Finance Chief Says Steps Will Be 'Market-Driven' : Malaysia Shifts Policy On Economy 
International Herald Tribune
December 6, 1997
Thomas Fuller

After watching its currency skid to record lows and its stock market drop 60 percent this year, the Malaysian government declared a turning point Friday in economic policy, announcing a "market-driven" package of austerity measures.

Finance Minister Anwar Ibrahim said that even well-connected companies would not be rescued from their financial missteps.

"We are not here to protect or bail out," Mr. Anwar said, referring to the

government's role in an economy where companies often have close links to the political establishment.

Mr. Anwar also sharply reduced the official growth forecast for next year and said government expenditures would be cut by at least 18 percent, including deferment of a project backed only the day before by Prime Minister Mahathir bin Mohamad.

"Decisions now have to be purely economic," said Mr. Anwar, who is also deputy prime minister.

He also said Malaysia remained committed to leaving foreign-exchange trading free of restrictions.

Before Mr. Anwar spoke, the Malaysian ringgit and the Indonesian rupiah fell to new lows against the dollar, prompting central bank intervention. (Page 15)

The announcement came after months of high-profile rhetoric by Mr. Mahathir, who has urged restrictions and taxes on currency trading while strongly criticizing currency speculators, the foreign media and, more recently, "economic saboteurs."

In recent months, Mr. Anwar and Mr. Mahathir seem to have taken contradictory stands with increasing frequency, confusing investors and raising questions about the direction of economic policy.

"We have to deal with the political and social problems later," Mr. Anwar said. "We don't have a choice, and we have to take these tough measures to help ourselves boost the economy. These measures will allow us to bring back confidence."

According to a source in the government, Michel Camdessus, the managing director of the International Monetary Fund, told a top Malaysian official this week that the country's fundamentals were generally strong but added: "Your problem is the political rhetoric." The measures announced Friday were designed to combat that perception, according to the source.

"This is the first sign that the government acknowledges the problems that the financial markets are seeing in the system here," said Robert Coombe, executive director of Commerce Asset Fund Managers in Kuala Lumpur. "The government has moved from anger and denial to acceptance."

The new measures and Mr. Anwar's comments "removed the inconsistencies between statements coming out of the government over the past two or three months," Mr. Coombe said.

Addressing concerns by investors that cash-rich companies could be tapped to bail out ailing concerns, Mr. Anwar said any corporate restructurings would be "examined very closely" by the authorities and that only those that are "absolutely essential" would proceed.

The stock market seemed to cheer Friday's announcement, as Kuala Lumpur's composite index rose more than 5 percent in late trading.

The rally centered on stocks linked to the index, however. Overall, 539 stocks ended lower and just 176 rose.

On Thursday, Mr. Mahathir said the country would go ahead with a $3 billion plan to link the east and west coasts of the Malaysian peninsula with roads, railroads and a pipeline, parts of which would run through Thailand.

Mr. Anwar said Friday that the project would be deferred while the gas-pipeline portion would go ahead as planned.

"There will be no new projects or commitments," Mr. Anwar said. "Where could we raise the money from?"

Mr. Anwar also announced that projections for next year's economic growth would be reduced to a range of 4 percent to 5 percent from the 7 percent estimate released several months ago and that Malaysia's current-account deficit would be reduced to 3 percent of gross national product from than the 4 percent level announced in the budget planned for next year.

Copyright © 2006 the International Herald Tribune