Badawi puts his stamp on economy

Badawi puts his stamp on economy

Eileen Ng, Agence France-Presse, Kuala Lumpur

Malaysia's Prime Minister Abdullah Ahmad Badawi has stamped his mark on the economy in just 100 days in office, shifting away from mega projects and pledging to wipe out corruption to boost growth in one of Southeast Asia's leading economies.

Since succeeding veteran strongman Mahathir Mohamad on Oct. 31, Abdullah has surprised the business community with some bold moves such as deferring a multi billion dollar rail deal and indicating a possible change to Malaysia's six-year-old currency peg against the dollar.

He has also promised to cut red tape and improve transparency in the award of government contracts to clean up graft and improve the business climate, while naming agriculture as a new priority sector.

"People were expecting a more cautious approach from the new premier, that he wouldn't depart from Mahathir's style, but what we have seen in the past 100 days suggest otherwise," said Paul Schymyck, economist with Singapore-based IDEAglobal.

"There have been significant changes both in style and emphasis, and these were viewed positively by the market."

Faced with a towering budget deficit, Abdullah, who is also finance minister, has so far appeared to distance himself from the excesses linked to Mahathir's 22-year tenure when the government built the world's tallest twin towers, one of Asia's showiest airports, and a grand new capital at Putrajaya.

In his first major economic decision in December, Abdullah shelved a controversial rail deal, one of Asia's biggest infrastructure contracts, awarded by Mahathir to a local group without any bidding process, in favor of smaller development schemes.

Last month, he said an agreement to sell Southeast Asia's largest hydroelectric dam in Sarawak state to a well-known tycoon had lapsed but decided to push ahead with the project. The Edge daily reported later that the government may scale back the capacity of the dam.

Both the rail deal and the Bakun dam project are linked to Syed Mokhtar Albukhary, a close ally of Mahathir, and analysts say Abdullah's moves reflected his pledge to be more transparent in awarding contracts.

But what is winning him applause from foreign investors is Abdullah's new flexibility towards the ringgit peg of 3.80 to the dollar, the last remnant of capital controls imposed in September 1998 by Mahathir to battle a recession caused by the Asian financial crisis.

Abdullah told top corporate players last month that there were no plans to change the value of the ringgit for now but promised a review if the situation merits it.

"We are not dogmatic about this. We are not saying that it is going to be there forever and ever and ever. If later on, some fundamental changes happen around us or the world over, then of course we have to reconsider the peg," he said.

Some analysts said it was time for the government to remove the peg given the weakening dollar.

IDEAglobal Scymyck's said it would be a boost to foreign investment, which has slumped since 2001 amid competition from China and regional rivals like Thailand, if the peg was lifted.

But such a drastic move is unlikely for now as Abdullah focuses on upcoming general elections seen as his first test after becoming premier. Economists believe future policies will be significantly shaped by the mandate he gets from voters in polls due late 2004 but widely tipped to be called by April.

"Postponing the rail deal is a bold move and I believe his management style will be even more distinct after he gets his mandate. There may be bolder policies such as reviewing the peg," said Manokaran Mottain, economist with SBB Securities.

Economic prospects are rosy, and Abdullah has predicted growth of 5.5-6.0 percent this year, up from 4.5 percent expected for 2003.

But there are outstanding problems he will have to sort out, among which is the fate of national carmaker Proton which has sought another 20 years of tariff protection after its sales were hit badly last year by stiff foreign competition ahead of market liberalization in 2005.

Proton was set-up by Mahathir in the mid-1980s as part of Malaysia's move into heavy industry but lacks the economies-of- scale to be competitive after being protected for years by high import tariffs on foreign cars which will disappear under a regional free trade area.