AM trying to learn, more and more, about the economy. And it is not easy (to this old mind, non-economic head). But it is fascinating. This post is but a reaction, I think, from the government to counter the economic downturn which I read somewhere is on the brink of recovery. I also read somewhere, this seemingly famous catch phrase: It's the economy, stupid....
FURTHER ECONOMIC REFORM IN THE PIPELINE
KUALA LUMPUR, Dec 2 — The country will undertake further economic reforms aimed at boosting investment and growth after spending a decade “stagnating” in the wake of the 1998 Asian financial crisis, a top finance official said yesterday.
Malaysia, which has lost ground to neighbours such as Indonesia in the race for foreign investment, needs to rebuild confidence by providing the highest standards of governance, Second Finance Minister Husni Ahmad Hanadzlah told a business conference.
“Our private investment is now half of what it was since (before) the Asian crisis while both manufacturing and service sectors have become less capital intensive,” Husni said.
Ministers rarely criticise the country's economic performance, preferring instead to tout its rejection of advice and money from the International Monetary Fund in 1998 as a role model during the current global economic turmoil.
The most recent Transparency International corruption index saw Malaysia slide nine places to 57th place, and the government has also been hit by a multi-billion ringgit corruption scandal over the construction of a free trade zone in the country's biggest port, an issue that has hurt bondholders.
Malaysia recorded its first net portfolio inflows of RM8.8 billion in the third quarter of 2009 after five consecutive quarters of outflows of portfolio investment totalling RM114.4 billion.
In a bid to revive growth, Prime Minister Datuk Seri Najib Razak recently introduced economic reforms which included reducing requirements that Malays own 30 per cent of listed companies and opening up financial services.
While the reforms, aimed at enabling Malaysia to compete with fast-growing regional powers such as China and India, have been welcomed, few people have committed new money.
“Real execution remains key,” investment bank Morgan Stanley said in a report issued on Monday after a visit to Malaysia.
Husni hinted that more reforms could come to end protection for the majority Malay population, a potentially politically unpopular move from a government that is still licking its wounds after heavy election losses last year.
“The long-term success of the nation's economy must take precedence over the short-term interests of a few protected groups,” he said.
In some parts of the economy, such as the automotive sector and government procurement, Malays are given preferential treatment for contracts and ownership, a measure that some have criticised for fostering corruption and wasting money.
Husni also touched on possible reforms to massive government-linked companies (GLCs) which make up half of the top 30 companies listed on Bursa Malaysia and whose low levels of free float have caused investors to shun Malaysia's stock market.
“There is a widespread perception that due to the substantial role of GLCs in the marketplace, the true entrepreneur-run private sector, believes he is crowded out,” Husni said.
Husni also said that Malaysia's economy is likely to grow by 5 per cent in 2010, more than official government forecasts of 2-3 per cent.
“We have identified several projects in the pipeline and we will bring them forward for implementation in the first quarter next year,” he said. “We are reasonably confident that a target of 5 per cent (growth) is achievable.”
The government has forecast that Asia's third most trade-dependent country, relative to the size of its economy, will contract by 3 per cent this year before returning to growth in 2010.
Recent data showed that the country's economy shrank far less than expected in the third quarter of this year as the government's fiscal pump priming boosted domestic demand.
Malaysia has to deal with the budget hangover from pump priming measures totalling RM67 billion, and its deficit this year will hit a more-than-20-year high of 7.4 per cent of gross domestic product (GDP).
The government plans to reduce the deficit to 5.6 per cent of GDP in 2010, in part by reducing generous fuel subsidy payouts.
Husni said yesterday that a new system of fuel subsidies would be introduced in May 2010 and that annual savings of RM2 billion would be achieved.
Under its 2010 budget plans, total subsidies for fuel and food are targeted to fall by 14.7 per cent to RM20.9 billion.
As well as reducing subsidies, the government will introduce a value added tax in about two years in an effort to diversify its tax base away from its reliance on state oil company Petronas, which currently accounts for nearly half of government revenue. — Reuters
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