Burma has won much of the international spot light over the past six months for its attempts to introduce political and economic reform. Just slightly further afield, Malaysia has also instigated its own reforms, but with much less fan fare.
These included the repeal of the Internal Security Act, which allowed for detention without trial and laws governing the press and freedom of assembly. Now, the Malaysian government of Prime Minister Najib Razak has agreed to open its financial sector for a review by the International Monetary Fund (IMF).
It will be the first ever review of Malaysia by the IMF’s Financial Sector Assessment Program (FSAP), established in the aftermath of the 1997/98 Asian Financial Crisis when Malaysia experienced a nasty falling out with the IMF and the international financial community.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
The review has been widely applauded by commentators in Kuala Lumpur because it reflected the government’s confidence in the Malaysian economy and its banking system. An IMF endorsement would end any lingering doubts following the post-financial crisis détente. It would also be a most welcome pat on the back for Razak, who has persistently touted an early election since taking over as leader in April, 2009.
Malaysian debt stands at almost 55 percent of gross domestic product. This is high, but comparatively low when compared with the debt levels of the United States and in Europe, where economies have buckled and Britain has just found itself back in recession. Malaysia’s household debt of 78 percent is of much greater concern and among the highest in the region.
Among other statistics, Malaysia appears sound. Impaired loans remain at 1.9 percent of net loans, while the banking system is soundly capitalized, according to the central bank, Bank Negara Malaysia.
In 1999 – with debt levels spiraling and its currency collapsing – then-Prime Minister Mahathir Mohammad rejected a bailout package by the IMF, saying the benefits would be too few given the harsh economic measures his government was expected to impose.
He blamed currency traders for the country’s plight alongside corruption, nepotism, cronyism and a lack of transparency. He also made an extraordinary attack on George Soros claiming, with a ring of anti-semitism, the financial crisis that struck the region was the handiwork of the billionaire financier.
Malaysia’s currency, the ringgit, was revalued and pegged, while the nation effectively shut itself out of the international markets and attempted to get its house in order. Mahathir was rebuked and faced an avalanche of international criticism.
Southeast Asia has long since recovered from the dark financial days of the late 1990s, and has fared well over the last four years, since the latest global crisis first erupted.
The IMF is expected to provide a detailed report on Malaysia with recommendations on improving the financial system, while pointing out the growing risks, and this should be welcomed. An honest and transparent report will go a long way toward restoring any lingering doubts the international financial community has about Malaysia.