As an emerging market economy, Malaysia is clearly a success story. During the past three decades, the Malaysian government has implemented a number of medium- to long-term development plans, starting with the 20-year New Economic Policy—a development plan that strived for greater economic well-being for the ethnic Malays, or bumiputras—and followed by the National Development Policy in the early 1990s. More recently, the Third Outline Perspective Plan provides the general thrust of Malaysia’s development strategy for the period 2001–10.
Malaysia has received much attention since September 1998 when, in response to a deteriorating economic situation emanating from the Asian crisis, it introduced capital and exchange controls. Also, Prime Minister Mahathir Mohamad rebuked policy advice from the IMF that Malaysia had followed up to then.1 Initially there was concern that these controls might be used to avoid needed policy adjustment, and investors and market analysts reacted negatively. Market assessment turned more positive, however, as it became clear that Malaysia’s macroeconomic policies were not out of line, that the undervalued pegged exchange rate was contributing to the rapid recovery of exports and output, and that financial sector reforms were being vigorously pursued.
Two groups of methods may be used to estimate potential output. One group is based on statistical techniques that attempt to decompose a time series into the permanent and cyclical components; the other group is based on estimating structural relationships, which in turn are usually obtained from economic theory. Potential output is estimated for Malaysia using the cubic spline-smoothing method where the result indicates that the output gap would close toward end-2000 or early 2001. Thereafter, inflation is forcast using the estimated output gap as one of its determinants.
This study discusses the Philippine output gap from three perspectives and evaluates the utility of the approaches for policymaking. Incentives in the Philippines appear broadly comparable with those in neighboring countries. The reform would also improve short- and especially medium-term revenue collection. The general tax provisions and investment incentives in seven east-Asian economies are compared. The analysis focuses on stocks of foreign assets and liabilities and adopts a cross-country perspective to help determine the Philippines’ position within a broader universe of emerging market economies.
To estimate the New Keynesian model, we use four key macroeconomic series for Thailand. The priors are chosen to reflect general considerations of the appropriate model dynamics and our judgment about the Thai economy. The model is solved initially so that the baseline forecast replicates staff baseline projections over the medium term. We analyze two main risk scenarios, and estimate that the output in Thailand may decline by up to 0.9 percent relative to the baseline. However, the adverse impact on Thai output is likely to be smaller than suggested above.
The paper discusses potential output, the output gap, and inflation in Korea. The paper explores the information content of potential leading indicators of inflation. A broadly balanced current account has been the suggested norm for Korea over the medium term. The challenge is to help build a more robust bond market that prices risk appropriately. The features of pension schemes in Korea and the problems they face are outlined. The paper reviews pension reform, banking sector, corporate sector, and foreign exchange crises with respect to Korea.
This paper argues that an important group of labor market policies are complementary in the sense that the effect of each policy is greater when implemented in conjunction with the other policies than in isolation. This may explain why the diverse, piecemeal labor market reforms in many European countries in recent years have had so little success in reducing unemployment. What is required instead is deeper labor market reforms across a broader range of complementary policies and institutions. To be politically feasible, these reforms must be combined with measures to address distributional issues.
This study examines the nature of the growth process in the ASEAN countries, and particularly whether it has been generated primarily by more inputs or by productivity gains. It uses internationally comparable data and explores an alternative method for estimating the capital and labor factor shares. The results, contradicting some previous studies, indicate a very impressive growth rate of TFP in Singapore, Thailand, and Malaysia, a relatively strong rate for Indonesia, and a negative rate for the Philippines. This study argues that the results of previous studies were driven mainly by the fact that they relied on national accounts data for measures of various variables and, in particular, the factor income shares of capital and labor.
External demand was the main driver of growth in Thailand in 2006 and 2007. However, WEO projections indicate moderating foreign demand in 2008, with U.S. growth being revised downwards to reflect the turmoil in housing and credit markets, and high oil prices. While the share of Thai exports to the US has fallen in recent years, the US remains Thailand's largest export destination. We use a small structural model and Bayesian estimation to assess the possible impact of a U.S. slowdown on Thai growth. We find that a 1 percent slowdown in U.S. growth in 2008-relative to the baseline forecast-could have an upper-bound impact on Thai GDP growth of 0.9 percentage points.
Alesson from the Asian crisis is that the effectiveness of Malaysia’s fiscal policy in demand management may benefit from greater flexibility. While Malaysia’s tradition of fiscal prudence provided a buffer against adverse shocks during the crisis, structural rigidities in public finances rendered fiscal policy less responsive to the changing economic environment. A key challenge to fiscal management is to make it flexible enough to function as an effective countercyclical tool within the framework dedicated to maintaining long-term fiscal sustainability.