Guan Eng tells why it’s good for Malaysia to be on Treasury watch list

Finance Minister Lim Guan Eng.

PETALING JAYA: The government today sought to explain how Malaysia’s inclusion in the monitoring list of the US Treasury is a positive development, saying it only highlights the strength of the economy and Malaysia’s role in the global arena.

Finance Minister Lim Guan Eng said while the country has been included in the US’ monitoring list of potential currency manipulators, the report does not name Malaysia as a currency manipulator.

“All countries with total trade above US$40 billion a year with the US are assessed by the US Treasury for closer inspection.

“Malaysia is included in the monitoring list due to two factors. Firstly, Malaysia has a trade balance with the US of more than US$20 billion a year. Secondly, Malaysia has a healthy current account surplus of more than 2% of its GDP,” he said in a statement.

He said both factors demonstrate the competitiveness of Malaysia’s economy, not the existence of currency manipulation.

It was reported yesterday that the US had added Malaysia to its monitoring list of major trading partners that merit close attention to currency practices and macroeconomic policies.

According to the Treasury’s report to Congress on macroeconomics and foreign exchange policies released this month, China, Japan, Korea, Germany, Italy, Ireland, Singapore and Vietnam are also on the list.

Economies are placed on the monitoring list if they meet two of three criteria in the Trade Facilitation and Trade Enforcement Act 2015.

The criteria are: significant bilateral trade surplus with the US; material current account surplus; and persistent, one-sided intervention in foreign exchange markets.

Once on the monitoring list, economies will remain there for at least two consecutive reports to help ensure that any improvement in performance versus the criteria is durable and not due to temporary factors.

The report said while Malaysia had maintained a significant bilateral goods trade surplus with the US since 2015, its current account surplus had narrowed substantially over the past decade on higher consumption and investment, falling to 2.1% of GDP last year.

It also said Bank Negara Malaysia (BNM) had over the last few years intervened in both directions in the foreign exchange markets.

Lim said the inclusion of Malaysia alongside other major trading economies like Germany, South Korea, Japan and Singapore only emphasises its economic strength.

“A country would only be named as a currency manipulator if it meets all three conditions. But as noted by the US Treasury, Malaysia does not intervene in the foreign exchange market to suppress the value of the ringgit, and therefore does not meet the third requirement,” he said.

He added that BNM had stated that the country runs on a floating exchange rate regime, and that any intervention is only to avoid excessive volatility in the ringgit.

“As a result, the inclusion of Malaysia in the US Treasury’s monitoring list has no impact on the Malaysian economy, with no penalties or sanctions imposed on Malaysia.” - FMT