Commentary
by Observer

Background
The IMF, under Article IV of its Articles of Agreement, holds bilateral discussions annually with its Member countries. These discussions are in the nature of a review of member country economic policies, recent economic developments, IMF staff assessments of prospects and the presentation of policy recommendations. A report is then prepared for presentation to the Fund’s Executive Board of Directors. At the conclusion of the Board Discussion, a Public Information Notice (PIN) is released together with the full report. The Article IV consultation with Malaysia for 2010 took place in May/June of this year and following Board consideration, the PIN and the Report were released on August 13th 2010.

In its customary approach, these IMF documents are highly nuanced and attempt to convey the Fund’s views in measured and balanced tones in order to minimize possible disagreements with the country in question. They err on the side of caution and down play differences and criticisms of policies. The 2010 Malaysia report needs to be read in that context. It is remarkable that the report questions past policies, takes a somewhat critical and skeptical view of many current government policies and expresses open disagreement in certain instances. The report also exposes the dithering and inability of the Government to take firm measures in pursuit of its own announced policy reforms. This brief analysis attempts to highlight and bring to the fore a number of issues that in the view of the Fund reflect on the Government’s capacity to take on the task of implementing its modest reform agenda.
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Recently news headlines on the New Economic Model (NEM) have suddenly dominated the media like “IMF asks Malaysia to take ‘decisive‘ action on reforms” and “Najib tells Chinese to lead reforms under NEM, 10MP” in the past 24 hours.

References to NEM appears to have come into vogue again, coming out from the shadows from where it had been banished when the Tenth Malaysia Plan was unveiled in June in Parliament.

These beg the question whether the New Economic Model, announced by the Prime Minister Datuk Seri Najib Razak on 30th March this year is a myth or reality.

The NEM has been described as one of the four critical pillars of Najib’s National Transformation of Malaysia, representing the ambitious Economic Transformation Programme to transform Malaysia by 2020 into a developed, competitive and high income economy with inclusivity and sustainability.

The fourth pillar, the Tenth Malaysia Plan, which was adopted by Parliament in early July, is to operationalise the NEM in the five years from 2011-2015.
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by Michael Schuman | Time
August 10, 2010

I returned a few days ago from Kuala Lumpur, the capital of Malaysia, where the talk of the town – well, at least among economists — is the “middle-income trap.” What’s that, you ask? A developing nation gets “trapped” when it reaches a certain, relatively comfortable level of income but can’t seem to take that next big jump into the true big leagues of the world economy, with per capita wealth to match. Every go-go economy in Asia has confronted this “trap,” or is dealing with it now. Breaking out of it, however, is extremely difficult. The reason is that escaping the “trap” requires an entire overhaul of the economic growth model most often used by emerging economies.

Malaysia’s caught in the “trap” right now, and getting out if is going to be tough. Simply put, Malaysia needs to change what it has been doing economically for the past 40 years. How Malaysia got itself into the “trap,” and how it could escape from it, can provide us with some valuable lessons on development and, more specifically, how developing nations can graduate into becoming fully advanced economies.
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