KL trade balance to improve

KL trade balance to improve

KUALA LUMPUR (AFP): Malaysia's trade balance is expected to improve in 1996 allowing the government to shift concern to inflation-control, analysts said yesterday, ahead of the release of December trade data.

"1995 was bad but we can say the worst is over for Malaysia, with December showing a surplus," said Yeoh Keat Seng, director of Crosby Research in Kuala Lumpur.

The government is expected to focus attention on inflation- control in 1996 after having grappled with the burgeoning trade and current account deficit in 1995, Yeoh said.

Analysts widely predicted a trade surplus of more than 500 million ringgit (US$200 million) for December when announced by Deputy Prime Minister Anwar Ibrahim, who is also finance minister.

The Finance Ministry's secretary-general Clifford Herbert said Tuesday Anwar would announce the trade statistics this week and that "there is nothing to be alarmed about."

The current account position is also well within our control, Herbert added.

Foreign analysts and fund managers, who have been concerned with Malaysia's wide current account deficit, were keenly awaiting the release of December trade data to gauge Malaysia's economic health.

Talk of better trade figures since last week has fueled a rally on the Malaysian bourse, with the composite index, the key market barometer, surging 17.49 points to a new 16-month high Tuesday to 1,124.39.

Analysts said the trade deficit for the whole of 1995 was expected to be 9. 3 billion ringgit, much lower than the Treasury's own forecast of 9.6 billion ringgit and better than earlier predictions by private economists.

This would also improve the forecast for Malaysia's problematic current account deficit to 17.5 billion ringgit against the Treasury's projection of 18.2 billion ringgit for 1995, analysts said.

In 1994, Malaysia saw a trade deficit of 2.2 billion ringgit and a current account deficit of 11 billion ringgit.

"In 1996, we expect to see a further improvement of the trade deficit to 2. 5 billion ringgit and a narrowing of the current account deficit to 15 billion ringgit," an analyst with a foreign research house said.

Inflation-control is expected to be the main focus this year as the multiplier effect coming through consumers in the wake of higher tariffs for telephone services, power and highway toll could put pressure on prices, analysts said.

The sharp growth in loans last year of above 20 percent amid the continued robust economic growth that has averaged above eight percent since 1987 will further fuel inflation, they said.

The government is expected to allow domestic interest rates to rise by another 75-to-100 basis points by the year-end from the current average of 7. 20 percent, they said.