(Petaling Jaya, Monday): The International Monetary Fund has warned that the financial crisis in Asia could deepen and spread in the months ahead and urged developing countries to brace against the economic fallout.
In its interm World Economic Outlook released in Washington on Saturday, the IMF slashed its combined growth forecast for Thailand, Indonesia, Malaysia and the Philippines by a whopping 3.7 percentage points to 1.7 per cent for 1998, and said turmoil in Asia would dampen global growth.
The IMF Interim World Economic Outlook has been given extensive coverage in the local mass media, that it predicted growth in Japan of only 1.1 per cent in 1998, while growth in South Korea was expected to fall to 2.5 per cent next year from 6 per cent this year.
Growth in Thailand is expected to be 0.6 per cent for 1997 and fall to zero in 1998, while growth in Indonesia will reach 5 per cent in 1997 and fall to 2 per cent in 1998.
I am very surprised, however, that there has not been any local mass media report about the IMF's revised forecast for Malaysia's real GDP growth next year, which is 2.5 per cent, as compared to the IMF's projection of 8 per cent in May and 7.5 per cent in October in the earlier editions of the IMF's World Economic Outlook. It is now even more pressing and urgent that the Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim should present a third 1998 budget with the IMF's latest forecast further slashing the expected economic growth rate next year from 7 per cent in the first 1998 budget presented in Parliament on Oct. 17 to 4-5 per cent in the second budget announced on December 5 in the emergency financial package and now to 2.5 per cent!
The revision from the original 7 per cent growth to 2.5 per cent is a whopping downward revision of 64.3 per cent. P> If the IMF's latest forecast that Malaysia's economy would only grow by 2.5 per cent is proved correct, Malaysia will have the dubious world distinction of suffering the steepest fall of 4.5 percentage points between the official forecast in October 1997 and the actual economic growth rate next year.
To show how much the global outlook had changed in the past few months of the economic crisis, the IMF Interim World Economic Outlook gave the following revised projections for output growth next year for the four troubled ASEAN economies as well as Japan and Korea, as compared to its own earlier projections in both the May and October 1997 editions of the World Economic Outlook:
Real GDP Growth
Projection year and WEO date
At the Penang DAP forum on "Economic Crisis and Recovery - Causes and Remedies" on Saturday night, I had referred to forecasts by economists who disagree with Anwar's downward revision of the economic growth rate in his second 1998 budget on Dec. 5 as they are talking in terms of 2-3 per cent economic growth, but I had never expected the IMF to be releasing in Washington on the same day its forecast of 2.5 per cent growth rate for Malaysia next year!
Anwar should state whether the government agrees with the IMF's latest projection that the Malaysian economy would slow considerably to register only 2.5 per cent growth, which is lower than the population growth 2.7 per cent per annum.
Anwar owes the people and country an explanation for the vast differences in the projections of the country's economic growth next year in so short a time, the 7 per cent growth in the first 1998 budget on Oct. 17, the 4-5 per cent growth in the second 1998 budget on Dec. 5 and now the IMF projection of 2.5 per cent growth on Dec. 19.
The IMF Interim World Economic Outlook admits that "Considerable uncertainty remains about the depth and duration of the (economic) crisis".
In the optimistic scenario, economic activity would rebound in the directly affected economies by 1999, and the implications for other countries would be relatively moderate.
It said: "At this stage, however, there are no clear signs that the crisis is subsiding, and doubts persist in financial markets about the policy response in several of the affected countries."
The IMF's conclusion is quite sombre: "Provided that macroeconomic adjustment, financial sector restructuring, and other reform efforts are implemented without undue delay, such an (optimistic) outcome is clearly possible - and indeed seems most likely - not least in light of the strength of the medium-term fundamentals of the Asian economies. In this scenario, the economic slowdown in Asia and the spillovers to the rest of the world would be relatively moderate and temporary. If policy and reform efforts are inadequate, however, the crisis of confidence may persist and continue to spread to other emerging market countries. In that case, there would be more serious implications for financial flows to these countries for a more extended period, their economic slowdown would be deeper and more protracted, and the adverse spillovers to the advanced economies would be more serious."
I understand there would be no Cabinet meeting this week because of the traditional end-of-the-year leave for Cabinet Ministers. However, in view of the IMF's Interim World Economic Outlook and the deepening economic crisis, the Prime Minister, Datuk Seri Dr. Mahathir Mohamad should summon all Cabinet Ministers back for an emergency Cabinet meeting on Wednesday to decide on the convening of an emergency meeting of Parliament early next month for Anwar to present a third 1998 Budget to fully and firmly restore investor confidence through a new package of political, economic and financial reforms.
The primary objective and strategy of the third 1998 Budget should be to effect an economic recovery in Malaysia by 1999.