Oleh/By : DATO SERI DR MAHATHIR MOHAMAD
Tempat/Venue : LUXEMBOURG
Tarikh/Date : 12-06-2002
Tajuk/Title : THE LUNCHEON HOSTED BY LUXEMBOURG
BUSINESS COMMUNITY
Versi : ENGLISH
Penyampai : PM
I am very pleased to be here today with the
distinguished members of the Luxembourg business
community. I wish to thank the Chamber of Commerce and
Industry Luxembourg, Luxembourg Bankers' Association
and Federation of Industries of Luxembourg for hosting
this luncheon for the members of my delegation and I.
2. During the pre-East Asian economic crisis years,
Malaysia achieved a strong level of economic growth
averaging more than eight per cent per annum. Although
the Malaysian economy experienced a contraction of 7.4
per cent in 1998 due to the impact of the crisis, the
economy recovered quickly to register positive growth
rates of 6.1 per cent in 1999 and 8.3 per cent in 2000.
In 2001 despite the effects of the global economic
slowdown, Malaysia registered a real GDP growth of 0.4
per cent. The Malaysian economy is expected to register
a higher growth rate of 3.5 per cent in 2002 and grow
in tandem with global economic conditions in the years
beyond.
3. Inflow of foreign direct investments into the
manufacturing and related services sector has been
instrumental in the transformation of Malaysia into a
modern industrialising economy. Malaysia is a
politically and economically stable country with strong
economic fundamentals. The Malaysian government
remains committed and has put into place the necessary
infrastructure, incentives and administrative support
to provide a conducive and cost-competitive environment
for investors. The continued attraction of Malaysia is
proved by the substantial level of foreign investments
received even during the East Asian economic crisis
years. Foreign investors have continued to look upon
Malaysia positively as a profitable investment and
business location in the East Asian region.
4. It has been generally perceived that the
competitive process through deregulation,
liberalisation and dismantling of barriers and controls
are necessary to achieve a strengthened and efficient
banking system. Malaysia recognises that it cannot
escape the forces of globalisation and liberalisation.
It will continue to suggest better ways for globalising
so as to benefit more people. But we are nevertheless
preparing our economy and its financial system in order
to cope effectively with the challenges that we
anticipate.
5. The liberalisation of the financial sector is not
a new phenomenon to the Malaysian economy. We are
used to having numerous foreign banks operating
profitably in our country. There may be some
restrictions but these have not affected their
performance. Malaysia's liberalisation process
includes acceding to the World Trade Organisation (WTO)
financial services undertaking, where Malaysia
undertook substantial commitments to further liberalise
the financial sector under the General Agreement on
Trade in Services.
6. Contrary to popular belief, however, Malaysia has
always been committed to the progressive liberalisation
of the financial sector. For Malaysia, liberalisation
is seen as a means to an end and is, therefore,
appropriately undertaken for the benefit and in support
of the development of the national economy as a whole.
This can be seen even from the early days of the
establishment of commercial banks in Malaysia, when
branches of foreign-owned banks were set up in the
major commercial centres of Malaysia like Kuala Lumpur,
Penang and Melaka for the financing of external trade,
specifically to facilitate the growing trade Malaysia
had with Europe and the rest of the Far East. In fact,
at that stage, the Malaysian banking sector was
characterised by the dominance of the foreign banks.
The first bank operating in Malaysia is a foreign bank
branch.
7. Similarly, in the last round of WTO financial
services negotiations, substantial liberalisation was
undertaken in the areas that benefit the national
economy and assist in the development of the domestic
financial sector. Among these is the increase in the
foreign equity limit in the insurance companies from 49
per cent to 51 per cent; the issuance of six new
licences for life reinsurance and seven new licences
for general reinsurance; permitting 100 per cent
foreign equity in fund management companies; increasing
the foreign equity limit from 30 per cent to 49 per
cent in stockbroking and financial leasing companies;
and liberalising the offshore investment banking,
offshore insurance and offshore financial leasing
sectors.
8. As a result of Malaysia's early liberalisation
measures, a fact often overlooked is that foreign
players already assume a very significant role in the
domestic economy. At present, of the 25 commercial
banks (including two Islamic banks), 13 are wholly
foreign-owned. Foreign interest account for
approximately 26 per cent of total assets, 25 per cent
of total deposits and 25 per cent of total loans of the
banking system. Meanwhile, foreign presence in the
insurance industry is much more significant with the
foreign market share of life insurance premiums
amounting to 64 per cent and 39 per cent for general
insurance premiums.
