Malaysia to Take Plunge and Borrow Money in Euros
International Herald Tribune
November 1, 2000
Thomas Fuller 

Malaysia said Tuesday it was planning to borrow money in euros, a rare move in Asia that will be closely watched by other countries in a region hungry for capital.

If successful, Malaysia's bond issue would be only the second time that an Asian government borrowed money in euros, and the first time since the European currency began its dramatic decline — trading now at about 84 U.S. cents.

"This will get attention," said David Fernandez, head of emerging Asia economic research at J.P. Morgan in Singapore. "It's the idea of introducing Malaysia to a whole different set of clients."

Still recovering from the economic crisis of two years ago, many governments in Asia need to borrow money to fund budget shortfalls. Most borrow in dollars or yen.

The Philippines issued euro-denominated bonds in March 1999, soon after the euro was introduced. China canceled plans to issue bonds valued at 1 billion euros earlier this year when terms over pricing apparently fell through.

In Malaysia's case, analysts point out that it will be cheaper by about 1.8 percentage points to borrow money in euros than in dollars.

Although Kuala Lumpur's plans might be seen as a vote of confidence for the battered European currency, a quick calculation suggests it is exactly the opposite: If the euro continues to weaken against major currencies, the Malaysian government would benefit, paying less for every euro borrowed.

If the euro strengthens, on the other hand, Malaysia, whose currency is pegged to the dollar, could find the exercise costly.

Malaysia's Finance Ministry, which made the announcement in a terse statement late on Tuesday, did not say how much the country would borrow, but bankers suspect it would be about 500 million euros.

Analysts say Malaysia's move is designed not as a bet on currencies but as a way to reduce its reliance on dollars and yen.

"Diversification is the idea," said Mr. Fernandez at J.P. Morgan, adding that the euro-denominated bonds would "make Malaysia stand out."

Malaysia's Finance Ministry said borrowing in euros was an attempt to cultivate a "new investor following in Europe."

The move also has political overtones. Malaysia's prime minister, Mahathir bin Mohamad, has long been critical of East Asia's reliance on the dollar.

Analysts and bankers said the Malaysian government bonds probably would have a five-year maturity, but the details have yet to be worked out.

Malaysia's credit ratings were recently upgraded by Moody's Investors Service by one notch to Baa2, the second- lowest grade of "investment quality" bonds.

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