{
  "title": "Public Information Notice: IMF Concludes Article IV Consultation with Malaysia",
  "publication": "IMF News, September 8, 1999",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn9988",
  "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn9988",
  "overlayPath": "/en/news/articles/2015/09/28/04/53/pn9988/index.md",
  "summary": "Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies.",
  "publishDate": "1999-09-08",
  "sections": [
    {
      "heading": "Background",
      "content": "- Since early 1997 the Malaysian economy was caught up in the regional financial crisis, initially reflected in sharp falls in Malaysian share prices and the external value of the ringgit.\n- By the end of 1997:\n  - the ringgit had depreciated 35 percent from its year-earlier level.\n  - the Kuala Lumpur Stock Exchange composite index was down 52 percent.\n- The financial crisis led to:\n  - sharp declines in business and consumer confidence;\n  - falls in asset prices (including property prices);\n  - a pronounced contraction of consumer and investment spending by early 1998.\n- Domestic absorption fell by 26 percent in real terms in 1998.\n- Malaysia's external current account balance turned from a deficit of around 5 percent of GDP in 1997 to a surplus of 13 percent of GDP in 1998.\n- Overall, real GDP declined by 6.7 percent in 1998.\n- CPI inflation:\n  - rose from a little over 2 percent prior to the crisis to a peak of 6.2 percent in mid-1998;\n  - declined to 5.3 percent by the end of 1998.\n- Policy responses and developments:\n  - March–August 1998: partial reversal of earlier cuts in government expenditure, interest rate reductions, establishment of entities to restore financial system health through recapitalization and purchase of nonperforming loans.\n  - September 1998: introduction of capital controls and pegging of the ringgit to the dollar to insulate domestic interest rates from FX market volatility; followed by interest rate reductions and measures to stimulate credit growth, an expansionary government budget, and accelerated financial and corporate restructuring.\n  - February 1999: modification of capital controls by replacing the one-year holding period restriction on portfolio capital flows with a system of exit levies.\n- 1999 developments:\n  - signs of an economic pickup, stabilizing property prices, and a significant recovery in equity market prices.\n  - inflation fell to a little under 3 percent.\n  - progress in restructuring the financial sector was significant.\n  - external current account position remained in substantial surplus.\n  - foreign exchange reserves strengthened to over $30 billion, equivalent to approximately seven months of imports of goods and services.\n- Contact information included in the notice:\n  - IMF EXTERNAL RELATIONS DEPARTMENT, Public Affairs, Media Relations\n  - E-mail: publicaffairs@imf.org, media@imf.org\n  - Fax: 202-623-6278\n  - Phone: 202-623-7100"
    },
    {
      "heading": "Executive Board Assessment",
      "content": "- Overall view:\n  - Executive Directors noted Malaysia was severely affected by the regional crisis but retained traditional strengths: limited external debt, a strong fiscal position, a well-developed financial regulatory framework, and a history of low inflation—factors that helped avoid more extreme financial difficulties and should facilitate a sustainable recovery.\n- Views on September 1998 measures (capital controls and exchange rate peg):\n  - Directors recalled initial international skepticism and concerns that the breathing space might delay addressing financial and corporate sector problems.\n  - Directors commended the authorities for using the breathing space to implement a well-designed and effectively implemented financial sector restructuring strategy.\n  - Recommendation to move to the next stage of restructuring in banking and corporate sectors to sustain market confidence.\n- Macroeconomic policy stance:\n  - Directors supported the authorities' adoption of an expansionary stance as appropriate to reverse the sharp contraction of economic activity, given the absence of inflation pressures.\n- Fiscal policy (short term):\n  - If output recovery falters, Directors recommended preparedness to implement additional budgetary measures.\n  - If tax revenues are stronger than anticipated, some Directors suggested considering temporary tax relief or higher operating expenditure to meet the deficit target.