation,  particularly  as  the  economy becomes increasingly
more modern and industrialised.  The launching of Labuan  as
an  IOFC represents an important part of the strategy to de-
velop financial services to support the nation's development
thrust.  It is envisaged that Labuan will become a window to
Malaysia in attracting new sources of foreign capital to fi-
nance Malaysia's rapid industrialisation process.  Labuan is
expected to play  a  key  role  in  the  effort  to  develop
Malaysia into a truly viable regional financial centre.
18.  This  Conference  on  Labuan  is certainly timely and I
hope that it will generate  useful  ideas  and  constructive
feedback  for  the  Government,  so that necessary measures,
whether remedial or otherwise, could be taken to further en-
hance and advance Labuan as an IOFC.
19.  On this note, I now have  much  pleasure  in  declaring
open this Conference on Labuan  :  An International Offshore
Financial Center.

 
 



 
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