March 25, 1998
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Michel Camdessus, Managing Director of the International Monetary Fund (IMF), made the following statement:
"Yesterday, Malaysia’s Deputy Prime Minister Anwar Ibrahim unveiled a strong package of measures, followed by further announcements on monetary and financial sector policies by Bank Negara Governor Ahmad Don today.
"This package, which builds on previously introduced measures, takes a welcome comprehensive approach to Malaysia’s economic and financial situation, and is set within a realistic macroeconomic framework. It will allow growth to remain positive in 1998, even as substantial external current account adjustment is achieved, and will keep inflationary pressures under strict control.
"While Malaysia has been seriously affected by regional developments, it has avoided the most severe market pressures and economic difficulties experienced by some other Asian countries. This is because Malaysia has followed over a long period a prudent approach to external exposure, the fiscal position has had considerable strength, and the supervisory and regulatory framework for the financial sector has been relatively well developed. In addition, policies have been successful in significantly reducing poverty to low levels.
"Nevertheless, under the current market conditions, it has become increasingly clear that these fundamentals needed strengthening to ensure orderly adjustment of the domestic economy.
"The centerpiece of the new package is a series of preemptive actions to strengthen the financial sector and address emerging problems in financial institutions. Thus, the finance company sector is to be quickly consolidated into a much smaller number of core finance companies, and a strategy for recapitalizing individual banking institutions is to be set in train. Deputy Prime Minister Anwar has given assurances that the strategies adopted will be transparent, and that the potential use of government resources will be subject to safeguards.
"Deputy Prime Minister Anwar has appropriately also proposed to rebalance macroeconomic policies. Fiscal policy will maintain Malaysia’s strong record by targeting a surplus in 1998, despite the economic slowdown. Credit and monetary growth is to be reduced significantly, and a more active interest rate policy will be directed at stabilizing the foreign exchange market and restraining inflation. The budget will include increased spending to strengthen the social safety net.
"Deputy Prime Minister Anwar has reaffirmed the government’s commitment to improve transparency and to the steady implementation of structural reforms in a number of areas, consistent with maintaining the social consensus. With their full implementation, they will deepen the market orientation of Malaysia’s economy, improve corporate governance, and set the stage for a return to more rapid growth over the medium term.
"Finally, Malaysia’s economic package will also reinforce the efforts of other
countries who are strengthening their own economic policies, thereby contributing to broader
regional stability," Camdessus said.
