Malaysian business unaffected by protests

Malaysian business unaffected by protests

KUALA LUMPUR (Reuters): Political protests in Malaysia have not affected business confidence and the government sees no problems financing a growing budget deficit next year, Second Finance Minister Mustapa Mohamad said on Monday.

"There's calm in the country, there's not been any effect on business confidence," Mustapa said in an interview with Reuters Television.

"Kuala Lumpur continues to remain to be a very peaceful city. Business confidence has not been dented at all and the government is on top of the situation," he said.

Hundreds of protesters clashed with police in the heart of the capital Kuala Lumpur in the most violent confrontation since sporadic demonstrations started five weeks ago.

Police have arrested more than 500 people in the protests that began after former finance minister Anwar Ibrahim was sacked from party and cabinet posts, and which have continued while he has been in police detention awaiting criminal trial.

Anwar was sacked in September after a rift developed between him and Malaysian Prime Minister Mahathir Mohamad. He has been charged with several counts of sodomy and corruption, which he denies.

Mustapa said the political events would pose no problems in financing a large projected budget deficit in 1999 from locally- sourced funds.

"We were toying with the idea of raising the funds in the international market, but conditions have deteriorated substantially in the last few months so our focus will be on domestic sources of funding."

The Finance Ministry said in its annual report on the economy, released on Friday, that various tax cuts and extra spending on the transport sector would swell the fiscal deficit to 16.1 billion ringgit (US$4.23 billion) next year from 9.6 billion in 1998.

Mustapa reiterated that Malaysia wanted international financial reforms before it scraps its tough controls on currency trading.

He said there had been a number of positive economic developments lately, including the weakening of the U.S. dollar, and Kuala Lumpur would consider the competitiveness of neighbors' currencies before deciding when to lift the controls.

"As a major trading nation in this part of the world, we are mindful of the currency position of our neighbors," he said. "At this point in time, we believe that controls have worked... We are not yet in a position to take any decision on the lifting of capital controls."

Mustapa said the funding for the deficit could be drawn from the state-run pension scheme, the Employees Provident Fund, and from an additional 38 billion ringgit ($10 billion) released into the banking system from a recent reduction in the statutory reserve rate.

A recent bond issue by the government's investment arm, Khazanah Nasional Bhd, was oversubscribed by three times, raising 3.2 billion ringgit, Mustapa said.

"So there's no shortage of funds in the economy," he said.

Mustapa said around $16 billion would be needed to recapitalize the country's debt-ridden financial sector.