\n  - Welcomed measures to speed up budgetary allocations and project implementation; a few Directors cautioned against overreliance on large projects with long gestation periods.\n  - Encouraged continued high priority for enhancing social expenditures to mitigate adjustment impacts on vulnerable groups.\n- Fiscal policy (medium term):\n  - Most Directors emphasized introducing greater fiscal flexibility to respond rapidly to economic changes.\n  - Suggested pursuing operating surpluses over the course of the business cycle rather than on an annual basis.\n  - Recommended introducing a value-added tax to improve tax system efficiency.\n  - Stressed incorporating off-budget and quasi-fiscal activities in fiscal transparency, including public sector assistance for financial restructuring.\n- Monetary policy and interest rates:\n  - Most Directors recommended modifying administered interest rate structure to make rates more responsive to market-determined rates and financial institutions' risk assessments.\n  - Recommended avoidance of bank-by-bank credit targets and using more responsive, market-based monetary policy instruments.\n  - A few Directors considered it too early to judge whether the interest rate structure constrained private sector growth.\n- Exchange rate regime:\n  - Directors noted pegging to the U.S. dollar had been positive so far, but undervaluation implications for medium-term inflation were observed.\n  - Some Directors favored the peg as a clearer nominal anchor for inflation expectations.\n  - Many other Directors recommended serious consideration of developing monetary policy conducive to sustained low inflation combined with a more flexible exchange rate regime to help insulate the economy from external shocks.\n- Capital controls:\n  - Directors broadly agreed the temporary capital controls produced more positive results than many had expected.\n  - Welcomed pragmatic and flexible implementation, notably replacing quantitative repatriation restrictions with an exit levy in February 1999.\n  - Some Directors supported maintaining control measures while preparing for an orderly exit.\n  - Other Directors were skeptical, recommending removal of the exit levy on profits from portfolio investments and arguing that an early exit could boost investor confidence and attract long-term capital.\n- Financial and corporate sector reforms:\n  - Crisis exposed vulnerabilities and a need for greater policy flexibility.\n  - Directors commended improvements in prudential and supervisory frameworks and stressed continuation of financial system reforms and corporate restructuring to support recovery.\n  - Welcomed progress in relieving banks of nonperforming loans (NPLs) and providing capital to viable institutions.\n  - Stressed the need to dispose quickly of acquired NPLs and consider sale of government stakes in recapitalized institutions.\n  - Recommended more transparency in Corporate Debt Restructuring Committee debt workout guidelines, balanced creditor-borrower interests, and clearer linkage of debt workouts to operational restructuring."
    },
    {
      "heading": "Key Statistics and Selected Economic and Financial Indicators (values by year)",
      "content": "- Real economy (Change in percent)\n  - Real GDP growth: 1994: 9.3; 1995: 9.4; 1996: 8.6; 1997: 7.7; 1998: -6.7\n  - Real domestic demand: 1994: 13.9; 1995: 13.5; 1996: 5.3; 1997: 7.2; 1998: -25.5\n  - CPI inflation (period average): 1994: 3.7; 1995: 3.4; 1996: 3.5; 1997: 2.7; 1998: (not listed for 1998 in table)\n  - Unemployment rate (percent): 1994: 2.8; 1995: 2.5; 1996: 2.4\n  - Gross national saving: 1994: 32.7; 1995: 33.6; 1996: 36.7; 1997: 37.3; 1998: 38.8\n  - Gross domestic investment: 1994: 40.4; 1995: 43.5; 1996: 41.6; 1997: 42.5; 1998: 25.8\n- Public finance (Percent of GDP)\n  - Federal government balance: 1994: 1.4; 1995: 1.3; 1996: 1.1; 1997: 2.6; 1998: -1.5\n  - Revenue: 1994: 24.8; 1995: 23.4; 1996: 23.7; 1997: 24; 1998: 20.4\n  - Expenditure and net lending: 1994: 22.1; 1995: 22.6; 1996: 21.4; 1997: 21.9\n  - Overall public sector balance: 1994: 0.9; 1995: 4.8; 1996: -1.1\n- Money and credit (end of period)\n  - M3: 1994: 15.8; 1995: 18.2; 1996: 20.2; 1997: -1.6\n  - Domestic credit: 1994: 14.3; 1995: 27.7; 1996: 27.4; 1997: 24.1; 1998: -2.3\n  - One-month interbank rate (period average, in percent): 1994: 5.0; 1995: 5.9; 1996: 7.9; 1997: 6.4\n- Balance of payments (In billions of U.S. dollars)\n  - Trade balance: 1994: 1.7; 1995: 0.0; 1996: 4.0; 1997: 17.7\n  - Exports, f.o.b.: 1994: 56.6; 1995: 71.7; 1996: 76.8; 1997: 77.7; 1998: 71.9\n  - Imports, f.o.b.: 1994: 54.9; 1995: 71.6; 1996: 72.7; 1997: 73.7; 1998: 54.2\n  - Services account balance: 1994: -6.5; 1995: -7.7; 1996: -6.0\n  - Current account balance: 1994: -5.6; 1995: -8.7; 1996: -4.9; 1997: -5.0; 1998: 9.2\n  - (Additional current account rows with single-column values): -7.8; -10.0; -5.1; 12.9 (as printed in the table)\n  - Capital account balance: 1994: -7.0; 1995: 7.4; 1996: 1.2; 1997: -4.7\n  - Medium- and long-term: 1994: 4.4; 1995: 6.6; 1996: 5.4; 1997: 6.8; 1998: 3.6\n  - Net foreign direct investment: 1994: 2.3; 1995: 3.3; 1996: 3.9; 1997: 2.2\n  - Short-term: 1994: -3.2; 1995: 1.0; 1996: 4.1; 1997: -4.0; 1998: -5.5\n  - Errors and omissions 1/: 1994: -0.7; 1995: -2.1; 1996: -2.8\n  - Overall balance: 1994: -3.1; 1995: -1.8; 1996: -3.9; 1997: 4.5\n  - Gross official reserves: 1994: 26.6; 1995: 25.1; 1996: 21.7; 1997: 26.2\n  - (In months of imports of goods and services): 1994: 3.2; 1995: 4.3\n- International trade\n  - Export value: 1994: 24.5; 1995: 26.7; 1996: 7.1; 1997: -7.5\n  - Import value 2/: 1994: 26.5; 1995: 30.5; 1996: 1.5; 1997: -26.4\n- External debt\n  - Total external debt (percent of GDP): 1994: 39.7; 1995: 38.3; 1996: 39.0; 1997: 46.6; 1998: 59.2\n  - Short term external debt (percent of total): 1994: 19.3; 1995: 19.1; 1996: 25.7; 1997: 27.8; 1998: 17.8\n  - Debt-service ratio (percent) 3/: 1994: 8.9; 1995: 7.3; 1996: 8.5; 1997: 6.5\n- Exchange rates\n  - Ringgit/US$ (end-period): 1994: 2.56; 1995: 2.54; 1996: 2.53; 1997: 3.88; 1998: 3.80\n  - NEER (1990= 100, period average): 1994: 110.3; 1995: 113.7; 1996: 110.6; 1997: 84.8\n  - REER (1990= 100, period average): 1994: 102.2; 1995: 102.7; 1996: 107.0; 1997: 104.5; 1998: 83.0\n- Sources stated in the notice: Information provided by the Malaysian authorities; and IMF staff estimates.\n- Footnotes from the notice:\n  - 1/ Includes portfolio capital.\n  - 2/ Excluding lumpy imports such as aircraft, ships, etc.\n  - 3/ Percent of exports of goods and services.\n\nPublic Information Notice, IMF EXTERNAL RELATIONS DEPARTMENT, July 7, 1999 Executive Board conclusion of Article IV consultation with Malaysia.\n\n---\n\n\n References\n\n- Malaysia and the IMF\n- Public Information Notices\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn9988"
    }
  ],
  "bullets": [
    "[Markdown version](/en/news/articles/2015/09/28/04/53/pn9988/index.md)",
    "[Structured JSON version](/en/news/articles/2015/09/28/04/53/pn9988/index.json)",
    "[Bundle manifest](/en/news/articles/2015/09/28/04/53/pn9988/bundle-manifest.json)",
    "Published: September 8, 1999",
    "Since early 1997 the Malaysian economy was caught up in the regional financial crisis, initially reflected in sharp falls in Malaysian share prices and the external value of the ringgit.",
    "By the end of 1997:",
    "The financial crisis led to:",
    "Domestic absorption fell by 26 percent in real terms in 1998.",
    "Malaysia's external current account balance turned from a deficit of around 5 percent of GDP in 1997 to a surplus of 13 percent of GDP in 1998.",
    "Overall, real GDP declined by 6.7 percent in 1998.",
    "CPI inflation:",
    "Policy responses and developments:",
    "1999 developments:",
    "Contact information included in the notice:",
    "Overall view:",
    "Views on September 1998 measures (capital controls and exchange rate peg):",
    "Macroeconomic policy stance:",
    "Fiscal policy (short term):",
    "Fiscal policy (medium term):",
    "Monetary policy and interest rates:",
    "Exchange rate regime:",
    "Capital controls:",
    "Financial and corporate sector reforms:",
    "Real economy (Change in percent)",
    "Public finance (Percent of GDP)",
    "Money and credit (end of period)",
    "Balance of payments (In billions of U.S. dollars)",
    "International trade",
    "External debt",
    "Exchange rates",
    "Sources stated in the notice: Information provided by the Malaysian authorities; and IMF staff estimates.",
    "Footnotes from the notice:",
    "[Malaysia and the IMF](http://www.imf.org/external/country/MYS/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
  "alternates": {
    "markdown": "/en/news/articles/2015/09/28/04/53/pn9988/index.md",
    "json": "/en/news/articles/2015/09/28/04/53/pn9988/index.json",
    "bundleManifest": "/en/news/articles/2015/09/28/04/53/pn9988/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-27T06:43:08.799Z"
}