Malaysia and the World Bank

Last updated
Malaysia-World Bank Relations
EstablishedMarch 7, 1958;65 years ago (1958-03-07)
Type World Bank Group Member
Purpose Economic & Financial Development
Headquarters Kuala Lumpur
ServicesGuide Financial and Economic Development

Malaysia's independence in 1957 was a catalyst for growth. As the nation took charge of managing its own affairs, it continued to develop the goals and means necessary for a financial structure conducive to the economic growth observed today. Critical to the transition of Malaysia from a low-income country to one of high-income status has been the expansion of its economy. From a commodity and agricultural-based economy, the Southeast Asian nation is transitioning to a leading exporter of more complex goods. As the nation opens up to trade and investment, the World Bank and the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) continue to assist with its development.

Contents

History with the World Bank

Malaysia joined the World Bank following its independence on March 7, 1958, following a resolution to first join the International Monetary Fund. [1] The World Bank continues to identify areas of growth necessary for the Malaysian economy. It cites a need for reduce poverty, income inequalities. Although the growth of the Malaysian economy has been significant, it still trails relative to regional and national competitors of a similar nature. [2] Many of Malaysia's loans from the World Bank have been concerned with infrastructure development relating to energy security and trade. [3] As such, its first pivotal project was the creation of a hydroelectric power station and dam. Successive projects included funding allocating to the development of ports, roads, in tandem with the Ministry of Finance in Malaysia. [3]

First Power Project for Malaysia

Malaysia received its first loan from the IBRD in 1958. [4] The proposed loan expected the IBRD to provide 70% of financing, or around US$51.2 million. [5] These funds were commissioned for the Cameron Highlands District, approximately 100 miles of Kuala Lumpur, as a part of a comprehensive plan to develop energy infrastructure. The hydroelectric power station created as a result of the loan channeled the several local waterways that flowed through the plateau-region. Project completion resulted in diversion tactics, new power stations, and a concrete damn. The project represented the needs greater power demand in the state.

1990s

The first HSBC Bank Malaysia HSBC Building, Ipoh.jpg
The first HSBC Bank Malaysia

Throughout the 1990s Malaysia continued to receive World Bank loans meant to assist the state's development and diversify the growth of its predominantly agricultural and commodity-based economy. [6] Following its receipt and use of IBRD loans, Malaysia choose to seek relations via a reimbursable advisory services framework (RAS). Malaysia now interacts with the World Bank Group as an upper-middle income economy as a member of the IDA.

Asian Financial Crisis

Although Malaysia was afflicted by the 1997 Asian financial crisis, its economy bounced back with an average growth rate of 5.4% and is on a current upward trajectory. [2] Malaysia's resilience to the financial crises and successive growth was attributed to the presence of well established foreign banks, among these HSBC and Standard Chartered. [7] The presence of foreign banks allowed the state to develop comprehensive data sets regarding the local economy, to the benefit of Malaysian domestic banks. In tandem with the success of Malaysia post-crisis was the growth of physical capital stock. [8] Policies in Malaysia continued to facilitate the flow of foreign direct investment and improved import relations with foreign states.

The World Bank Group Inclusive Growth and Sustainable Finance Hub

The Petronas Towers in Kuala Lumpur represent the growing prominence of the city as a financial hub. KL2006.jpg
The Petronas Towers in Kuala Lumpur represent the growing prominence of the city as a financial hub.

The World Bank Group Inclusive Growth and Sustainable finance Hub in Kuala Lumpur anchors the WBG's presence. The Hub was established in 2016 and represents the first organization of its kind. Its focus is to disseminate knowledge Malaysians and regional neighbors can use to improve socioeconomic productivity. Creation of the office was underpinned by the sentiment that increasing the access to important information in the region would lead to greater economic growth. The organization works to share keys to Malaysia success with emerging and developing markets transitioning from poverty, to propagate development policy research in tandem with other research institutions and to guide Malaysia rise to a high-income economy. Costs of the Hub were agreed to be financed by Malaysian government over the course of a five year-term. The Hub is in its second term of its agreement. [9] The Hub works in tandem with the Development Economics (DEC) Research Group and Indicators Group, also a part of the WBG.

The role of the Hub is information specific. It is meant to use information flow from external actors and its RASs along with information it sends out to understand labor market policy and public spending influences. The RASs are pivotal in providing infrastructure, transportation and public spending data.

