Emerging Markets Global Financial Power: Zeti Akhtar Aziz

Emerging Markets, World Bank editions, October 2010

Dr Zeti Akhtar Aziz, the governor of Bank Negara Malaysia, is a lifelong central banker whose career has embraced some momentous periods for both Malaysia and Asia. She has been at Bank Negara for more than half of Malaysia’s history as a federal state, becoming assistant governor in 1995 and governor in 2000; in her time in those senior positions she has gone through the southeast Asian economic boom, the Asian financial crisis, food and commodity boom and busts, the global financial crisis and the dawning of political change in Malaysia. “People keep telling me I should write my memoirs,” she says.

Zeti has been a part of two movements that are likely to be seen as key to Malaysia’s long-term economic development. The first is being a part of the country’s we’ll-do-it-our-way riposte to both financial crises a decade apart, a stance that is highly unlikely to change. Zeti was not the main architect of Malaysia’s strident approach to the Asian financial crisis – Mahathir was – but she was influential and looks back on that time with evident pride, apparently feeling that lessons could have been learned by bigger powers last year. “Leadership plays an important role in being decisive and we didn’t have a fragmented regulatory regime, which plays a very important role,” she recalls. “It all resided in the central bank.” The central bank drove the launch of an asset management corporation to deal with the bad assets – “and we just called them that, bad assets” – an approach that, much doubted at the time, worked. “There was a comprehensive plan from the central bank but there was a machinery in government that allowed us to implement it quickly.”

Malaysia’s approach, and Zeti’s, since then has been in keeping with this sense of a broader plan and an apparently healthy disdain for what the world thinks it should do. Plenty is arguably wrong in Malaysia – competitiveness of its companies on a world stage, corruption in politics, quality of the judiciary, and people will forever argue about whether the 1998 capital restrictions helped or hindered the country – but monetary policy has not been among the problems under Zeti’s governorship. Instead Malaysia has gradually loosened foreign exchange and other restrictions, liberalized its financial sector at its own pace, and continued to do its own thing in the face of international opinion. Along the way a much more viable free-standing banking industry has grown, one that survived the global financial crisis unscathed. In policy, Zeti’s refusal to raise interest rates during the food price crisis in 2008 despite heavy criticism, because she believed there were problems ahead, was typical, and she was right: her slashing of rates ahead of perceived need earlier this year was equally strident. 

This year she has driven through a new Central Bank Act which enshrines her institution’s independence, although she insists: “At no time in my entire career have we ever been instructed [by government]. During my tenure there have been six ministers of finance and they have all made public announcements that the central bank decides interest rates and determines monetary policy.”

For all her monetary savvy, though, history may remember Zeti most for her contribution to the development of Islamic finance. Malaysia has the most sophisticated legal and regulatory environment in the world for Shariah banking, takaful and asset management, and while this has been a tri-partite drive by finance ministers, Securities Commission chiefs and the central bank, it’s Zeti who has been around throughout, going around the world spreading the word about both the overall financial discipline and Malaysia’s role in it. Having built a strong domestic industry Zeti has been at the heart of the next step: to bring in international expertise and, ultimately, capital through the Malaysia International Islamic Financial Centre.

“We are evolving ourselves as an international Islamic financial hub,” she says. “It’s a meeting place of those who need to raise funds or have surplus funds for investment from any part of the world.” The jury is still out on whether she and Malaysia can achieve this next step – the foreign institutions have come, but not yet the portfolio flows – but if she does make Malaysia a global home for Islamic capital rather than just a vibrant domestic industry it may prove the most significant contribution of all.

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