KL disagrees with IMF over currency management again
KUALA LUMPUR: Malaysia, which defied the advice of the International Monetary Fund (IMF) during the Asian financial crisis two decades ago, is again disagreeing with the agency over how to manage its currency.
This time, it’s about a crackdown in the offshore trading market. In its annual Article IV report on Malaysia, the IMF said the measures contributed to capital outflows, while authorities say they succeeded in curbing volatility and improving the efficiency of the onshore market.
The government disagreed with recommendations from IMF staff to phase out the measures.
“We continue to have strong concern on the fund’s inflexibility to be receptive and open to new approaches and policy instruments needed to maintain stability and promote financial market development,” said Juda Agung, an IMF executive director representing Malaysia along with other Southeast Asian countries, in the report.
“Our authorities are also deeply concerned with staff’s lack of understanding of the domestic context which can diminish the fund’s role as trusted adviser,” he said.
A statement from IMF directors accompanying the report was more balanced, with some of them calling for the measures to be phased out, while a few said there should be more support for the government’s approach.
Overall, the directors commended Malaysia for its fiscal and monetary policies, which have helped to underpin the economy’s strong performance since last year. The ringgit has gained 10 per cent against the US dollar since the clampdown on offshore trading in 2016, beating all other Asian currencies except for the baht.
The IMF itself recognised that the measures have benefited the currency, citing the increased hedging opportunities and supply of foreign exchange onshore.