Mahathir unveils US$789m package to boost economy

Mahathir unveils US$789m package to boost economy

KUALA LUMPUR (AFP): Prime Minister Mahathir Mohamed unveiled Tuesday a three-billion-ringgit (US$789 million) supplementary budget to shore up the Malaysian economy amid a U.S. slowdown.

Mahathir also announced a string of new measures to encourage domestic consumption, and plans to liberalize regulations on equity, property and asset investment by foreigners.

For one year from April, employees' contribution to the state retirement fund will be cut from 11 to nine percent. The government will also abolish a 50 ringgit tax on credit cards imposed since 1997.

A new 500 million ringgit entrepreneur rehabilitation and development fund would be set up to improve financing for small and medium-sized industries.

The premier said that the government has to take "preemptive measures" to sustain the growth momentum in anticipation of adverse effects of a US slowdown on Malaysia's exports and economic prospects.

"Already our electronics exports to the US have been affected. Some companies are restructuring, moving on to cheaper places," he told a news conference.

The announcement however led the stock market to close down 0.9 percent Tuesday.

Dealers said investors remained cautious about how effective the measures would be amid prevailing weak sentiment.

"It is a proactive move but it will all depend on consumer sentiment whether they are confident of using the money in their pockets," said Song Seng Wun, regional economist with Singapore- based GK Goh.

The premier said the government would seek parliament's approval to increase development spending by three billion ringgit, in addition to the 28.8 billion approved under the 2001 budget.

This would raise gross domestic product (GDP) by 1.1 percent, he said.

The government has forecast GDP to grow 7.0 percent this year but the premier said the figure was being revised and would be announced by the central bank Wednesday.

The federal government's 2001 budget deficit of 4.9 percent of gross national product "might rise a little bit" following the additional spending, he added.

Among new projects identified were 200 schools, 193 colleges, four universities, 6,600 houses for soldiers and 600 million ringgit in oil palm replanting subsidies and special assistance to rubber smallholders.

Mahathir said the government would assist in major infrastructure and utilities projects, including the Bakun hydroelectric dam, the Pulau Bunting coal power plant, the Tanjong Pelepas Port and Westport.

He said the finance ministry has formed a "flying squad" to ensure the speedy implementation of the projects. The ministry would study funding details and may consider issuing sovereign bonds, he added.

Mahathir said rules under the Foreign Investment Committee (FIC) would be amended to provide a "more liberal environment" for foreign investors, but details were still being worked out and would be announced soon.

To promote the sale of cars, the premier said civil servants can apply for car loans every five years instead of the present interval of seven years.

To reduce a property glut, the government would ban the construction of new office and commercial space. Incentives including the exemption of stamp duty and a higher finance margin will be given in residential sales.

Mahathir said the government would continue its accomodative monetary policy to ensure reasonable funding costs. The ringgit peg of 3.80 to the dollar, set in 1998 amid a recession, would also be maintained.

The premier said the government was prepared to undertake further stimulus measures if the US slowdown was sharper than anticipated.