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.