Malaysia shuns market, seeks sovereign funds

Malaysia shuns market, seeks sovereign funds

KUALA LUMPUR (Reuters): Malaysia said on Tuesday it had shelved a plan to tap the international bond market to help finance a US$16 billion economic recovery program but was negotiating to borrow from foreign governments.

Special Functions Minister Daim Zainuddin told a business conference the government would also turn to domestic sources to help fund its previously announced 60 billion ringgit ($16 billion) recovery plan for 1998 to 2000.

"It will be too much for the government to bear alone. Financing has been identified...mostly from domestic sources," he said, citing the national pension fund, Employees Provident Fund (EPF), insurance companies and state oil firm Petronas.

He said a $2 billion bond issue, already postponed in July, had been shelved until the country's rating and international market conditions improved.

"Plans to raise bonds will be shelved until the global bond market settles down and (Malaysia's) credit rating improves," Daim said, but added that Malaysia was negotiating to borrow from foreign governments.

"We will borrow if necessary. We are negotiating with sovereign governments to borrow.

"We can't disclose these figures yet, but we are talking to these countries, and they have been receptive. They understand our problems," he said without naming the countries.

Daim said Malaysia also had the capacity to secure loans from other funding sources, such as the World Bank, the Asian Development Bank, the Overseas Economic Cooperation Fund and the Islamic Development Fund.

Malaysia has shunned the route of other Asian countries which have obtained billions of dollars of International Monetary Fund money to try to drag themselves out of their worst economic crises in decades.

On September 1 it introduced strict currency and capital flow controls as its way to combat a crisis it blames on speculative attacks on the ringgit by foreign traders.

On Saturday, Japan unveiled a $30 billion aid program to help its Asian neighbors, including Malaysia.

Japanese ambassador to Malaysia Issei Nomura was quoted on Monday as saying Tokyo hoped to provide Malaysia with $2 billion but the amount had not yet been fixed.

"We hope we can give $2 billion to Malaysia, but this is something that we have yet to fix and the actual amount can only be determined after we have looked into the various facilities and projects that are to be carried out," the official Bernama news agency quoted the Japanese envoy as saying.

Malaysia had planned to raise $2 billion from international investors. But in late July, Daim and then finance minister Anwar Ibrahim postponed a tour to promote bond offerings after downgrades by Moody's Investment Service and Standard & Poor's.

Daim said Malaysia was committed to ending its capital controls, "but only if the world financial community instills a greater discipline into the international currency market".

He said the regional crisis had caused enormous wealth loss in Malaysia, with as much as 600 billion ringgit wiped off the Kuala Lumpur stock exchange.

The economy contracted 2.8 percent between the first quarters of 1997 and 1998 and by 6.8 percent in the year to the second quarter.

But he said positive growth could be expected in the first quarter next year, depending on the international situation.