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.