Malaysia’s prime minister in waiting gave the first indication that the government was aware of the threat to its economy posed by the global slowdown, but he failed to announce any major measures in a policy speech on Monday.
In contrast to the drastic action taken by other Asian nations in response to the looming economic slowdown, the Malaysian government had insisted that growth in this country of 27 million people would not be affected by the global slowdown, despite a heavy dependence on exports.
Najib Razak, currently finance minister and deputy prime minister, told a news conference that the economic growth forecast of 5.4 percent for 2009 and the budget deficit forecasts for 2008 and 2009 would be revised.
At the same time, however, he highlighted the country’s resilience.
“Yes, our stock market is affected by the sentiment in other markets, but I would like to say that we are not in a financial crisis and certainly we should not talk ourselves into one,” said Najib who will become prime minister in March.
Najib offered few concrete measures apart from boosting foreign investment, some unspecified measures to allow greater foreign investment in the property and the services sectors and a promise to look at some big investment promises. He also announced a doubling, to 10 billion ringgit, a fund that invests in the stock market.
The proposals disappointed some political commentators who had anticipated a comprehensive economic stimulus package.
“The government cannot hold back on solid economic responses especially in terms of policy direction and market liberalization,” said political analyst Khoo Kay Peng.
Malaysia has been insulated from the financial crisis triggered by the U.S. mortgage meltdown thanks to a managed float for its ringgit currency and a large current account surplus.
That means it is not dependent on foreign borrowing in the same way as other Asian countries such as South Korea.
“Most Asian countries have (already) downgraded their growth forecast for next year, especially those which are export oriented,” said Gundy Cahyadi, a regional economist at IDEAglobal.
Malaysia’s key stock index .KLSE was little changed at 904.50 points at 0357 GMT. The index had fallen 37.4 percent so far this year in line with regional losses.
Last week a leading Malaysian think-tank cut its 2009 growth forecast to just 4 percent next year and top domestic investment bank CIMB had projected 3 percent in a report this month.
According to investment bank UBS, Malaysia is the third most dependent of the world’s emerging markets on exports relative to the size of its economy.
The Malaysian Institute of Economic Research forecast that the budget deficit could exceed 5 percent of gross domestic product this year, above the government’s 4.8 percent forecast, revised from an earlier 3.2 percent goal.
Economists doubt Malaysia will meet its 2009 deficit target of 3.6 percent given lower prices of its oil and commodity exports and weakening foreign and domestic demand that will cut the tax take.
The expected pressure on revenues coincides with plans of greater social spending aimed to revive the popularity of the government at a time when it is under siege from a resurgent opposition.
EXPECTATIONS FOR NAJIB
Najib is due to take power at a time when discontent with the government is high due to surging costs of living. He needs to revive morale in the ruling coalition that has led Malaysia for 51 years and which suffered a huge blow in elections this year when the opposition for the first time in four decades deprived it of its two-thirds majority in parliament.
“Denial, denial, denial. I don’t think that is the right prognosis,” said Khoo, the political analyst.
Najib’s denial of Malaysia’ problems disappoints economists