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.