Malaysia unveils mesures to curb account deficit

Malaysia unveils mesures to curb account deficit

KUALA LUMPUR (AFP): Malaysia's Finance Minister Anwar Ibrahim
announced yesterday a two percentage point cut in the corporate
tax rate and new measures to help narrow the nation's current
account deficit.

Delivering his annual budget speech to parliament, Anwar said
the Malaysian economy was now "entering a period of transition"
following the recent collapse of share prices and the local
currency.

"The direction of the economy is currently fraught with
uncertainties," he said. "The crisis in the financial markets
that is being experienced is a test of economic resilience and
effectiveness of policies.

As a result, "the 1998 budget strategy is strengthening
economic fundamentals and stabilizing financial markets,
maintaining sustainable growth, continuing the process of
deregulation and liberalization of the economy and continuing the
social agenda for further overall development."

Among the new measures announced were a cut in the corporate
tax rate from 30 percent to 28 percent, a reduction in the
petroleum tax from 40 percent to 38 percent and various measures
to curb the current account deficit.

"The major challenge facing the economy is restoring economic
stability and confidence. A major issue in addressing this
challenge is the current account deficit," the finance minister
said. "Our deficit was significant at 10.5 percent of GNP in 1995
and this was reduced to 5.2 percent last year."

Measures to help boost exports included a corporate tax
exemption of 10 percent to 15 percent for exporters and a
reduction in duties on crude oil exports from 20 percent to 10
percent.

Anwar also announced higher import duties of 5.0 percent to 50
percent for heavy machinery and 10 percent to 30 percent for
certain construction materials along with reduced capital
allowances for imported machinery.

Import duties were raised from 25 percent to 30 percent for
consumer durables and from 42 percent to 80 percent on imports of
knock-down cars while duties of up to 300 percent were imposed
for imports of built-up cars.

Anwar, who is also deputy prime minister, said the Malaysian
banking system "continues to be sound" despite recent turmoil in
financial markets.

Since July, Malaysian financial markets have been rocked by
heavy selling, especially among foreign investors concerned about
the country's current account deficit and market meltdowns in
neighboring countries. The selloff has depressed local share
prices and the currency by as much as a third.

"Our economy is at a crossroad. We must tread carefully. We
cannot afford mistakes. Our resilience is being tested," the
finance minister said.

But "we should not panic. What is required is discipline and
resilience. We must be aware that the Malaysian economy is
changing and becoming more mature. A mature economy does not need
to grow at a high rate.

"Our task is to ensure macroeconomic stability, especially in
the balance of payments, the rate of inflation as well as the
strength of the government's and private sector's financial
position. This is the main objective," he said.

Other budget measures included a one billion ringgit (US$330
million fund) to promote small and medium-sized industries and
financial measures including a reclassification of bad loans from
six months to three months and a hike in bank provisioning
requirements from 1.0 percent to 1.5 percent.

A five percent tax was also imposed on income from life
reinsurance.