Anwar announces steps to cut Malaysian deficit

Anwar announces steps to cut Malaysian deficit

KUALA LUMPUR (AFP): Malaysia's Finance Minister Anwar Ibrahim outlined steps yesterday to slash the country's current account deficit to four percent of gross national product (GNP) by the end of next year.

"For this year, we expect the deficit to be reduced to five percent and, with the adjustments we are making, it is expected to further reduce to four percent in 1998," he told a local bankers association dinner.

"Although improving, the current account deficit is still large and needs to be further reduced," he said, noting that the deficit had narrowed from 10.5 percent of GNP in 1995 to 5.2 percent last year.

Anwar said gross domestic product (GDP), which adjusts GNP for foreign income, grew 8.45 percent in the first half of this year. "We are confident of achieving a growth rate of eight percent for the whole year, while the rate for 1998 is expected to continue at a high level," he said.

"Our fundamentals are strong," he said, quoting from an assessment by the International Monetary Fund (IMF) last Friday which noted that "the economy's generally strong fundamentals had not spared Malaysia from the contagion effects of developments in neighboring countries."

In a bid to reduce imports, particularly the "bunching effect" on the trade account, Anwar said the cabinet on Wednesday endorsed plans to "defer the implementation of several large projects" including the mammoth Bakun dam.

"Now that it is deferred, we have to explore other alternatives so as not to jeopardize the energy situation by around 2003," he said.

"For new privatized projects, they will be assessed in terms of their macroeconomic impact before they are approved for implementation.

"Only projects which are essential for improving the long-term growth prospects and whose import content is acceptable will be allowed to proceed. All new decisions on privatization will be deferred until December," he added.

Anwar, who is also deputy premier, said government officials would be provided with locally-made Proton model cars rather than imported vehicles.

"The purchase of large foreign goods by government agencies including the armed forces will be reviewed and canceled when deemed necessary," he said.

But Anwar said the "main weakness" in Malaysia's balance of payments was the "persistent deficit in the services account which upsets the surplus recorded in the merchandise account.

"The services deficit is a structural problem which requires long-term efforts," the finance minister said, noting such efforts had caused a weakening of the trade balance in the short term.