Malaysia rebounds from crisis but pitfalls seen<\/p>\n
By M. Jegathesan<\/p>\n
KUALA LUMPUR (AFP): Malaysia has rebounded impressively from
\nthe Asian economic slump but analysts say there is no room for
\ncomplacency.<\/p>\n
They generally agree the near-term outlook is rosy but say
\npolicymakers must hold inflation in check and make the economy
\nmore competitive to meet the challenges of liberalization.<\/p>\n
Central bank governor Ali Abul Hassan Sulaiman, who himself
\nwarned against complacency, last week predicted the economy may
\ngrow even faster than the official 5.8 percent forecast for this
\nyear.<\/p>\n
\"Malaysia's economy has lots of potential to grow higher,\" he
\nsaid when presenting the bank's upbeat annual report, which said
\ndomestic demand would replace exports as the main driver of
\ngrowth this year.<\/p>\n
\"Amidst the euphoria of recovery one must not forget the
\nlessons of the 'boom and bust' of the 1990s,\" wrote Mohamad
\nHaflah Piei of the Malaysian Institute of Economic Research in
\nlast Saturday's New Straits Times.<\/p>\n
\"Many critical and probing questions still need to be
\naddressed.\"<\/p>\n
He cited similarities between then and now -- a perception
\nthat the ringgit is undervalued, increasing liquidity partly due
\nto an inflow of foreign exchange earnings and portfolio funds,
\nand an undervalued stock and property market.<\/p>\n
In the 1990s, he wrote, an economy growing unsustainable fast
\nresulted in overheating and bottlenecks. Poor corporate
\ngovernance and a lack of accountability also contributed to
\neconomic crisis.<\/p>\n
\"Malaysia must not repeat the same mistakes,\" Mohamad Haflah
\nwrote. He called for concerted efforts to expand \"production
\nfrontiers\" through greater productivity and\/or technological
\nchange, rather than a push for runaway growth.<\/p>\n
Export competitiveness must be improved to avoid over-reliance
\non an undervalued ringgit, he wrote.<\/p>\n
Malaysia fixed the ringgit's value at 3.80 to the dollar as
\npart of selective capital controls imposed in September 1998.<\/p>\n
Sani Hamid, analyst with Singapore-based Standard and Poor's
\nMMS International, told AFP that imported inflation due to high
\noil prices could be a threat.<\/p>\n
Growth could also be stymied by a slowdown in the U.S. economy
\nand a consequent downturn in Malaysia's electronics sector, Sani
\nwarned.<\/p>\n
Bank Negara in its report said the main area of vulnerability
\nfor the region would be a downturn in the U.S. economy following
\na sharp correction in its stock market.<\/p>\n
Sani also said that when the economy achieves full capacity in
\n2001, \"domestic-created inflation\" could arise. \"Then comes the
\nquestion how high and how quickly the central bank will adjust
\ninterest rates.\"<\/p>\n
He said the central bank's task this year was to monitor
\nliquidity since excess liquidity means inflation.<\/p>\n
The bank forecasts inflation will rise to 3.2 percent this
\nyear from 2.8 percent last year. Ali Abul said it would try to
\nkeep the rate between three and four percent.<\/p>\n
Eddie Lee, economist with Singapore-based Vickers Ballas, said
\nMalaysia must position itself in Asia amid rapid technological
\nchanges and liberalization.<\/p>\n
\"Liberalization needs to be speeded up. It could affect long-
\nterm growth potential.\"<\/p>\n
Referring to the central bank's announcement of a 10-year
\nmasterplan for bank reform, Lee said: \"In this new era, 10 years
\nis a long period.\"<\/p>\n
Since the economy has improved, Malaysia should address the
\nissue of the ringgit peg quickly. \"The reasons in favor of the
\npeg are diminishing rapidly.\"<\/p>\n
If foreign direct investment remains lackluster in the second
\nhalf of this year, Lee said, this could also hurt growth.<\/p>\n
Jason Chong, Merrill Lynch's country head of research, said
\nthe central bank has adopted a loose monetary policy to spur
\ngrowth. But the flip side was that inflation could set in towards
\nthe end of the year to next year.<\/p>\n
Depending on the cause of the inflation the bank could either
\nraise deposit rates or re-peg the ringgit, he said.<\/p>\n
Chong said another challenge is for Malaysia to remain
\ninternationally competitive in the medium to long-term.<\/p>\n
\"But we think for the next six months to nine months the
\neconomic climate will remain rosy and conducive for the stock
\nmarket.\"<\/p>",
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