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.