9. The Malaysian experience shows that the undertaking
of liberalisation should never be solely about allowing
greater entry of foreign players into the market. It
should rightly be seen more as a means of strengthening
and developing a country's financial system, as well as
promoting the country's economic growth potential. This
is especially so for Malaysia given the role of the
financial sector as an enabler of growth, the crucial
element which facilitates development and economic
transformation of the country. The financial sector,
therefore,is strategic and,more than ever, would need to
remain effective and responsive in the face of an
increasingly globalised domestic economy. Thus,
liberalisation should always be considered in the context
of developing the financial sector in support of the
domestic economy.
10. Valid risks and concerns when liberalising the
financial sector also cannot be ignored. Malaysia
faces a continuous challenge in adopting strategies that
can help to maximise the benefits of liberalisation,
while at the same time minimising the risks associated
with the changes. Of paramount importance is balancing
liberalisation with developmental considerations and the
preservation of not just financial stability but
socio-economic stability too. Hence, more than anything
else, Malaysia's aim is to develop an effective and
dynamic financial system that assumes a crucial role in
meeting the socio-economic agenda of the country.
Rushing to liberalise without giving due consideration
to this need would only risk financial and socio-economic
instability in the medium term. As already observed in a
number of instances, financial instability as a result of
inappropriately sequenced financial liberalisation could
spread into devastating socio-economic instability.
11. Recognising such risks of a more liberalised
environment, Malaysia has constantly been taking steps
to put in place the necessary institutional framework
and establishing the required preconditions to ensure
the smoothness of liberalisation measures. Indeed,
for the past several decades, Malaysia has concentrated
on establishing stable macroeconomic conditions, strong
prudential and supervisory framework and the
institutional framework to ensure the proper
functioning of markets.
12. At the same time, Malaysia has always been
pragmatic and policies are continually reviewed and
adjusted so as to serve the best interest of the
country. Malaysia has often undertaken unilateral
liberalisation, in addition to liberalisation as
negotiated under WTO standards. This unilateral
liberalisation reflects Malaysia's strategy of
liberalisation at a pace that is in accord with the
capacity of the financial system to absorb changes
without destabilising implications. A gradual and
progressive approach to liberalisation has been
adopted, with account taken of the needs of the
economy. Liberalisation is also viewed as part of the
overall reforms in the financial sector that would
bring about greater competitiveness and supportive of
the transformation of the economy into one that is
competitive and resilient.
13. Looking ahead, Malaysia will continue to be
committed to further liberalisation of the financial
sector. The pace of liberalisation would be in line
with the financial sector development path charted in
the Financial Sector Master Plan (FSMP). The FSMP is
Malaysia's blueprint for the development of an
effective, competitive, resilient and dynamic financial
sector in the next 10 years. Presently, the focus is
on strengthening the capacity and the capability of the
domestically-owned financial institutions. This is
aimed at enhancing their ability to compete with the
foreign financial institutions on a more equal footing.
Indeed, as part of the measures to further develop the
financial sector, the FSMP has identified a number of
liberalisation measures that will be undertaken over
the next 10-year period.
14. Notwithstanding the FSMP, the burden of ensuring
the success of liberalisation should not be left to
Malaysia alone. Foreign interests that have been given
access to Malaysia could assume more active role in
developing the Malaysian financial sector, particularly
through the offering of technical assistance in areas
where local expertise is lacking. In this connection,
foreign players could assist through the transfer of
technology, knowledge and skills to enhance the
capacity and capability of the domestic financial
institutions. While Malaysia has found it necessary to
limit foreign agency participation, we have always
encouraged greater role of foreign players in the
domestic financial sector. Such role will not only
strengthen the Malaysian financial sector but also
create more opportunities for businesses for foreign
entities in Malaysia.
15. Malaysia has initiated efforts since the mid 80s
to strengthen the institutional framework to enhance
regulatory and supervisory capacity and this has
enabled the banking system to be more resilient when
facing crisis. This included the development of a more
comprehensive legislative framework, risk-based
management and supervisory practices, enhanced
corporate governance and disclosure as well as measures
which were implemented to enhance the competitiveness
and efficiency of the banking system. Prudential
reforms and regulations had been continually reviewed
and enhanced, while efforts to deregulate the banking
sector to promote competitions and enhance efficiency
of the industry were also gradually implemented.
16. The financial crisis of 1997 had necessitated
quick action to be undertaken to deal with potential
banking sector problems, to contain its severity and
ensure market confidence, to ensure that the banking
system continues to function and assume its role in the
economy and does not suffer a breakdown that could
jeopardise the prospects for economic recovery.
17. The institutional arrangement strategy adopted
involved the setting up of an asset management
corporation Danaharta, a special purpose
recapitalisation vehicle Danamodal and the Corporate
Debt Restructuring Committee (CDRC) to resolve the debt
problems of the large corporations. The early action
taken and the speed with which these efforts were
implemented have contributed to lowering the upfront
cost of the restructuring of the banking system.
