IMF too soft and subtle about Malaysia’s economy
Be more pointed and constructively critical and less politically-correct.
By Ramon Navaratnam
The preliminary International Monetary Fund Staff Report on the Malaysian Economy published on Feb 5 was politically too correct, but nevertheless revealing
The IMF mission chairman Dr Alex Mourmouras in his press release subtly suggested that the Malaysian economy faced multiple shocks including “political developments and capital outflows”. Both these factors reveal that in addition to external problems, there are also serious internal issues within our powers to control and overcome.
But how much have we done to overcome these critical domestic issues?
The IMF and the World Bank are both highly competent international institutions. However they both suffer from the challenges of wanting to tell the whole truth, but in subtle and polite ways, and have yet to reveal the real issues and problems facing member countries such as Malaysia.
It’s a difficult assignment and as a result, their important messages to us are often not pointed enough. Hence they often don’t get through to the recipients and policymakers effectively enough, to encourage stronger economic policy responses. We must read the IMF reports between the lines to ascertain their true messages.
The latest IMF Report left the following messages behind for us to ponder and to follow up in our own policy reviews, practices and action plans.
1. The IMF commended Malaysia for “maintaining macro economic and financial stability, while making significant progress in improving the foundations for substantial economic growth over the medium term”. But the IMF does not specifically state where the “significant progress” was made. Was it in the introduction of the Goods and Services Tax and the reduction of subsidies? Was the IMF being subtle and polite? The IMF should be bold and say so. Then we can be clear and follow up.
Also what about the more significant fundamentals, like fully adopting the New Economic Model, reducing inflation, arresting the rapid decline of our ringgit and improving our competition and productivity and our labour force, etc?
2. The IMF statement mentions that “although growth has slowed down to about 4.4 percent, the downside risks predominate”. The IMF again does not point out clearly what these predominant risks actually are. Do they relate to the debilitating racial, religious undercurrents and the current financial scandals that have badly undermined business confidence and raised the deficit in trust? The IMF has to be more definitive and not keep us guessing.
3. Inflation is such an important socio economic threat to our incomes and social well-being, especially among the poor and the lower middle income groups. The bottom 40 per cent of our people face severe financial hardships as prices steadily go up. Yet the IMF casually dismisses this critical factor by stating that “inflation should rise temporarily”. How long is temporary? The same argument was used about our drawn-out ringgit decline. Bank Negara had said that the ringgit fall would be temporary, but the fall continued indefinitely!
Inflation is debilitating and can cause social instability and unrest, but the IMF does not give us solutions to consider, despite its worldwide experience.
If the IMF has given some ideas, can’t they be made transparent to the public? The IMF should have also consulted representatives of the rakyat and leading NGOs, instead of mainly consulting politicians and officials.
4. The IMF stated that “protecting the Budget should be a top priority and applauded the authorities’ determination to adhere to the Federal Government’s deficit target of 3.1 per cent of the GDP for 2016”. This is also politically correct and subtle.
But could the IMF have advised that this target need not be cast in stone and that some relaxation can be allowed, within reasonable limits? Why does the IMF take the easy standardised approach of one size fits all? Can the IMF be more innovative and pragmatic, please?
5. On its response to Capital Outflows, the IMF states politically politely that “Bank Negara has allowed’ the ringgit to depreciate”. Could BNM have done anything else? Could BNM have resisted and arrested the depreciation and if so for how long? The IMF should be more forthcoming and open with its members, to safeguard its reputation that has often been battered before.
6. Finally, the IMF again subtly and politically correctly “welcomed plans to strengthen anti-corruption measures and confidence in official institutions”.
This could have been the most crucial recommendation, particularly at this juncture. But the IMF has again chosen to be too soft, subtle and politically correct, to make more bold and significant recommendations, to improve our macro economic policies on a sustainable basis. We need more transparent dialogue that is more revealing.
We see that the IMF team has serious constraints. We can only hope that the IMF Board of Directors in Washington next month will ensure that the final IMF Report is
1. More balanced and pointed and constructively critical and less politically correct; and that
2. The IMF Report’s Analysis and Recommendations will have a longer term perspective, to encourage the Structural Reforms that the IMF Report has too subtly called on Malaysia, to adopt and to pursue permanently.
May the year of the Fiery Monkey bring us a better bag of tricks to enable all Malaysians to look forward to a brighter year ahead.
Tan Sri Ramon Navaratnam is chairman of the Asli Centre of Public Policy Studies
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