KL riding high but not immune to regional contagion

KL riding high but not immune to regional contagion

By Rainer Koehler

KUALA LUMPUR (DPA): The only thing upon which Malaysians are currently in agreement is that they are not in the same desperate straits as Indonesians and Thais, and comparisons to their troubled neighbors are rather resented. Yet no one can say with any certainty which way Malaysia will go in future.

"We had to take a few hard knocks because of the Asian financial crisis," acknowledged Abdul Rasheed Ghaten of the country's central bank, Negara Bank. "But we remain the most beautiful bride in the region."

Perhaps, but Abdul Baginda, who heads the Malaysian Strategic Research Center, sounded anything but optimistic, complaining that "Ten years of boom have left us a fat, sleepy cat." Hardened by his experience fighting the Asian crisis, the head of the International Monetary Fund, Michel Camdessus, was rather non- committal, saying only "So far so good" after one tour of inspection.

There is no other country in the crisis-plagued Southeast Asian region about which there is such a division of opinion as Malaysia, with even experienced investment fund managers ranging from almost giddy optimism all the way down to persistent doom and gloom.

There is currently not even insufficient reliable data to determine an economic trend in the country of about 22 million people. There simply is no definite direction. In the meantime there is just the fundamental recognition that things are not as bad as in Thailand and Indonesia.

It is not just Malaysians who make the claim. "In the development of the banking sector," acknowledged Louise Paul, the manager of Munich-based Bayerischer Landesbank's Kuala Lumpur office, "this country stands two or three steps higher."

There are good grounds for this claim. Admittedly, the local stock market and the currency were badly shaken, but no Asian "devaluation country" reacted to the crisis as adeptly as did Malaysia. The 35-percent decline of the ringgit against the dollar over the past year has been painful, but nothing like the plunges of 58 and 75 percent experienced by the Thai and Indonesian currencies respectively.

Instead of squeezing the money supply and thereby stalling the domestic economy, without stabilizing the ringgit, Negara Bank began to slowly and very carefully raise interest rates after the first major currency shooks hit the region.

Disruptive, excessive growth was thereby cooled without sparking a massive wave of bankruptcies, providing time and breathing space for mergers and acquisitions to carry through a consolidation. In Western countries, people have grown too accustomed to judging Malaysia by the rhetoric of Prime Minister Mahathir Mohamad.

What he said is of course listened to, but has had less direct effect on events here than is sometimes supposed.

Mahathir's politically motivated attacks against "speculators" and "Zionists" determined to "take from hard-working Malaysians the fruits of their labors" not only set off a round of headshaking in government offices, but even the occasional open criticism.

"That just made things worse," State Secretary Aris Othmann of the finance ministry said of his prime minister's comments. "We are suffering through a huge crisis of confidence."

Even Mahathir's call to arms, "Think Big," is widely mocked, because Malaysians recognize that such thinking has been a major cause of their problems: the mega-projects which were supposed to increase the country's prestige severely strained finances, and without them, many believe, Malaysia may have been able to ride out the East Asian financial crisis relatively unscathed.

"We will only complete what would otherwise be an investment ruin and a waste of money," assured Negara Bank official Abdul Rasheed Ghafur. In other words, faith in the economic future will not depend upon gigantic projects such as the Petronas Towers, which were built as a new financial center for Kuala Lumpur. The world's tallest office buildings, even though still incomplete, were the biggest and certainly the most visible bad investment. The 452-metre-high "twin towers" may have succeeded in attracting visitors, but not in the parallel goal of winning respect for Malaysia's so-called "economic miracle."

Indeed, the 88-storey edifices are not primarily the work of Malaysians; Japanese firms put up one, South Korean firms the other. Some US$1.4 billion has been spent, requiring similarly sky-high rents that few Malaysian firms can afford.

Few offices are occupied, although an advance guard of Petronas employees is reported to be already at work inside; their employer, the semi-state-owned oil company, is the developer.

Already, the oil giant's locally-based business partners and suppliers are complaining privately that Petronas is squeezing them to move in, too; otherwise, they risk losing contracts. Even without such blackmail, many Malaysian companies were already facing the prospect of several lean years.

Still, the Malaysian economy is not without its bright spots; though most economists expect growth to be halved this year, it could still be in the range of four to five percent, and some slowing is probably healthy for an economy that was in danger of overheating.

Malaysia is burdened with relatively little foreign-currency debt, which has so far spared it the IMF's painful ministrations, but local banks are sitting on a mountain of bad debt. "Most of it is in real estate," explained Bayerische Landesbank's Christian Mathe, "but often it also comes from utterly foolish stock buys."

Landesbank's operations in Malaysia -- it has a leading role in the offshore banking center of Labuan Island -- will be adapted to the country's more straitened circumstances.

"Consolidation is a priority," explained Mathe, with "no expansion of business volume, as was planned for 1998 until recently. We are now experiencing a lender's market and can establish better conditions."

The key to making money in a still rather risky situation in Malaysia right now is the right customer base, the banker said: "We are primarily taking only the 50 best businesses in the country into consideration."

It does not sound that good, yet Mathe's colleagues in some neighboring countries have much shorter lists.