New Financial Instruments

The creation of the green sukuk, or green Islamic bond, is an innovation catalyzed by the World Bank. The bond has identified as a Climate Finance tool for cities and low-carbon infrastructure projects meant to stimulate private sector investment. [10] This innovation was particular significant given that green bonds appeal to both private and public sector actors. [11] Green bonds are typically create to generate sustainable investment and as a prerequisite, projects must also be green. These bonds will typically incentivize the relevant stakeholders to utilize them, in contrast with use of regular bonds that my not offer the same lending terms. The creation of the sukuk expects to build on the growth of sustainable investment asset use in Malaysia and its near abroad. [11]

Addressing Poverty

Less than 1% of the nation exists at extreme poverty. In addressing the state of poverty in Malaysia, the government has turned to the lower 40% tier who remain vulnerable to economic disturbance. [2] Knowledge developed from the Hub is meant to address key concerns in these areas. Past studies map the ability of Malaysia's poor to transition to higher-income status. The New Economic Policy in Malaysia presented strategies meant to address economic growth. [12] As a result, the poverty rate fell from 52.4% in 1970 to 3.8% in 2009. [12] Malaysia seeks to address poverty at the micro-level and has produced a New Economic Model and framework in the Tenth Malaysia and Eleventh Malaysia Plans to address this. [12] [13]

Related Research Articles

The International Bank for Reconstruction and Development (IBRD) is an international financial institution, established in 1944 and headquartered in Washington, D.C., United States, it is the lending arm of World Bank Group. The IBRD offers loans to middle-income developing countries. It is the first of five member institutions that compose the World Bank Group. The initial mission of the IBRD in 1944, was to finance the reconstruction of European nations devastated by World War II. The IBRD and its concessional lending arm, the International Development Association (IDA), are collectively known as the World Bank as they share the same leadership and staff.

<span class="mw-page-title-main">World Bank Group</span> Group making loans to developing countries

The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. It is the largest and best-known development bank in the world and an observer at the United Nations Development Group. The bank is headquartered in Washington, D.C., in the United States. It provided around $98.83 billion in loans and assistance to "developing" and transition countries in the 2021 fiscal year. The bank's stated mission is to achieve the twin goals of ending extreme poverty and building shared prosperity. Total lending as of 2015 for the last 10 years through Development Policy Financing was approximately $117 billion. Its five organizations are the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). The first two are sometimes collectively referred to as the World Bank.

<span class="mw-page-title-main">Economic Development Administration</span>

The U.S. Economic Development Administration (EDA) is an agency in the United States Department of Commerce that provides grants and technical assistance to economically distressed communities in order to generate new employment, help retain existing jobs and stimulate industrial and commercial growth through a variety of investment programs. EDA works with boards and communities across the country on economic development strategies.

Sukuk is the Arabic name for financial certificates, also commonly referred to as "sharia compliant" bonds. Sukuk are defined by the AAOIFI as "securities of equal denomination representing individual ownership interests in a portfolio of eligible existing or future assets." The Fiqh academy of the OIC legitimized the use of sukuk in February 1988.

<span class="mw-page-title-main">China and the World Bank</span> Overview of the relationship between China and the World Bank

China originally joined the World Bank Group (WBG) on December 27, 1945. However, after the Chinese Civil War, the World Bank recognized the Republic of China as its member, until the relationship ended in 1980, when the membership was replaced by the People's Republic of China. The People's Republic of China (PRC) did not become involved with the World Bank group until 1980, when it first joined the World Bank in April due to the market reforms known as reform and opening-up. Prior to the economic reform and its relation with the World Bank, according to CRS, "China maintained policies that kept the economy very poor, stagnant, centrally controlled, vastly inefficient, and relatively isolated from the global economy". Since its entry into the World Bank, China has transformed into a market-based economy and has experienced rapid economic and social development. Currently, although China has become the world's second largest economy with 1.4 billion population, it still has a close relationship with the World Bank in areas such as poverty, environmental protection and new challenges from the reform.

<span class="mw-page-title-main">Mexico and the World Bank</span>

Mexico has a thriving, diverse economy with strong macroeconomic institutions and is open to trade and private investment. With a population of over 130 million, Mexico is filled with citizens in the upper middle income bracket. Its economy is the 11th fastest growing in the world. Low growth rates and significant inequalities continue to hamper the growth of the Mexican economy. This is a central issue and is addressed in the systematic country diagnostic. The World Bank Group (WBG) discussed its support for the new Country Partnership Framework (CPF) for Mexico on February 27, 2020. The CPF covers a six-year period (2020-2025) and aligns the WBG’s engagement with the government’s National Development Plan. The CPF builds on the analysis of the Systematic Country Diagnostic (SCD) and reflects the views and strategy of the authorities on the way to foster growth and poverty reduction.

<span class="mw-page-title-main">Uruguay and the World Bank</span>

Uruguay and the World Bank have been working together for a long time. This is because they both mutually benefit.

