KL cuts 2003 growth forecast to 4.5%, eases forex rules

KL cuts 2003 growth forecast to 4.5%, eases forex rules

Eileen Ng, Agence France-Presse, Kuala Lumpur

Malaysia on Wednesday slashed its economic growth forecast for
this year to 4.5 percent from 6.0-6.5 percent and announced the
easing of foreign exchange rules to woo investors.

The central Bank Negara Malaysia, in its 2002 annual report,
warned gross domestic product (GDP) growth could slide even lower
if global economic uncertainties persist.

Bank Negara governor Zeti Akhtar Aziz said the 4.5 percent
forecast, up slightly from 4.2 percent growth recorded last year,
was in line with expectations in other Asian economies that the
pace of growth last year would be sustained into 2003.

Growth was expected to be propped up by a recovery in private
investment, which rebounded in the second half of last year after
two straight years of decline. Private investment growth is
forecast at 8.1 percent this year, she said.

Some pick-up in the global electronics industry, firm
commodity prices and a further expansion in intra-regional trade
were other favorable factors.

"The underlying trend is for the Malaysian economy to expand
by 4.5 percent," Zeti said.

But she warned that GDP growth would be weaker than expected
if the recovery in private investment failed to gain momentum.

Bank Negara said exchange control rules would be further eased
as part of ongoing efforts since November to provide a conducive
business environment and boost efficiency.

From April, a rule requiring non-resident controlled firms to
get at least half of their loans from Malaysian-owned banks will
be lifted.

Firms will have more freedom to sell foreign exchange forward
contracts.

Exporters can retain more proceeds in their foreign currency
accounts and need not report every transaction in excess of
100,000 ringgit. They need only submit quarterly and annual
reports.

Economists said Malaysia's move to cut its growth forecast
amid the U.S.-led war in Iraq was expected as a slowdown was
already underway.

But they found the 8.1 percent growth forecast for private
investment too bullish given the weak global economy and said
further liberalization was necessary for Malaysia to cope with
stiff competition from China and other regional economies.

"Malaysia faces an uphill battle to attract more foreign
investment. It needs to do a lot more to open up the economy,
open up sectors and cut tax rates," said Paul Schymyck, economist
with Singapore-based IDEAglobal.

He urged the government to eventually dismantle its fixed
exchange rate, pegged at 3.80 ringgit to the dollar since 1998.

A stimulus package, to be unveiled next month to shore up the
economy, would be a shot-in-the-arm if it contained tax
incentives and other steps to boost competitiveness rather than
just government spending, he added.

Bank Negara said GDP growth in 2003 would remain driven by the
domestic economy but the private sector would assume a more
significant role.

Private consumption growth is expected to jump to 6.9 percent
from 4.2 percent last year, but public consumption growth is seen
falling to 3.1 percent from 13.8 percent. The expansion of public
spending is seen slowing to 4.1 percent from 4.6 percent.

Manufacturing growth is expected to improve to five percent
from 4.5 percent last year, with agriculture growing 1.5 percent,
up from 0.3 percent.

The central bank said there was a general consensus that the
electronics sector would improve in the second half of the year
but export growth was expected to ease to 7.8 percent, from 10.6
percent last year.

Despite a recent hike in oil prices, Bank Negara said
inflation was expected to moderate to 1.5 percent from 1.8
percent last year and unemployment is projected at 3.4 percent.