Published November 18, 2008

Zeti upbeat about Malaysian growth

She says govt's short-term external debt is comfortable

By PAULINE NG
IN KUALA LUMPUR

	Email this article
	Print article
	Feedback

IN July, Malaysia's central bank predicted in its monthly monetary outlook that the next 12 months would be difficult as the world could see a 'significant' slowdown. 'That was why we did not raise interest rates,' said central bank governor Zeti Akhtar Aziz. 'Other countries were doing so and, in fact, we were under some pressure to raise rates because of inflationary fears.'

New rules: Under a new Strategy Package, professionally qualified non-Malaysian spouses of citizens may be allowed to work

Ms Zeti was proven right and, indeed, many analysts expect the central bank to cut rates soon in line with global rate cuts and a sharply slowing economy. The central bank governor was speaking at a seminar entitled 'Towards sustained economic growth to counter the global economic slowdown' in Putrajaya last week and she seemed remarkably sanguine that Malaysia would, indeed, weather the storm and come out with growth intact.

According to the Finance Ministry, Malaysia's growth in gross domestic product (GDP) terms would slow to 3.5 per cent next year from nearly 5 per cent this year. But that would come out through pump-priming efforts by the government including RM7 billion (S$2.96 billion) in extra spending on infrastructure projects.

Ms Zeti agreed saying the current account surplus on the country's balance of payments averaged 16 per cent of gross national product (GNP) rising to 17 per cent of GNP in 2008's first half. 'Even under the most extreme circumstances, it will still remain at around 10 per cent of GNP,' she said. 'And at 3.5 per cent growth, it should reach 12 per cent of GNP.'

Ms Zeti said that the government's short-term external debt was comfortable and reiterated that Kuala Lumpur remained unfazed by the huge reversals seen in foreign inflows which saw almost US$25 billion flow out in the last two months. 'Are we worried?' she asked, replying, 'No, because we have the capacity to absorb these reversals. The US dollar will continue to appreciate until the process of deleveraging in America stops.'

Ms Zeti admitted that the US$125 billion that the central bank accumulated in its reserves in July was clearly over 'the optimal level' but said it was useful to counter sudden reversals because Malaysia was an extremely open economy and, therefore, especially vulnerable to sudden massive outflows.

In an unusual display of candour from a central banker, Ms Zeti revealed that the central bank had had joint discussions with its Singapore counterpart before both agencies simultaneously announced that all bank deposits in their respective countries would be guaranteed.

'We had to do this because the central banks of Australia, Hong Kong and Indonesia had done so and we wanted to prevent capital flight,' she told the audience. 'We also stand ready to guarantee the activities of the interbank market but so far there is no need.'

Amirsham Aziz, the Minister in the Prime Minister's Department, told the audience that the government was also working on a new Strategy Package that will focus on medium and long-term structural issues. He declined to elaborate, but BT was given to understand that they include liberalisations that will, for example, allow foreigners who 'invest' in Malaysia as 'a second home' the opportunity to work in the country or start up businesses. Currently, they are only allowed to live in the country and not allowed to work.

In addition, non-Malaysian spouses of citizens who are professionally qualified will also be offered employment. This has been a long-standing grouse among foreign spouses as many of them are professionals and include doctors, lawyers, architects and academics. There could also be further liberalisation of Malaysia's affirmative action policy.

Businessmen interviewed by BT felt that the government seemed to lack urgency and intimated that there could be a sense of complacency within its ranks. 'What is needed is speed,' one businessman said. 'If anything, I think things will get worse. We could end up with zero growth.'