KUALA LUMPUR: Malaysia is still in a better position to withstand the storm given its diversified economy compared with many other economies which are vulnerable to the crash in crude oil and other commodity prices, said former chairman of the governing board of the UK Financial Services Authority (FSA) Lord Adair Turner.
With the recent World Bank report stating that weak growth in the emerging markets would continue to weigh down on the global economy, Turner said Malaysia's strength was its more diversified economy and therefore less reliant on commodities.
"The fall in the oil price clearly has a major impact and the danger is that there can be a market over-reaction for instance on the exchange rates, which creates complexities.
"But, those simply have to be managed carefully by the Government and the central bank." Turner told StarBiz on the sidelines after International Centre for Education in Islamic Finance's (Inceif) Intellectual Discourse Session 2016, here recently.
Turner, who became FSA chairman at the time when the financial crisis broke in September 2008, said while China's slowdown were felt globally, the financial markets should have seen this coming because it was very predictable given China's reliance on unsustainable credit and investment.
But, the challenge has occurred and it's a test to Malaysia and other commodity-reliant regions, Turner pointed out. "Overall, I am sure year 2016 would be a year of slower growth for Malaysia and clearly the Government has made difficult decisions on the budget given the reduction in revenues from national oil company, Petronas.
"But, Malaysia has approached these problems well by taking vital steps to diversify its economy over the past 10 to 20 years and is somewhat less vulnerable than some emerging markets impacted by low commodity prices," he said, adding that Malaysia's gross domestic product growth of 4 per cent and above was still favourable, considering the "shocks" faced recently.
On the ringgit and its performance, he said it was perfectly normal to see a depreciation of the local currency in the current environment.
Turner opined that debt was also a major factor for most economies.
"I think the explorations within Islamic Finance as to whether one can create alternative forms of contract, which can get away from the fixity of a debt contract are certainly interesting ideas," he said, adding that it would be an ongoing study for Inceif on the impact of different types of financial contracts on the fragility and resilience of the world economy.
Based on the global economic downturn in 2008, Turner said economists should be vary of being too debt dependent, in view of the high rise in consumer and corporate debts in a number of ASEAN countries, including Malaysia over the last few years.
Turner led Inceif's panel of discussion that centred around the opportunities for Islamic financing and the role it plays in the global economic recovery.
While serving at FSA, Turner was chairman of the International Financial Stability Board's major policy committee, involved in the redesign of the global banking and shadow banking regulation.