Oxford Analytica (OA), in its 2006 Report on Monetary Policy Transparency, rates Malaysia's overall compliance with this standard as "Compliance in Progress." This overall assessment is unchanged from 2005. The OA report notes that, in recent years, the Central Bank of Malaysia - Bank Negara Malaysia (BNM) has improved its efforts to comply with international monetary transparency standards. For example, in 2006, the BNM made a concerted effort to increase its communications with the public and its stakeholders, such as the decision to releases the calendar of Monetary Policy Committee (MPC) meetings in advance and the decision to issue a statement on monetary policy on the same day as the MPC meeting as opposed to quarterly. In addition, in 2005, the BNM launched the Laman Informasi Nasihat dan Khidmat (LINK), which aims to enhance the effectiveness of BNM's interface with the public by creating a single point of contact. Also, in 2006, the BNM created the Credit Counseling and Debt Management Agency, which provides advice and information to the public on credit and financial management. Malaysia's monetary policy framework is officially set out in the Central Bank of Malaysia Act of 1958 (CBA), as amended in 1994, which enumerates the principal objectives of the BNM, and specifies its duties as overseer of the day-to-day handling of monetary policy. The roles, responsibilities and objectives of the central bank are clearly and comprehensively posted on the BNM website. According to the OA report, Malaysia is one of the first subscribers to the International Monetary Fund (IMF) Special Data Dissemination Standard (SDDS), and as such the BNM meets most of the SDDS specifications for coverage, periodicity and timeliness.

General Overview

According to Oxford Analytica (OA), in its 2006 Report on Monetary Policy Transparency, Malaysia's overall compliance with this standard is "Compliance in Progress." This overall assessment is unchanged from 2005. The OA report observes that Malaysia's monetary policy framework is officially set out in the Central Bank of Malaysia Act of 1958 (CBA), as amended in 1994, which enumerates the principal objectives of the Central Bank of Malaysia - Bank Negara Malaysia (BNM), and specifies its duties as overseer of the day-to-day handling of monetary policy. The roles, responsibilities and objectives of the central bank are clearly and comprehensively posted on the BNM website. While minutes of these meetings are still not publicly available (the BNM is not required by law to hold public hearings before major changes to monetary policy or supervisory regulation), statements about the key topics determining monetary policy are now included in the BNM's Annual Report and the Monetary Policy Statement, which, since 2006, is distributed at the end of the day following an MPC meeting as opposed to being published quarterly.

According to the OA report, regarding the public availability of information on monetary policy, Malaysia was one of the first subscribers to the International Monetary Fund (IMF) Special Data Dissemination Standard (SDDS), and as such the BNM meets most of the SDDS specifications for coverage, periodicity and timeliness. The OA report also notes that the BNM has a comprehensive and bi-lingual website (English and Malay), replete with statistical outputs, press releases and speeches dating back to 1996. Furthermore, BNM promptly posts on its website all major central bank monetary policy documents, such as the Monthly Statistical Bulletin, the Quarterly Bulletin, and the Annual Report, including latest and recent issues of these publications. The BNM disseminates a host of other publications, including historical works, occasional research papers, and detailed information sources on all areas of BNM supervision, and all are posted on the BNM website. According to the OA report, in recent years, the BNM made a concerted effort to increase its communications with the public and its stakeholders, such as the decision to release the calendar of Monetary Policy Committee (MPC) meetings in advance and the decision to issue a statement on monetary policy on the same day as the MPC meeting as opposed to quarterly. In addition, in 2005, the BNM launched the Laman Informasi Nasihat dan Khidmat (LINK), which aims to enhance the effectiveness of BNM's interface with the public by creating a single point of contact. Also, in 2006, the BNM created the Credit Counseling and Debt Management Agency, which provides advice and information to the public on credit and financial management.

Regarding accountability and assurances of integrity by the central bank, the OA report notes that the Central Bank Act (CBA) requires that the annual accounts (certified by the Auditor General) and a report by the BNM board on all annual central bank operations are presented to the Senate and the House of Representatives. After the BNM accounts are presented to Parliament, the Public Accounts Committee of the Parliament (PAC) may subject the BNM to a mandatory hearing to answer questions on its operations and administration. Section 47 of the CBN Law states that the BNM is accountable to the Minister of Finance and the BNM Board of Directors is required to report its return of assets and liabilities to the Minister of Finance twice each month.

