Global Policy Forum

Malaysia's central bank Wednesday urged the international community to persevere with reforms to the global financial system to ensure that globalization would benefit all. In its 2000 annual report, Bank Negara Malaysia said there has been some progress to strengthen the international financial architecture (IFA) but "much remained to be done." It said Malaysia had at international meetings last year repeated calls for a global mechanism to monitor and manage capital flows but progress was "limited and fell short of Malaysia's recommendations."

Prime Minister Mahathir Mohamad, a critic of unfettered globalization, has blamed currency traders for sparking the Asian financial crisis in 1997. He imposed capital curbs, including pegging the Malaysian ringgit at 3.80 to the US dollar, in 1998 amid a recession.

The central bank said the global community must not penalize countries for imposing capital controls to restore stability in domestic financial markets. "In the absence of comprehensive reforms, (Bank Negara) would reiterate Malaysia's position that countries reserved the right to implement appropriate safeguards, including temporary capital controls, to curb excessive volatility of cross-border capital movements," it said.

The central bank said Malaysia has maintained that IFA reforms must include reform of the International Monetary Fund (IMF) and other regional and global financial institutions. "The IMF needed to enhance its own transparency and accountability, refocus on its core functions and avoid being too intrusive in its relations with its members," it said.

"Reforms were also needed to enhance the IMF's diagnostic capability, in the light of the lessons from the Asian financial crisis. The IMF should resist the temptation to overload its lending programs with issues that were not relevant to the problem at hand." Bank Negara said Asian countries should be given a greater voice in the decision-making process at the IMF to ensure greater accountability by the body for its policy prescriptions.

The central bank said Malaysia was concerned that sound domestic policies would not guarantee stability amid the risk of spillover effects from excessive volatility in the US dollar, the euro and the Japanese yen. It urged the three major currency groups to have closer policy coordination to reduce "the risks of an abrupt and disorderly adjustment" in foreign exchange markets, and for the IMF to boost surveillance of the systemic implications of these countries' economic policies.

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