– Ramon Navaratnam
The Malaysian Insider
9 February 2016
The preliminary International Monetary Fund (IMF) staff report on the Malaysian economy was published by the press on February 5.
The report followed intense IMF annual consultations held between January 11 and 22 in Kuala Lumpur and Kuching. Pity Sabah was left out.
The IMF report was too politically correct but nevertheless revealing.
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 power to control and overcome.
But how much have we done to overcome these critical domestic issues?
IMF, like the World Bank, is a highly competent international institution. However, they both suffer from the challenges of wanting to tell the whole truth but in subtle and polite ways, and yet revealing the real issues and problems facing member countries like 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 have to read the IMF reports between the lines and see through to ascertain what messages they truly want to convey to us.
The latest IMF report left the following messages behind for us to ponder and to follow up on in our own policy reviews, practices and action plans:
1. Firstly, 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 IMF does not specifically mention what the “significant progress” was. Was it the introduction of the goods and services tax (GST) and the reduction of subsidies? Was this sufficient or was IMF being subtle and polite? IMF should be bold and say so. Then we can be clear and follow.
Also, what about the more significant fundamentals that are necessary to improve our economy, 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%, the downside risks predominate”. 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 trust?
IMF has to be more definitive in its remarks and not keep us guessing at their subtle and polite, politically correct statements.
3. Inflation is such an important socioeconomic threat to our incomes, and the social well-being, especially of the poor and the lower-middle income groups. Indeed the bottom 40% of our people face severe financial hardships as prices steadily go up.
Yet IMF casually dismisses this critical factor by stating that “inflation should rise temporarily”. How long can temporary be? The same argument was used about our long-drawn ringgit decline. Bank Negara said the ringgit fall would be temporary. But the fall continues indefinitely. So how temporary is temporary?
Inflation is debilitating and can cause social instability and even some social unrest. But IMF does not give us solutions to consider, although it has had world-wide experience in dealing with inflation.
Even if IMF has given some ideas, can’t they be made transparent to the public who suffer and can’t easily fly away from the scourge? Here IMF should have also consulted the representatives from the rakyat and leading NGOs instead of mainly consulting politicians and officials?
4. IMF said “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% of the of GDP for 2016”.
This is also politically correct and subtle. But could IMF have advised that this target need not be cast in stone and that some relaxation can be allowed within reasonable limits? Why does IMF take the easy standard approach of “one size fits all”? Can IMF be more innovative and pragmatic, please ?
5. On its response to capital outflows, IMF says politically politely that ” Bank Negara has allowed the ringgit to depreciate”.
Honestly, could BNM have done anything else? Could BNM have resisted and arrested the depreciation and if so for how long? Come come, IMF, please be more forthcoming and open with your members all over the world to safeguard your reputation that has often been battered before.
6. Finally , 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 of IMF, particularly at this juncture of our economic history. But IMF has again chosen to be too soft, subtle and politically correct, to make a 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. But we can only hope that the IMF board of directors in Washington, when they consider this IMF preliminary staff report 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 report’s analysis and recommendations will have a longer term perspective to encourage the structural reform that the IMF report has too subtly called on Malaysia to adopt and permanently pursue.
In the meantime, happy Chinese New Year and may the Year of the Fire Monkey bring us a better bag of tricks to enable all Malaysians to look forward to a brighter year ahead! – February 9, 2016.
* Tan Sri Ramon Navaratnam is chairman of Asli Center of Public Policy Studies.