18. To date, significant progress has been achieved by
these agencies in their respective operations. The
loan rights and management activities of Danaharta
resulted in the successful carving out of about 40 per
cent of the banking sector's Non-Performing Loans
(NLPs) at an average discount rate of 55 per cent. The
acquisition process was completed within a period of
just over a year, enabling Danaharta to focus its
activities on the management of loans and assets within
its administration. To date, Danaharta has dealt with
99.9 per cent of the total loan rights acquired and
managed under its portfolio, with an envisaged recovery
rate of 56 per cent. Based on its surplus recovery
sharing arrangement, Danaharta has distributed US$8
billion in cash to the banking institutions from its
recovery efforts.
19. In the case of Danamodal, the recapitalisation
process was completed by December 1999. As the
capital position of the banking institutions
strengthened, it had enabled the banking institutions
to repay Danamodal. The conducive economic environment
also provided Danamodal with the opportunity to divest
its investment in one of the banking institutions under
the merger programme. As a result, as at end-2001, the
outstanding amount of recapitalisation was reduced to
US$2.1 billion from a total of US$7.1 billion since its
inception.
20. The corporate debt restructuring efforts
undertaken under the purview of CDRC was initially
slow. However, progress has since accelerated under
a revised framework introduced in August 2001. To
date, CDRC has resolved over 69 per cent of the cases
that were accepted with debts amounting to US$37.8
billion. The remaining outstanding cases are expected
to be resolved by July this year. With the resolution
of these outstanding cases, the NPL of the banking
system can be expected to decline further. More
importantly, the operational restructuring that was
undertaken together with the debt restructuring would
ensure these large corporate entities continue to
remain viable in the longer term.
21. The positive results yielded from the efforts that
were undertaken to manage the crisis had provided the
opportunity to push through and accelerate structural
reforms to address fragmentation in the domestic
banking sector. Given the mounting pressures of
globalisation and liberalisation, it was necessary to
develop financially strong institutions that had
sufficiently large capital size to undertake business
expansion and which will contribute to the overall
resilience of the banking sector. The consolidation
therefore, was required to lay the initial but crucial
foundation for the development of a more resilient,
efficient and competitive banking system.
22. A merger programme was initiated to consolidate
the 54 domestic banking institutions into 10 banking
groups together with an increased capitalisation
requirement effective end-December 2001. The
consolidation exercise represented a major structural
enhancement of our banking system and has facilitated
the emergence of a core of domestic banks whose
interests are aligned to that of the Malaysian economy.
The consolidation and rationalisation process following
the merger was successfully completed with minimal
impact on the provision of banking services. To date,
all domestic banking groups have completed their
operational integration process, involving
rationalisation of overlapping branches, mapping of
different job grades and pay structures and the
harmonisation of computer systems.
23. Malaysia launched the International Offshore
Financial Centre or IOFC in October 1990. As an
integrated IOFC,the island of Labuan offers a wide range
of offshore financial products and services to customers
worldwide, namely offshore banking and investment
banking, offshore insurance, trust business, fund
management, investment holding, company management
services, capital market activities and Islamic
financing.
24. The financial infrastructure in Labuan is well
developed as it has more than 3,200 companies
comprising 50 offshore banks including three Islamic
banks, 103 insurance entities including one Islamic
insurance operator, 12 fund managers, 24 leasing
companies, supported by 18 trust companies and 41 other
service providers. Offshore business activities in
Labuan are governed by an independent set of offshore
legislation that are conducive to business activities
and administered by the Labuan Offshore Financial
Services Authority or LOFSA.
25. The Labuan IOFC will further expand its
activities, with the establishment of the Labuan
International Financial Exchange (LFX). The exchange is
market driven. It provides listing and trading
facilities for a wide range of financial and non-
financial products as well as Islamic products
including mutual funds, bonds, derivatives, insurance
linked products and intellectual properties. Its rules
are flexible to allow dual listings as well as
investors and companies from other jurisdictions to tap
capital. Currently there are 8 listings on the board,
comprising 2 primary and 6 secondary listing. There is
scope for financial instruments listed on the
Luxembourg Stock Exchange to have secondary listing on
the LFX to tap the huge market in the Asia Pacific
region.
26. Labuan will be the window to the liberalisation of
the Malaysian financial market. Banks and other
financial institutions in Labuan would have preference
in tapping the domestic market. I understand that
institutions from Luxembourg have not made their
presence in Labuan yet although five of the secondary
listings in LFX have primary listing in the Luxembourg
Stock Exchange.
27. Finally, on behalf of the Government, the people
of Malaysia and the Malaysian business delegation
members with me here, I would like to express my
sincere appreciation to the Government of the Grand
Duchy of Luxembourg for the very warm welcome and
hospitality extended to my delegation and I.
Sumber : Pejabat Perdana Menteri
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