HIGH-INCOME STATUS: Economists concur with positive view but also emphasise need to undertake reforms
KUALA LUMPUR: ECONOMISTS agree with the International Monetary Fund's (IMF) view that Malaysia has done and is doing well, with its economy on track to achieve high-income status by 2020.
Asian Strategic and Leadership Institute's centre of public policy studies chairman Tan Sri Dr Ramon V. Navaratnam said IMF Managing Director Christine Lagarde confirmed what economists here had known all along.
"Malaysia's economy is doing well and we economists agree with Legarde's views.
"However, what is important right now is that the government moves forward more deliberately to undertake the necessary reforms," Navaratnam told the New Straits Times yesterday.
Lagarde praised Malaysia for its strategic plan to move the country to high-income status by 2020, noting that the government was taking the right approach through its Economic Transformation Programme (ETP) and other reforms.
In an interview with The New Straits Times Press (M) Bhd group managing editor Datuk Abdul Jalil Hamid on Wednesday, Lagarde acknowledged the suitability of measures undertaken and the encouraging results shown by Malaysia in addressing the 1997-98 Asian financial crisis, despite being heavily criticised back then.
Lagarde, who left for the Philippines yesterday, is on a three-nation Asian tour, which also includes a stop in Cambodia.
During her two-day stay in Malaysia -- her first visit since assuming the Managing Director post -- Lagarde met Prime Minister Datuk Seri Najib Razak, held talks with second Finance Minister Datuk Seri Ahmad Husni Hanadzlah and Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz.
Navaratnam said it was important that the government prioritised development and implement action plans to reduce high debt ratio against the country's gross domestic product (GDP), as pointed out by Lagarde, as well as undertake reforms.
"A greater sense of urgency on the action plans, such as reducing subsidies or increasing taxes, must be done," said Navaratnam, who is also the Sunway Group corporate adviser.
RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said economists were in agreement with Lagarde's perspective on the Malaysian economy, which included registering a GDP of between 4 and 5 per cent this year.
"However, the key area of concern included the fiscal cliff and the still unfurling Eurozone crisis, which may extend in 2013.
"The main topic would be strengthening deeper economic cooperation in the Asian region, such as by bolstering intra-regional trade and investment as well as finance activities."
Yeah said the key was to reduce dependence on advanced economies such as the US and Europe is one way to address the global imbalance.
"With growing Asian demand, there will also be growth in trade activities. Countries in this region can shift towards reorienting its exports to fit regional demand as well as the advanced economies."
On debt to GDP level, Yeah said that would be Malaysia's major vulnerability and before it reaches an unmanageable level, Malaysia has to focus more on structural reforms so that the high government debt level will not trigger a loss of investor confidence.
"Malaysia's foreign direct investment (FDI) is too dependent on the US and a shift towards Asian economic integration would be good. We expect more cross border capital flows in Asia, and Malaysia is in a good position to tap a portion of that flow, such as from Singapore and China.
"However, the US and Europe will always be important to Malaysia and the region as a marketplace and source of technology.
"Once the advanced economies are firing on all cylinders, we will be ready to leverage and ride on the acceleration and our exports will register double digit growth," said Yeah.
Affin Investment Bank vice-president and head of retail research Dr Nazri Khan said Lagarde's endorsement was not a surprise as Malaysia's measures, such as the ETP, would be critical in the next five years for the country to break out of the middle-income trap.
"What is important is that Malaysia must have the right solid plan and the right approach towards Vision 2020. The three important points will be attracting FDIs, a strong and resilient domestic spending and overcoming external factors such as the economic climate in the US and Europe.
"Unless we overcome this, our external sector, such as exports, will continue to be dragged by the slowdown in the advanced markets."
Nazri said to attract FDIs, Malaysia has to set itself apart from Singapore and Thailand such as by eliminating red tape, beefing up efficiency and having a different business model than other countries in the region.
He said the prime minister had the right plan in place such as by encouraging Islamic banking, boosting the financial services sector as well as attracting Malaysian talents to come back home.