After running through the 2007 Malaysian budget earlier, I’d like to touch on an issue and it concerns Bank Negara. Bank Negara is of course the Malaysian central bank. In the budget tabled last Friday, the Prime Minister announced that Bank Negara will establish a fund worth MYR 200 million to invest in “integrated agriculture and livestock projects”. I’m shocked to find out that Bank Negara is getting itself involved in agriculture!
Before I go on, I want to clarify that I’m neutral on the current administration’s stress on agriculture. Despite all the political gimmicks, I do see the rationale behind the stress on agriculture. Malaysian economy after all is undergoing structural shift and there’s a need to reassess its bases. Malaysia at the very least need to find the sectors that it has comparative advantage in as our regional competititors are outdoing us. I myself — perhaps due to the limits of my knowledge — am not confident enough to say which sectors Malaysia look into.
Nevertheless, having Bank Negara involved in agriculture is another story altogether. I’m not sure if this is the first time ever the central bank has seriously ventured outside the area of central banking but in my short term memory, this is certainly the first.
Bank Negara is first and foremost a central bank. Therefore, it should act as a central bank. Its business is central banking. It should only focus on monetary policies.
I don’t know if this is an outside-the-box thinking by the government but why couldn’t the existing Bank Pertanian — the main function of Bank Pertanian after all is promoting development of the agriculture in the country — take the job instead?
It does seem to me that Bank Negara is being used by the Prime Minister to advance his political agenda, for better or for worse. Even if that isn’t true, this venture into agriculture is not part of monetary policies and thus, not the responsibility of the central bank. This agricultural venture could distract the central bank from its real responsibilities.
More importantly, through my eyes, Bank Negara doesn’t have the independence that it needs to operate as a central bank. With the lack of independence, imagine if the executive branch of the government suddenly found out that it ran out of cash and decided to resort to seignorage?