Monetary Cooperation Is Ideal, But Must Be Aligned With Malaysia's Economic Ambition - Don

KUALA LUMPUR, Oct 17 (Bernama) -- The recent proposal to establish international monetary cooperation is ideal to address international monetary challenges, but it has to be well planned to ensure that Malaysia's participation aligns with the country’s economic ambition. Putra Business School Assoc-Prof Ahmed Razman Abdul Latif opined that monetary cooperation is appropriate, particularly since global economic growth is now in the recovery phase after being disrupted by the COVID-19 pandemic. A World Bank report said Malaysia is likely to transition to a high-income economy between 2024 and 2028, reflecting the country's economic transformation development trajectory over the previous decades. Malaysia’s gross domestic product (GDP) per capita is currently estimated to be at US$11,200, falling just US$1,335 short of the current threshold level that defines a high-income economy. The COVID-19 pandemic took a toll on the country’s economy, leaving Malaysia having to revise its national poverty line in July 2020, with 5.6 per cent of Malaysian households currently living in absolute poverty. “However, the idea must be polished and detailed to ensure that it moves quickly, if not at all, and takes into account other constraints such as inflation and interest rates,” he told Bernama. Malaysia has proposed that United Nations (UN) member countries establish an international monetary cooperation mechanism to address various economic issues, including rising global inflation. Prime Minister Ismail Sabri Yaakob had said such a mechanism is necessary, considering that in an interconnected world, the policies and decisions made by some countries can affect other countries too. “For example, in tackling inflation that has become a worldwide phenomenon, the monetary policy and setting of interest rates by one country would also have an impact on other countries,” he said in a speech during the 77th United Nations General Assembly at the UN headquarters recently. Finance Minister Tengku Zafrul Abdul Aziz had also said that Malaysia believed that the establishment of an international monetary cooperation mechanism should be considered to ensure a more effective, equitable financial system that is able to balance the needs of universal development. Such cooperation is not a new thing since there has been cooperation at the global level held to deal with the uncertainty of the international currency market before, he had said. Ahmed Razman explained that while monetary cooperation may be viewed as the preferred mechanism, Malaysia must take into consideration the changes in interest rates among countries, as in the current situation, where each country tends to be protective of its own interest. Can the domino effect be avoided? He said interest rate movement by a specific country can be coordinated with the majority of countries so that it does not cause a domino effect that results in a global economic slowdown; however if a specific country has to wait for such coordination to happen, it may be a slow process because it requires international deliberation and may hamper that country's ability to improve its economic condition on an immediate basis. “Basically any interest rate decision will remain domestic in nature, based on both internal and external factors,” he said. Echoing the view, Universiti Teknologi Mara (UiTM) Sabah political economist-lecturer Firdausi Suffian believes that monetary cooperation needs more thought because rising inflation and interest rates are constraints faced globally. “Every country is attempting to resolve its domestic economic issues, and from another perspective, the global disrupted production network required some time to return to its normal cycle," he said. “These factors may influence the idea of establishing international monetary cooperation,” he added. Firdausi said the ongoing geopolitical tensions in Eastern Europe would place additional strain on international cooperation, including multilateral agreements. "Multilateral has its own distraction, and some of the agreements needed to be refined, especially since some of the proposals were outlined prior to COVID-19," he explained. CPTPP and trade barriers As for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Ahmed Razman said while China has already filed a formal application to join the CPTPP, its chances of acceptance remain bleak due to possible rejection by Australia as well as Canada and Mexico. “Nonetheless, it will not have an impact on the economic potential of existing members, including Malaysia, because the current 11 members already account for 13.4 per cent of global GDP, or approximately US$13.5 trillion, making the CPTPP one of the world's largest free trade agreements. “The CPTPP will benefit Malaysia as a whole because the main goals of the CPTPP are to encourage and facilitate trade, including lowering and removing trade barriers among its economic members. “This will encourage trading among members, creating economic multipliers as well as a supplementary economy that will benefit the surrounding communities and region. Higher economic activity will benefit state governments by providing more local jobs and higher assessment tax collections,” he added. China is Malaysia's largest trading partner, accounting for 18.9 per cent of total trade, and the relationship has been strong for 13 years. Bilateral trade volume between the two countries had increased by 19.7 per cent year on year to US$61.57 billion in the first four months of this year, marking the 17th consecutive month of double-digit growth in trade volume. -- BERNAMA