Bank Negara Governor Datuk Muhammad Ibrahim at the press conference after presenting the Bank Negara Malaysia First 2017 GDP.
KUALA LUMPUR: Bank Negara Malaysia (BNM) Governor Datuk Muhammad Ibrahim has put forward three suggestions where gains from globalisation can be safely acquired, more equitably dispersed and impose the least cost to society.
He said on Tuesday that firstly, there was a need for financial globalisation to be made safer and its benefits distributed more equitably.
Secondly, he pointed out the policy approaches must be clear, coherent and complementary to ensure a more human-centered approach.
Thirdly, he said all parties must fully embrace the explosion of technology to keep pace with the altered global economic landscape.
Delivering his keynote address at the International Monetary Fund-BNM summer conference entitled “Some perspectives on globalisation and its aftermath”, he pointed out the Global Financial Crisis (GFC) and the Asian Financial Crisis demonstrated the risks and the damage that could be wrought by financial globalisation.
Elaborating on the first point, he said the crises amplified the costs of policy and regulatory lapses and failures in crisis prevention and management.
“Despite consequences primarily associated with financial globalisation, trade has received the brunt of the blame,” he pointed out.
For instance, in the wake of the GFC, between November 2008 to December 2009, he pointed out that 390 trade protectionist measures were announced or implemented by 19 of the G20 members.
“Ironically, financial globalisation channels were not addressed as quickly. It is surprising how policymakers, particularly in the advanced economies, have yet to arrive at a consensus in recognising the harmful effects of free capital mobility that is disconnected with the real economic activity.
“This is an issue that many remain divided on until today. While we have instituted policy reforms to better manage our financial systems and institutions, more can be done.
“We need effective frameworks to ensure financial globalisation contributes to risk diversification, consumption smoothing and efficient intermediation of productive capital across international borders,” he said.
Muhammad said the global community should decisively address the risks posed by large and volatile short-term capital flows.
However, he pointed not enough was being done at the global level to manage the negative spill-overs to recipient countries.
“Here, the IMF can play its role as the trusted policy advisor. The Fund can do more to ensure that global financial aspirations consider diverse circumstances and national objectives,” he said.
Muhammad said they various parties should encourage a more inclusive process in setting global financial standards and initiatives.
He pointed the unravelling of a “one-size-fits-all” approach to managing international financial flows.
He said there should be tailor-made solutions depnding on each economy’s social, economic and political landscape. The rapidly changing world has challenged many countries to retool their nations to embrace new opportunities and unlock this growth potential.
Previous successful solutions and policies do not guarantee success and relevance.
He also pointed out throughout episodes of crises, a key lesson policymakers learnt was to have flexibility and courage to explore and implement all available policy tools in preserving macroeconomic and financial stability.
At one time, unorthodox and unprecedented policies were considered heresy. Now, they are considered necessary.
Muhammad welcomed the recognition within the IMF for a more progressive view on macro-prudential and capital flows measures.
He also welcome the IMF’s continuous engagement and responsiveness to the experiences of countries in this region, that have been using these policy tools for many decades.
“And I hope the IMF will continue to fine-tune the Institutional View on Capital Flows and its interaction with macro-prudential policy. To my mind, this will provide the impetus to a deeper partnership between members and the IMF as a trusted policy advisor,” he said.
On the second area, he said policy approaches must be clear, coherent and complementary to ensure a more human-centered approach. Hence, public engagement was crucial to address specific concerns.
He said experience showed that for globalisation to make sense to the man on the street, they must “feel” and be ‘”ouched’” by its benefits, and be satisfied that their lives are better than before.
“Domestic policy programmes and implementation must be coherent, comprehensively explained and easily understood, and complemented by policy measures consistent with the intended outcomes of international arrangements.
“Robust communication and transparent assessments can contribute to deeper levels of public understanding and acceptance. With information now easily accessible to all and sundry, authorities are no longer the sole arbiter of knowledge,” he said.
He pointed out authorities cannot maintain a one-dimensional communication strategy to explain the multi-dimensional policies and the consequent impact of those policies that we implemented.
On the third point, he said the authorities must fully embrace the explosion of technology to keep pace with the altered global economic landscape.
By 2020, more than 24 billion internet-connected devices will be installed. As technology continues to reshapes the world, there was a need to balance improvements in efficiency and customer experience with the concomitant risks.
“Today, the trade-offs are still not well understood because while some use technology maliciously, many more use it for a good cause.
“Only by embracing this advancement, and by working together with tech-players, can we synergise and fully reap the benefits for the economy,” he said.
Muhammad pointed out that due to these technological shifts, regulatory technology or “RegTech’” developments ought to be a high priority for global financial regulators.
Importantly, there was a need to balance the risks and opportunities within the technological sphere.
He said the governments and industries must share information to mitigate various aspects of security threats.
Notably, the catalytic role of behavioural analytics and big data further provided the tools to address threats channelled through the financial system. In order to adapt to the borderless nature of globalisation, international cooperation is vitally important.
Looking beyond the financial sector, he said it was important to prepare the human capital for the future.
“Close collaboration between public and private sectors is critical to ensure that displaced workers are adequately retrained and equipped with new skills. Those dislocated should not feel sidelined.
“We can address labour displacement by investing in education, skills re-training and increasing women’s participation in the workforce. We need to take a hard look at the current landscape of social safety nets, and draw best practices – both those tried and tested, and practices that can best respond to new challenges and needs of society,” he said.
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