The OA report also states that the BNM has "appropriate internal governance procedures to ensure the integrity of its operations" as established by its Board of Directors (p. 216). For example, the BNM's Internal Audit Department enforces internal governance procedures and cooperates with the National Audit Department to review all BNM financial operations and internal controls. The Auditor General is afforded independence under Article 106 of the Malaysian Constitution and the Audit Act of 1957. As such, the AG, which prepares an annual summary of findings on the BNM's financial statements, is only accountable to the legislature.

In its 2005 Article IV Consultations with Malaysia, the IMF lauded the authorities for the uneventful exit of the ringgit from its peg to the U.S. dollar, and encouraged the continuation of this effort, adding that it "considers this to be a vital first step toward greater exchange rate flexibility" (p. 2). Also, the IMF praised Malaysia's "commitment to allow the exchange rate to be determined by economic fundamentals," and also commended the BNM for pursuing a monetary intervention policy that focuses on reducing exchange rate volatility while also abstaining from sustained one-sided intervention, adding that "the estimation of equilibrium exchanges is inherently imprecise" (p. 2). Furthermore, concerning the appropriate framework for monetary policy after Malaysia's exit from the exchange rate peg, the IMF concluded that the BNM maintain price stability as its primary monetary policy objective. According to the IMF, this monetary policy framework is "sufficiently flexible to accommodate greater exchange rate flexibility going forward, provided communication on monetary policy objectives and policy formulation continues to be enhanced, including by publication of a measure of core inflation at the same frequency as the monetary policy statements" (p. 2).

The Principles

Clarity of roles, responsibilities and objectives of central banks.

CP

In its 2006 Report on Monetary Policy Transparency in Malaysia, Oxford Analytica rates Malaysia's compliance with this principle as "Compliance in Progress." According to the OA report, Malaysia's monetary policy framework is officially set out in the Central Bank of Malaysia Act 1958 (CBA), as amended in 1994, which enumerates the principal objectives of the central bank, Bank Negara Malaysia (BNM), and specifies the BNM's duties as overseer of the day-to-day handling of monetary policy. The roles, responsibilities and objectives of the central bank are clearly and comprehensively posted on the BNM website. The primary monetary policy goals of the BNM are to issue currency and safeguard the value of currency, and to promote monetary stability and a sound financial structure. In 2003, the CBA was amended to enhance the BNM's oversight and operation of national payment and settlement systems.

While the BNM has a history of controversy and doubts regarding its operational independence, the 2006 OA report states that, as of 2006, the BNM "has a high degree of operational autonomy from executive government" (p. 208). According to the CBN Law, the BNM's accountability is to the Minister of Finance, and the BNM Board of Directors is required to keep the Minister of Finance informed of monetary and banking policy. Nevertheless, according to the 2006 OA report, recent Malaysian experience is dotted with conflicts between the Minister of Finance and the BNM regarding the setting of policies, and whenever these disagreements arise, the CBA gives the MoF considerable weight over monetary policy decisions. Regarding the central bank's involvement in the rest of the economy, Section 30 of the CBA allows the BNM to operate a Special Investment Fund for the purpose of promoting economic development. Subsection 30 (1) (h) and (j) of the CBA permits the BNM to purchase, sell, and hold securities of the Malaysian or state governments, and hold securities of corporations set up with government approval to develop financial markets. Subsection 30 (1) (o) empowers the BNM to purchase and sell securities issued by foreign governments or international financial institutions.

Open process for formulating and reporting monetary policy decisions.

CP

In its 2006 Report on Monetary Policy Transparency in Malaysia, Oxford Analytica rates Malaysia's compliance with this principle as "Compliance in Progress." According to the OA report, in response to criticisms, the BNM has, since 2006, elevated its monetary policy transparency efforts by improving its communication strategy and increasing the dissemination of information to stakeholders. For example, the BNM provides the latest information on changes to monetary policy instruments in its press releases, Monetary Policy Statement, Monthly Statistical Bulletin, Quarterly Bulletin, and Annual Report, all of which are fully posted on the BNM website. Also, the BNM uses its Circulars to publicly disclose the rules and procedures for its relationship and transactions with counterparts. In 2006, the BNM announced another major improvement in its transparency regarding monetary policy-making: the Monetary Policy Committee (MPC) now meets eight times a year on predetermined dates, and MPC meeting schedules for the calendar year ahead are released in the preceding December.

