Mahathir's broad strategy to cut account deficit
Mahathir's broad strategy to cut account deficit
KUALA LUMPUR (AFP): Prime Minister Mahathir Mohamad outlined yesterday broad strategies to cut Malaysia's large current account deficit, but refused to brake growth or manipulate interest or exchange rates to cap the shortfall.
"Slowing down growth and fiddling with interest rates and the exchange rates are not the solution to the deficit," Mahathir said at a national economic forum on how to slash the country's burgeoning deficit.
Mahathir's multi-pronged plans involve cutting imports, particularly from Japan, and raising exports, as well as building better infrastructure and boosting local production of intermediate goods and components.
Mahathir blamed the big trade deficit with Japan for Malaysia's overall weak external trade performance.
In particular, he directed the manufacturers of Malaysia's national car Proton, which had been buying key components from Japan, to source more parts locally.
"We are now examining every section of manufacturing to find out how we can reduce costs," Mahathir said.
His address had been keenly awaited by foreign investors who had largely remained sidelined on the local bourse last year on concerns that the large deficit signaled Malaysia's economy was overheating after eight boom years.
But analysts said the prime minister's speech, which revealed no specific remedies, had little impact on investor morale.
The Kuala Lumpur Stock Exchange's composite index fell 7.95 points to 1,044.82 in early trade Thursday, which analysts attributed more to an overnight drop in the New York market.
A deteriorating deficit in external trade and in the services sector contributed to the widening current account shortfall.
Finance Ministry Secretary-General Clifford Herbert on Wednesday said Malaysia was set to slash the deficit within five years by upgrading its manufacturing sector and actively promoting its services sector.
The services sector was forecast to show a deficit of 18.04 billion ringgit last year and is projected to worsen slightly to 18.82 billion ringgit this year.
The overall current account deficit is forecast to sink to 18.14 billion ringgit (US$7.26 billion) in 1995.
Mahathir said the government would encourage local traders to use Malaysian ports and airports and insure with Malaysian companies to curb fund outflow.
The transport ministry in November directed that all government imports should come through Malaysian ports rather than being transshipped through a rival port in neighboring Singapore.
To reduce foreign exchange outflow, Mahathir said the government would step up efforts to develop domestic tourism "so that not so many Malaysians go abroad."
About 30 percent of Malaysians travel abroad yearly for study and leisure, he said.
Foreign universities have also just been allowed to set up branches in the country to help cut down on the overseas education bill estimated at 2.5 billion ringgit ($1 billion) a year.