<span class="mw-page-title-main">Vietnam and the World Bank</span> Vietnams relationship with the World Bank

Vietnam joined the World Bank Group (WBG) on 21 September 1956. Before the mid-1980s, Vietnam was one of the world's least developed countries. A series of economic and political reforms launched in 1986, known as Đổi Mới, caused Vietnam to experience rapid economic growth and development, becoming a lower middle-income country. The World Bank (WB) has maintained a development partnership with Vietnam since 1993. As of 25 March 2019, it has committed a total of US$24 billion in loans, credits, and grants to Vietnam through 165 operations and projects, 44 of which are active as of 2019 and comprise US$9 billion. With an estimated extreme poverty rate below 3% and a GDP growth rate of 7.1% in 2018, Vietnam's economy continues to show fundamental strength and is supported by robust domestic demand and export-oriented manufacturing.

In 1980, Djibouti became a member of the World Bank Group (WBG). The WBG includes five different organizations: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). Accounting for more than thirteen thousand projects across 173 countries, the WBG is one of the main lending facilities of the world. The WBG works together with governments and private sectors in order to enhance countries efforts towards development and poverty reduction.

<span class="mw-page-title-main">Tanzania and the World Bank</span> World Bank interactions with Tanzania

The World Bank Group (WBG) provides grants, credits and policy analysis to support economic development in Tanzania with a focus on infrastructure and private sector growth. As of 2018, WBG supports 25 active projects with funding of more than $3.95 billion. The WBG provides analytical and technical assistance in coordination with these projects. From 2007-2018 Tanzania maintained real GDP growth averaging 6.8% a year. Growth concentrated in the agricultural and transportation sectors. Complementing this growth, the poverty rate in Tanzania fell from 28.2% in 2012 to 26.9% in 2016. Debate exists over the validity of this growth as development may be unevenly dispersed among different geographic and income groups.

<span class="mw-page-title-main">Croatia and the World Bank</span>

Croatia joined the World Bank in 1993, two years after declaring independence from the Socialist Federal Republic of Yugoslavia in 1991. The World Bank's projects from the mid-1990s to the mid-2000s primarily focused on infrastructural and environmental projects.

<span class="mw-page-title-main">The Democratic Republic of the Congo and the World Bank</span> The DRCs relations with the World Bank

The World Bank Group is a family of five international organizations, which has continuously given leverage loans and financial assistance to developing nations like the Democratic Republic of the Congo, commonly known as the DRC. The country has received assistance from the World Bank in the form of social programs in order to induce and sustain economic development. This assistance has been directed toward conflict prevention, investments in education, and addressing environmental degradation.

<span class="mw-page-title-main">Poland and the World Bank</span>

After separating from the World Bank and other International Financial Institutions for decades due to pressure from the Soviet Union, Poland rejoined the World Bank on June 27, 1986. The World Bank was instrumental in financing and providing technical assistance for Poland as it transitioned from a Command Economy into a Market-Oriented Economy. As a middle income country, Poland has worked primarily with the International Bank for Reconstruction and Development since it is not eligible for loans from the International Development Association. Additionally, Poland has had a few projects with the Multilateral Investment Guarantee Agency and the International Finance Corporation. Currently, most of Poland's engagements with the World Bank Group concern environmental concerns and public finances.

<span class="mw-page-title-main">Panama and the World Bank</span> Relationship between Panama and the World Bank

The World Bank Group, composed of five institutions, works together with the Panamanian government to reduce poverty and increase prosperity. Panama first became a member of the World Bank Group on March 14, 1946. In the past decade, Panama's annual growth has increased by 7.2% in the span of 12 years, making it one of the fastest growing economies in the world. In 2019, Panama was ranked the second fastest growing economy in Latin America by the World Bank. As of 2019, Panama has $435.59 million US dollars being distributed amongst seven projects, all geared toward their overall goal of poverty reduction and indigenous inclusion. Continuing with their efforts to reduce extreme poverty, the World Bank along with efforts of the Panamanian government has reduced poverty from 39.9% to 26.2% while extreme poverty has been reduced by an estimated 15.6% to 11.3% from 2014 to 2019. As of late 2019, there is an estimated $213.26 million US dollars of undisbursed loans.

<span class="mw-page-title-main">South Korea and the World Bank</span>

South Korea first joined the World Bank Group as a member in 1955. Over the years, South Korea manages to develop its economy in a successful and positive manner. The country now is a financial contributor to the World Bank to help other, rather than an aid recipient in the old days. Under the help and cooperation with the World Bank, South Korea became a rapid growth country in economy begin in the 1970s, and it now became a large shareholder of the institution to help out other developing countries.

