KL trade surplus gives little cheer

KL trade surplus gives little cheer

KUALA LUMPUR (Reuters): Malaysia on Monday posted a 4.2 billion ringgit (US$1.1 billion) surplus in July, but exports and imports fell in tandem reflecting slow economic growth in one of the world's most open, trading economies.

Malaysia's export driven growth has been hard hit by the U.S. slowdown and plunge in the global technology cycle, but Prime Minister Mahathir Mohamad, who is also Acting Finance Minister, said he saw no need to start pushing any panic buttons.

"Malaysia does not depend on fiddling with the exchange rate or interest rates or pump priming on their own in order to grow the economy," Mahathir said in a speech opening the Malaysian Capital Markets Summit 2001.

Mahathir said the government fiscal boosters, delivered in the 2001 budget announced last October, and augmented in March, were stimulating domestic demand, without driving up imports too much and had given the construction and services sector a filip.

The July trade surplus was up 200 million ringgit on the same month last year, helped by imports falling 21.0 percent to 22.7 billion ringgit, while exports fell 1.8 percent to 26.9 billion.

The surplus is also 900 million ringgit bigger than June's, a jump of 27 percent, which prompted a knee-jerk jump in the local stock market, which ended the morning session 0.73 percent up.

But imports were down 1.5 billion ringgit on June's level, and exports were down 600 million ringgit, leaving little to cheer about.

The fall in imports was largely driven by capital goods, reflecting subdued investment.

For the first seven months of 2001 the surplus of 30.0 billion ringgit was 2.8 billion less than a year ago, and exports were 6.0 percent down, while imports contracted by 5.5 percent.

Malaysia's dynamic electronics sector is spluttering due to weak U.S. demand. Its exports accounted for 55 percent of the July total, but at 14.7 billion ringgit it was down 23 percent on last year's level.

NO CHANGE IN RATES OR RINGGIT

The government says that unlike fellow export-oriented economies, Singapore and Taiwan, Malaysia has avoided recession.

After recording 8.5 percent growth in 2000, Malaysia recorded just 0.5 percent growth in gross domestic product in the second quarter, compared with a year ago.

Malaysia adopted a low interest rate strategy to recover from the Asian financial crisis three years ago, and has not budged since. Mahathir saw no reason for a further cut in rates already among the lowest in the region.

The officially-listed three-month Kuala Lumpur inter-bank offered rate (KLIBOR) has been rangebound between 3.20-3.30 percent, but the three-month rates have been trading at 2.85-2.89 percent on expectations that monetary policy would stay soft.

Mahathir said there was no reason to devalue the ringgit, which was pegged at 3.8 per dollar in late 1998.