Mahathir backs new economic policy measures

Mahathir backs new economic policy measures

KUALA LUMPUR (Reuters): Malaysia's Prime Minister Mahathir Mohamad yesterday gave his backing to the new economic policy measures announced by his deputy last week to restore investor confidence and cool the economy.

"We have decided on these measures... but I cannot say how much clearer we can be," he was quoted as telling reporters at the northern resort island of Langkawi.

"But certainly it is clear that we are taking the necessary measures to restore confidence in the economy," he said at a news conference at the end of the six-day Langkawi International Maritime and Aerospace (LIMA '97) exhibition.

He did not elaborate.

Deputy Prime Minister Anwar Ibrahim announced on Friday that the government had slashed its 1998 growth forecast, tightened credit and cut spending across the board.

Anwar said the measures would cut growth of gross domestic product to between four and five percent in 1998, down from an earlier estimate of seven percent.

The current account deficit, considered a key barometer of the economy's sustainability, was revised down to about three percent of gross national product from four percent for 1998.

Economists have lauded the package but said they wanted Mahathir to endorse the measures. Mahathir caused some confusion last Thursday by announcing that a $3.0 billion land bridge project to Thailand would go ahead despite international pressure to slow down construction and infrastructure projects.

Anwar said only the gas and petroleum pipeline portion of the project will go ahead, while the rail and road sections were being deferred indefinitely.

Economists told Reuters yesterday that the self-imposed austerity measures will cause much adjustment pain in many sectors of the economy over the next one to two years.

But the acknowledgement that problems exist in the economy, a change from earlier denials, will help in a faster return to stability.

"They have at least acknowledged the problems. Now the recovery would be faster than if they had continued to deny the problem," said Ng Bok Eng, senior economist with Daiwa Institute of Research in Singapore.

He said that overcoming the problems the new measures were addressing would take time, particularly in the troubled banking and property sectors.

"Overborrowing in the banking sector is still a problem since a lot has gone to unproductive sectors, property in particular. These measures will prevent the problems from getting worse," he said.

Economists said the performance of the property and banking sectors, whose problems were primarily responsible for the contagion from Thailand spreading across the region since July, would determine economic trends over the next two years.

They said this package will help Malaysia cope with the markets-induced crisis without help from the International Monetary Fund (IMF), which has in the last few months bailed out Thailand, Indonesia and South Korea.

"We believe that low levels of short-term debt, manageable foreign debt and recent curbs on bank lending will allow Malaysia to handle the crisis on its own without the need for the IMF," research firm MMS International said.

Some economists said the new measures could mean a virtually no-growth period for the country that has enjoyed 10 years of eight percent or more growth.