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KUALA LUMPUR: The International Monetary Fund (IMF) has praised Malaysia for its strategic plan to turn the country into a high-income nation status by 2020, noting that the government is taking the right approach through its Economic Transformation Programme and other reforms.
IMF Managing Director Christine Lagarde, in an exclusive interview with TV3 here yesterday, also acknowledged the excellent measures taken by Malaysia to address the Asian financial crisis in 1997-98.
“It is the right approach to try to avoid the middle-income trap. Equally important will be the attention to inequalities in Malaysia because, clearly, the country has done a good job in the 1970s and 1980s to reduce inequalities.
“These inequalities must be on the radar of the authorities now because when a country develops very fast, as it would be for Malaysia in the next eight years, you don’t want to leave people behind.
“You want everybody to be carried by the growth path,” she added in the interview conducted by New Straits Times Press (M) Bhd Group Managing Editor Datuk Abdul Jalil Hamid.
Earlier, Lagarde met Prime Minister Datuk Seri Najib Razak and also held talks with Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah and Bank Negara Governor Tan Sri Zeti Akhtar Aziz before giving a public lecture hosted by the Malaysian Economic Association.
Lagarde, who is on her first visit to Malaysia since assuming her post in July last year, is on the first leg of a three-nation Asian tour that will also take her to the Philippines and Cambodia.
Noting that there had been huge progress, Lagarde said Malaysia had a solid plan to be a high-income economy by 2020, with the vision articulated by the authorities and a policy mix that responded to the goals that had been set.
However, she said Malaysia needed to address the level of foreign direct investment (FDI) and high-debt ratio against the country's gross domestic product (GDP).
"Although there are good ideas and good listings on the Malaysian securities market, the FDI has yet to return to the pre-crisis stage.
"And Malaysia's debt to GDP ratio is reasonably high.
"These are two things that need to be watched.
"But other than that, the growth pattern, business model of gradual shift from a very much export-driven (economy) to focus on domestic market with increase investments and consumption are very good developments."
Asked whether Malaysia's formula or IMF's worked for the country during the Asian financial crisis, Lagarde said: "What matters is the outcome on society, what it does to Malaysia's population and how it is integrated into the region.
"And from those perspectives, the results are very good, very encouraging and excellent."
Malaysia was criticised then for not subscribing to IMF prescriptions during the 1997-98 crisis but implemented its own solutions, including imposing capital controls.
On the prospect of the global economy, Lagarde said it was not as promising, particularly in advanced economies.
"Our forecast is a bit lower than earlier in the year.
"We think the global economy is going to grow by 3.3 per cent this year and 3.6 per cent next year.
"We believe that it is going to be slightly unbalanced, in terms of growth.
"Advanced economies will grow very slowly, but emerging market economies and low-income countries will grow faster.
"So the centre of gravity, if you will, the engine of growth is very much located in emerging market economies and in low-income countries.
"This is particularly true in Asia and here in Kuala Lumpur," she said, adding that the IMF was optimistic about Asia and had forecasted a growth of 6.6 per cent.
However, she said the key challenge was to make sure the real economy was funded and continue to be funded.
"The first priority is to make sure there is abundant liquidity to finance the private sector.
"The second is to make sure there is no overheating.
"I think in that frame, there are some micro-prudential measures that can be used either by raising the amount of capital requirements of banks or by way of particular regulations applying to mortgages," she said.