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Thursday, August 21, 2008

Don says resource-rich economies, like Malaysia, will do well


KUALA LUMPUR: Malaysia and other resource-rich economies should do better than the financial capital markets in the US, European Union (EU) and Japan, said a professor from the University of Tokyo.

Price increases in commodities had enhanced the revenues of Malaysian producers and the Government, said Professor Takatoshi Ito of the university’s Graduate School of Economics and Public Policy.

Ito, who is also the fourth holder of the Tun Ismail Ali Chair, said Malaysia was currently experiencing mixed effects of demand and supply which was atypical of resource-rich economies that included Indonesia and Australia.

In comparison, based on their second quarter gross domestic product (GDP) figures, the economies of Japan and EU contracted while the US economy would soon fall, he said at the Institute of Strategic and International Studies (ISIS) Malaysia International Affairs Forum on What policy should Malaysia pursue in an environment of high inflation and low growth.

To a question on the ringgit, he said a stronger ringgit against the greenback “is probably not a threat.”

“However, a sudden and strong currency appreciation vis-a-vis all other currencies may be a problem, as in the baht in 1997,” he said.

Asked if Malaysia should adopt inflation targeting, a monetary policy in which, a central bank attempts to keep inflation within a declared target range — typically by adjusting interest rates, Ito said it was a viable option.

The central bank should then communicate to the public well that the inflation rate would be brought down and the expected inflation range anchored at around the target rate, he added.

Ito said the threat of stagflation was very real in the near future if the prices of oil, commodities and food increased but there was a stagnation in output and economic activity.

To a question on whether the Gulf economies would be able to sustain their growth, Ito said sooner or later, Gulf economies had to de-peg from the US dollar.
“A basket currency where currencies are floated against other currencies is better for Gulf countries,” he said

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