As I mentioned in October before Parliament and have reiterated later on several occasions, it is essential to avoid triggering a spiral of price and cost increases which would only exacerbate the already harmful effects of the current shock. Such a spiral can be avoided through an incomes agreement between firms and workers.4 I would now like to put forward some general principles which, I believe, should help to define it. First, this incomes agreement should involve distributing among firms and workers the diminished income in the national economy vis-à-vis the rest of the world that the recent cost increases entail. I must insist on this point again: the aim is to distribute costs. All the actors involved must sustain a loss. Workers will not be able to maintain their purchasing power in the short term, nor will firms be able to maintain their profit margins. Were workers to bear the full brunt of the adjustment, in the medium term firms would also suffer the consequences in the form of a sharp drop in demand. Conversely, if in the current situation we were to place the full burden of the adjustment on firms, many of them would be forced to close and many others would experience significant losses in competitiveness that would affect their future investment capacity. All of this would ultimately undermine job creation and our citizens’ well-being. Indeed, the latest information available suggests that this sharing of costs between workers and firms is already taking place.
While the initial focus has been on institutional building and financial infrastructure development, greater attention needs to be given to increasing the range of products and services to meet the greater sophistication of consumers and the more complex requirements of today’s businesses in addition to enhancing the overall efficiency at which such products and services are provided. Several factors are important to provide an enabling environment that would encourage and promote innovation. Firstly, a highly qualified and skilled workforce in the industry is indispensable for innovation. Training is a major means for promoting innovation. Personnel development in the industry is therefore important. In addition, industry involvement and participation in university education through course development, teaching and internship will contribute to this process. In Malaysia, an industry-owned research and training institute in Islamic banking and finance known as the Islamic Banking and Finance Institute Malaysia or IBFIM has been established to spearhead greater collaborative efforts with universities to undertake research in areas that are vital for the progressive development of the Islamic financial industry. Increasing the capacity to innovate and securing long term competitiveness also underscores the importance of developing strategic leaders for Islamic financial institutions, leaders who are able to  BIS Review 20/2004  1  reinvent themselves in this new environment.