KL maintains loose policy, clings to capital controls
KL maintains loose policy, clings to capital controls
KUALA LUMPUR (AFP): The Malaysian government said on Tuesday it will increase liquidity and lower interest rates but will cling tenaciously to its selective capital exchange control measures to spur economic growth.
The policy was outlined in a White Paper presented in Parliament by Deputy Prime Minister Abdullah Ahmad Badawi to explain the status of the Malaysian economy and its prospects following the mid-1997 Asian financial crisis.
"The selective exchange control measures introduced in September 1998 are showing positive results and contributing towards the restoration of public and investors confidence," Abdullah said.
The central bank forecast last Wednesday a modest growth rate of 1.0 percent for 1999 after last year's first recession in 13 years sliced 6.7 percent off the gross domestic product.
On Thursday, international rating agency Standard and Poor's revised its outlook on Malaysia from negative to stable.
Malaysia's capital controls included a peg of 3.8 ringgit to the dollar and abandoning the convertibility of the unit abroad in a bid to shield itself from excessive speculation.
Analysts have said the controls have helped set the pace for lower interest rates and other recovery efforts.
Abdullah said domestic consumption was expected to be the main engine of growth.
"Measures introduced to increase liquidity and lower interest rates provided the enabling environment for the gradual improvement in investor sentiment," he said.
"The fall in the non-performing ratio in September 1998, the first time since the onset of the crisis, is expected to further promote lending by the banking system."
Citing an example, Abdullah said the number of disbursements for the small and medium industries fund for food had increased at an average of 52.8 million ringgit (US$14 million) and 17.2 million ringgit per month, respectively between October and December.
Almost 21 months into the crisis, the measures were showing results, he said. "There is also the emergence of a 'feel better' sentiment among investors and the public."
This indicates that the worst is over and that the economy has bottomed out, he said, adding that the economy was expected to turn around to register a positive growth from 1999 onwards.
Abdullah said the strong economic fundamentals and pragmatic measures taken lessened the impact of the crisis and averted its potential extreme effects such as massive unemployment, starvation and civil unrest.
He said the restoration of public and investor confidence both at home and within the region will be the key to determining the speed of recovery.
"External developments will also have a significant bearing on the performance of the Malaysian economy... (given) the strong links in terms of trade and investments," he added.