IMF repents over Malaysian criticism

The IMF oppose Malaysia's currency peg

The International Monetary Fund has praised Malaysia's economic performance, after a short recession last year, and admitted it was wrong to oppose fixing the currency to the dollar.

"The Malaysian economy has entered a recovery phase and appears to be well placed to benefit from a global recovery," the Fund said after annual meetings in the country.

Mahatir has plenty to smile about

There was a broad economic recovery with unemployment below 4%, inflation below 2% and factories running at 80% of capacity, the fund said.

It expects 3.5% economic growth this year - from 0.7% in 2001 - even though private investment remains weak.

The IMF said Malaysia's astute handling of its economy showed it was wrong to advise against a currency peg.

"Directors commended the Malaysian authorities for pursuing a judicious macroeconomic policy strategy that has helped them weather the impact of the global slowdown, allayed earlier concerns of some directors about the sustainability of the exchange rate, and laid the foundations for a positive economic outlook," the report said.

Malaysian solution

Malaysia fixed its currency to protect it from speculators in direct contravention of the IMF's advice during the Asian financial crisis between 1997 to 1999.

As a result it has fared much better economically than most of its neighbours who followed IMF policy at the time.

"Directors noted that Malaysia's strengthened fundamentals are supportive of the exchange rate peg as a stability anchor, and that the value of the ringgit does not appear to be misaligned," the IMF report said.

The ringgit is fixed at 3.8 to the US dollar.

But it has again recommended the currency should be floated.

"While they saw no imminent need to reconsider the peg at this time, many other directors were of the view, however, that a carefully prepared move toward a more flexible exchange rate regime would broaden Malaysia's options over the medium term."