While minutes of these meetings are still not publicly available (the BNM is not required by law to hold public hearings before major changes to monetary policy or supervisory regulation), statements about the key topics determining monetary policy are now included in the BNM's Annual Report and the Monetary Policy Statement, which, since 2006, is distributed at the end of the day following an MPC meeting as opposed to being published quarterly. Also, upon the release of GDP data and the BNM Annual Report, BNM senior management (i.e. the governor) now have question and answer sessions with the media and hold explanatory briefings for various stakeholders, such as private sector participants, other government officials and the general public. The BNM posts press releases on its website announcing changes in monetary policy, the Overnight Policy Rate, and the range and settings of monetary instruments. These provide the rationale for changes and the time span for implementation.

Public availability of information on monetary policy.

CP

In its 2006 Report on Monetary Policy Transparency in Malaysia, Oxford Analytica rates Malaysia's compliance with this principle as "Compliance in Progress." According to the OA report, Malaysia was one of the first subscribers to the IMF's Special Data Dissemination Standard (SDDS), and as such the BNM meets most of the SDDS specifications for coverage, periodicity and timeliness. In addition, the OA report states that the BNM is making efforts to release the data in an even more timely fashion. Furthermore, the BNM posts an advance release calendar on its website, which provides the expected release dates for data described in the IMF's Dissemination Standards Bulletin Board (DSBB). Regarding the public availability of the central bank's balance sheets, the OA report notes that the BNM releases its analytical accounts in the Monthly Statistical Bulletin, which also features, as part of the monthly balance sheet, a succinct assessment of Malaysia's overall liquidity operations sheet.

According to the OA report, the BNM has a comprehensive and bilingual website (English and Malay), replete with statistical outputs, press releases and speeches dating back to 1996. Furthermore, BNM promptly posts on its website all major central bank monetary policy documents, such as the Monthly Statistical Bulletin, the Quarterly Bulletin, and the Annual Report, including latest and recent issues of these publications. The BNM disseminates a host of other publications, including historical works, occasional research papers, and detailed information sources on all areas of BNM supervision, and all are posted on the BNM website. In 2005, to further reach out to the public, the BNM opened the Laman Informasi Nasihat dan Khidmat (LINK), "an office that acts as a single point of contact with the public on issues that relate to the BNM's operations, policies, the financial sector and consumer education" (OA 2006, p. 215)

Accountability and assurances of integrity by the central bank.

CP

In its 2006 Report on Monetary Policy Transparency in Malaysia, Oxford Analytica rates Malaysia's compliance with this principle as "Compliance in Progress." The Central Bank Act (CBA) requires that the annual accounts (certified by the Auditor General) and a report by the BNM board on all annual central bank operations are presented to the Senate and the House of Representatives. After the BNM accounts are presented to Parliament, the Public Accounts Committee of the Parliament (PAC) may subject the BNM to a mandatory hearing to answer questions on its operations and administration. Section 47 of the CBN Law states that the BNM is accountable to the Minister of Finance and the BNM Board of Directors is required to report its return of assets and liabilities to the Minister of Finance twice each month.

The BNM is required by law to publish its annual financial statements within three months of the end of its financial year, and Section 48 of the CBA requires that the accounts be subsequently certified by the Auditor General and then posted in the Government Gazette. As a further assurance of accountability, the BNM is also required to send its audited accounts to the Minister of Finance, who then submits them, along with the Annual Report, to the House of Representatives and the Senate for further public scrutiny. According to the OA report, the BNM has "appropriate internal governance procedures to ensure the integrity of its operations" as established by its Board of Directors (p. 216). For example, the BNM's Internal Audit Department enforces internal governance procedures and cooperates with the National Audit Department to reviews all BNM financial operations and internal controls. The Auditor General is afforded independence under Article 106 of the Malaysian Constitution and the Audit Act of 1957. As such, the AG, which prepares an annual summary of findings on the BNM's financial statements, is only accountable to the legislature. According to the 2006 OA report, regarding the ethical conduct of officials, the "CBA details the legal responsibilities of the governor, directors, and general staff, including the disclosure and/or processes concerning conflicts of interests" (p. 217). Also, while the Public Authorities Protection Act 1948 does not prevent legal action being taken against public officials, it shortens the limitation period for bringing lawsuits, and as such improves accountability.