Malaysia's Financial Resilience Due To Sound Management

COMMENTARY by Mikhail Raj Abdullah KUALA LUMPUR, Feb 16 (Bernama) -- The International Monetary Fund's (IMF) positive description that Malaysia's financial system is sound and resilient and well-positioned to face the challenging external environment certainly speaks volumes of the country's well-run financial management. Credit should go to Central Bank Malaysia (BNM) and Prime Minister Najib Tun Razak's administration for being on the ball as far as financial management is concerned as a result of the tight controls imposed on banks in running their operations and maintaining the nation's economic resilience. BNM has an experienced team as far as economic management is concerned to the extent that its officers' reading of the European debt crisis was spot on and in being ready to introduce mitigating measures if a fallout ever impacted on Malaysia. There is no denying that Malaysia's banking system is well-capitalised as required under the Basel II international financial banking regulations which, among others, call for financial institutions to be well-capitalised. Malaysia undoubtedly has well-established safeguards in place by way of strong and well-capitalised banks able to carry the economy through if problems arise in the near horizon. The central bank has been very diligent and prescient in overseeing the country's fiscal and monetary policy and this has gone a long way in raising the banking system's and the economy's resilience against vagaries in the international market such as external challenges that might spill over from the European debt crisis. During a crisis, the economy often relies on the banking system to pull the country through and this is where Greece failed because its banks did not have adequate capital and thus were not strong enough financially. In Malaysia, during the 1997/98 financial crisis, as well as recently during the 2008/09 global economic slowdown, it was the banks' resilience and strong capitalisation which helped the economy continue to be expansionary. The government's strong financial position enabled it to introduce two stimulus packages totalling RM67 billion in November 2008 and March 2009 which helped provide a positive impact on the economy. In contrast, many other economies, including developed countries and some in the region, went through difficult times because their governments did not act quickly to address the impending slowdown. The IMF's executive board, in its latest report, also commended Malaysia's strong financial system which has positioned the country well to once again reinstate "extraordinary support measures similar to those deployed in 2008-09" in case downside risks materialise. Malaysia's leading economic indicators have also been healthy with gross domestic product for the fourth quarter expanding by 5.2 per cent and 5.1 per cent for the whole year, underpinned by favourable domestic demand conditions supported by both private and public sector spending. A further indicator of the nation's health was the highest total trade ever recorded amounting to RM1.3 trillion (US$425.43 billion) last year, up 8.7 per cent from 2010. Analysts said the strong capitalisation of the banking system would support the implementation of the Entry Point Projects under the Economic Transformation Programme (ETP) as well as boost the National Key Economic Areas and ultimately the income of the country. They said the prime minister's zest to quickly and rigorously implement major infrastructure projects under the ETP would help to further spur the economy despite impending challenges. -- BERNAMA