The Philippines' history with the World Bank started in 1945 when they became one of the first members of the International Bank for Reconstruction and Development (IBRD). Their first project with the Bank came in 1957 with the Binga Power Project. Since then, the Philippines has received $2.14 billion of disbursed loans from the IBRD. The Philippines is in the constituency entitled EDS 15, comprising Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Suriname, and Trinidad and Tobago, and headed by Executive Director Fabio Kanczuk.

<span class="mw-page-title-main">Kazakhstan and the World Bank</span>

Kazakhstan joined the World Bank in 1992 after it had gained independence from the in 1991. Kazakhstan has one of the fastest growing economies of all, and as a result had its classification changed from a lower-middle income state to and upper-middle income state in 2006. Because of this, Kazakhstan has begun to rely less on international financing as it had in previous decades; however, Kazakhstan still takes out loans from the world bank, primarily relating to the countries environmental issues.

The World Bank, in seeking to promote development within less developed countries, describes itself as a fund rather than a Bank, by initiating projects for less developed countries in pursuit to end poverty. The World Bank initiates and divides such projects for each Developed country through its 5 internal Institutions: that being MIGA, IDA, IFC, ICSID, and IRD. One target Latin American country was Guatemala. According to recent World Bank data, 8.7% of Guatemala's people met the standard of extreme poverty. This standard is quantified to mean an average income of less than $1.9 a day. Such poverty thus increasingly grew by "half a million" from the time of 2000–2014 With increasingly high poverty and a lack thereof appropriate education in 2016 prompted the World Bank partnership with Guatemala through the partnership.

<span class="mw-page-title-main">Belarus and the World Bank</span>

The World Bank Group is a large international financial institution that continuously provides loans and grants in order to fund capital projects in poor and developing nations across the globe. Its main goal is to reduce poverty worldwide. It consists of five other large international financial banks within in, each providing funding for different types of projects. Belarus joined the World Bank back in 1992 and has since then received over $2.5 billion in lending commitments since then and in the form of grant financing, it has received $31 million, with much of this funding going towards programs that include civil society partners. Currently, Belarus's active portfolio within the World Bank has a total of $933 million, with it containing a total of nine different projects, as well as two more projects that are currently still in preparation in the areas of energy efficiency and higher education. The majority of this funding has been directed towards the themes of pollution management and environmental health, climate change, and rural services and infrastructures, with the majority of the funding going directly into the central government, other agencies and extractives, and forestry sectors of the country, as well as sustainable energy. In looking to have more economic growth, improving the private sector environment within Belarus could help.

Ireland joined the World Bank on August 8, 1957, and has continued to be a member since then. A majority of the money loaned to Ireland from the World Bank was put towards infrastructure projects, such as power and education. Ireland was able to pay back these loans in the predetermined time frames with little to no issue.

References

  1. "Member Countries". World Bank. Retrieved 2019-12-03.
  2. 1 2 3 "Overview". World Bank. Retrieved 2019-12-03.
  3. 1 2 "WBG Open Finances".
  4. Bank, The World (1958-09-30). "Malaysia - First Power Project": 1.{{cite journal}}: Cite journal requires |journal= (help)
  5. International Bank for Reconstruction and Development. Report and Recommendations of the President to the Executive Directors on a Proposed Loan to the Central Electricity Board of the Federation of Malaya. 11 Sept. 1958, documents.worldbank.org/curated/en/258991468049811598/pdf/multi0page.pdf.
  6. "The World Bank as hummingbird: Leveraging knowledge for development finance – Center for Macroeconomics and Development" . Retrieved 2019-12-03.
  7. Detragiache, Enrica; Gupta, Poonam (2006-10-01). "Foreign banks in emerging market crises: Evidence from Malaysia". Journal of Financial Stability. 2 (3): 217–242. doi:10.1016/j.jfs.2006.06.001. ISSN   1572-3089. S2CID   55803223.
  8. Ghani, Ejaz, and Vivek Suri. Productivity growth, capital accumulation, and the banking sector: Some lessons from Malaysia. The World Bank, 1999.
  9. "Agreement Reached to Extend World Bank Group Office in Malaysia for Five Years, Highlighting Deepening Partnership". World Bank. Retrieved 2019-12-03.
  10. "Helping Malaysia develop the green sukuk market" (PDF). The World Bank.
  11. 1 2 Bin, Raymond Ling Leh, et al. "Feasibility Of Green Bonds Issuance In Malaysia Towards Financing A Sustainable Future–A Conceptual Review Of Literatures." Global Conference on Business and Economics Research. Vol. 16. 2017.
  12. 1 2 3 Gopal, Parthiban S., and Nor Malina Malek. "Breaking away from the cycle of poverty: The case of Malaysian poor." The Social Science Journal 52.1 (2015): 34-39.
  13. "Eleventh Malaysia Plan 2016-2020 | ESCAP Policy Documents Management".