World Bank Presidentís praise should not make Malaysians complacent
that we are out of the woods of the economic crisis
by Lim Kit Siang
(Petaling Jaya, Tuesday): The praise
of the World Bank President, James Wolfensohn that Malaysia "has got
the capacity to deal with the crisis" and that Malaysia was "not
one of the countries Iím deeply concerned about now" should not make
Malaysians complacent that we are out of the woods of the economic crisis.
A realistic attitude is particularly important especially as the Kuala
Lumpur Stock Exchange, together with other Asian markets have "roared"
into the Year of the Tiger with substantial gains, with evidence that foreign
confidence in the region was returning.
Malaysians must prove that they are capable to taking both good and
bad news, not being elated by the good but wanting to hide from the bad.
In this connection, Malaysians must give thought to last weekís report
of the Institute of International Finance (IIF), a global assocation of
financial institutions with over 280 members based in Zurich, Switzerland,
which grouped Malaysia with Indonesia, Philippines, South Korea and Thailand
as "the five economies most affected by the Asian crisis".
The IIF Report, entitled Capital Flows to Emerging Markets, stressed
that net private capital flows into "the five economies most affected
by the Asian crisis" fell from US$93 billion in 1996 to an outflow
of US$12 billion in 1997. The IIF forecast that for 1998, there would be
a continued private capital outflow from these five countries to the tune
of US$9.4 billion.
Bank Negara and the Finance Ministry should issue a statement on the
implications of the IIF report for Malaysia.
Other important aspects of the IIF report include:
- Net private capital flows to major emerging market economies fell to
an estimated $200 billion in 1997, down from their peak of $295 billion
in 1996, reflecting primarily substantially lower flows to Asia. This marks
the first major retrenchment of capital flows to emerging markets this
- Private capital flows to the five economies most affected by the Asian
crisis fell from an inflow of $93 billion in 1996 to an estimated outflow
of $12 billion in 1997.
- Flows to major emerging market economies not directly affected by the
Asian crisis held up well, actually increasing modestly to $212 billion
in 1997 from $202 billion in 1996.
- Equity flows grew once again in 1997, becoming an even more important
part of private flows. Equity flows of $133 billion represented over 65
percent of total net private flows in 1997.
- Equity investment outside the Asian crisis economies was strong, rising
to $138 billion from $108 billion in 1996. Foreign direct investment in
Latin America increased from $35 billion to $50 billion, in part due to
- Portfolio equity investment outside Asia also increased impressively,
growing to about $30 billion from $20 billion in 1996 as stock markets
in many countries performed strongly for much of 1997. There was, however,
some weakening towards the end of the year.
- The cutback in capital flows was concentrated in bank lending. From
a level of approximately $100 billion in 1996, net lending by commercial
banks appears to have been close to zero in 1997. This reflects significant
gross lending, specially outside Asia, being offset by net repayments in
Asia, as shortterm lines were reduced.
- Net official flows to 29 major emerging markets rose to $30 billion
in 1997 from $3 billion in 1996 as the IMF and other international financial
institutions provided very substantial assistance to Asian economies. Even
so, total capital flows in 1997 fell to only $229 billion from $298 billion
*Lim Kit Siang - Malaysian Parliamentary
Opposition Leader, Democratic Action Party Secretary-General & Member
of Parliament for Tanjong