Malaysia clings to capital curbs, plans more restructuring

Malaysia clings to capital curbs, plans more restructuring

KUALA LUMPUR (AFP): Malaysia's capital controls will stay put
as the government intensifies plans to restructure its financial
and corporate sectors, Second Finance Minister Mustapa Mohamed
said on Monday.

Mustapa said the measures, introduced in September last year,
would be maintained until the international financial community
implemented concrete measures to regulate or stabilize global
capital flows.

The measures, which included abandoning floating exchange
rates and ending the external convertibility of the ringgit,
provided stability and protected the economy from external risks,
he said.

"It is untrue to say that by insulating the domestic economy
from external developments, Malaysia has delayed the necessary
process of financial and corporate sector restructuring," he told
reporters.

Malaysia's economic problems will be dealt with "head-on in an
expeditious and pragmatic manner and will not be swept under the
carpet."

Mustapa said the government would continue to stimulate
domestic demand as the main engine for economic growth this year.

"Monetary policy will continue to remain accommodative to
support the fiscal stimulus and create a conducive environment to
facilitate economic recovery by ensuring adequate funds are
readily available to investors at a reasonable cost," he added.

Mustapa said Malaysia's gross domestic product (GDP) was
expected to grow marginally in the first half this year, after
contracting 6.7 percent last year, the country's first recession
in 13 years.

"Barring any adverse external developments, the Malaysian
economy is expected to achieve a positive GDP growth of 1.0
percent in 1999.

"Economic recovery during the year is expected to be gradual
due mainly to the high inventory build-up in the first half of
1998 and the increases in capacity in many industries resulting
from several years of expansion."

Restructuring is expected to intensify to strengthen the
foundation for stronger growth in the second half, but the
government will be mindful of the need to minimize use of public
funds in bank restructuring, he said.

"The government recognizes that bank restructuring often
requires a large amount of funds," he said. "Therefore it is
inevitable that some form of government assistance will be, and
indeed has been, necessary."

Mustapa said the banking system remained well capitalized. Net
non-performing loans were manageable, and lending rose to 6.6
billion ringgit (US$1.7 billion) in both January and February.

Malaysia remains committed to open up its banking sector but
the pace of liberalization will be gradual and progressive, he
said, adding that the banking sector already had a significant
foreign presence.

He defended Malaysia's decision for not allowing weak banks to
face closures, saying this could lead to systemic instability.

Mustapa also said Malaysia would need to go to the
international bond market to raise funds and had received four to
five "strong" proposals from foreign investment bankers.

Earlier Monday, U.S investment house Goldman Sachs said it
forecast Malaysia's GDP to grow 2.0 percent this year and 3.9
percent next year.

Don Hanna, head of Asian economic research, said it "should
not be at all difficult" to achieve GDP growth of between 0.9 and
1.0 percent in the six months to June and between 3.0 and 4.0
percent in the second half.

At 3.80 to the dollar, Hanna said the ringgit was undervalued
and should be closer to 3.30 but the current rate made it easy
for Malaysia to boost exports and maintain a favorable current
account surplus.