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Malaysian budget tries to alleviate impact of credit crunch
3 September 2008, Middle East North African Financial Network, Jordan

(MENAFN - Arab News) Like many leaders all over the world, Malaysian Prime Minister Abdullah Badawi had no option in his budget 2009, tabled in Parliament last Friday, but to try to alleviate the impact of the global credit crunch and its effect on high commodity prices, rising costs of mortgages and the steep increase in the cost of living which has affected millions of Malaysians.

Not surprisingly the 2009 budget was labeled "a caring government" and aimed at improving the well-being of all Malaysians, developing quality human capital and strengthening the nation's resilience.

Badawi, who is also the finance minister, declared a 207.9 billion ringgit budget for 2009 calling on all Malaysians to unite in the face of a global economic downturn. But this was a difficult budget for other reasons too. In March the ruling Barisan Nasional (BN) coalition, led by UMNO (United Malay National Organization), suffered a humiliating reverse in the general election, which saw BN lose its two-thirds majority in Parliament for the first time since independence from Britain in 1957.

On Aug. 26, the controversial former deputy prime minister and finance minister, Anwar Ibrahim, returned to Parliament after winning a landslide by-election in Permatang Pauh constituency which was vacated by his wife Wan Azizah Ismail, to assume the mantle of leader of the opposition PKR (Parti Kaedilan Rakyat) Party.

The 2009 budget virtually coincided with Malaysia's 51st National Independence Day but any nationalist sentiments of solidarity in the face of global adversity and helping the poor failed to convince Malaysians about the budget.

Predictably, Anwar Ibrahim, whose own tenure as finance minister in the 1990s was not exactly successful, attacked the 2009 budget: "The problem is we've lost our competitive edge. There are no FDIs (foreign direct investments), management is slow and corruption is rampant. These issues were not dealt with (by the government).

For an oil-producing country, it is an exceptional case for Malaysia to continue to register a deficit. It is understandable for a country that has no resources, but not this country. We failed to be more competitive because we are stuck with old policies."

Bankers and businessmen confirm that Malaysia has been in limbo since the election, and the Badawi government seems to have lost its way.

The Malaysian economy in fact grew by 6.7 percent in the first half of 2008 - a figure which the UK, France and Germany would give their right arms for. The UK economy, for instance, registered zero percent GDP growth in second quarter 2008. Malaysian GDP growth for 2008 is projected at 5.7 percent. Even the projected 5.4 percent in 2009, is very good given the international economic conditions.

Anwar has attacked the fiscal deficit for 2008 which is estimated to increase to 4.8 percent. The government believes that the high deficit is a one-off necessity because of the global economic situation, and has pledged to reduce it to 3.6 percent in 2009. Of the total RM207.9 billion budgeted, RM154.2 billion is for operating expenditure, while RM53.7 billion is for development expenditure.

Anwar betrays his lack of understanding of government finance if he insists that governments do not run economies on deficits. Before the current high oil prices, the Saudi economy for instance ran substantial budget deficits for years. The US economy too has a record deficit.

To lessen the impact of the rising cost of living, the Badawi government has expanded the social safety net by increasing eligibility for welfare handouts; building more houses for the needy; increasing allowances for the disabled; and improving basic amenities such as electricity, water and rural roads.

The government has also handed out tax rebates to employers and employees alike to soften the impact of rising commodity, energy and transport costs. The government has budgeted to spend more on public transport and on agriculture to ensure food adequacy and security; and has pledged more subsidies for the latter.

Badawi is confident that Malaysia remains a country of opportunities especially in Islamic finance, business process outsourcing, tourism, healthcare, aviation industries and value-added manufacturing. In July, the Islamic Development Bank launched a RM1 billion Sukuk program in Malaysia.

Islamic banks and Gulf Cooperation Council (GCC) countries remain bullish about Malaysia. Several GCC banks confirm that they are looking to launch products or invest in Malaysia or to use the country as a hub for the Asian region.

Late last year Kuwait Finance House, Mubadala Investments from Abu Dhabi, and Dubai's Millennium International Development Company invested $1.2 billion in the first phase of the South Johor Development Project. Saudi Telecom Co. has acquired a stake in Cellcom, one of Malaysia's top mobile phone operators.

Malaysia last year also launched its MM2H (Malaysia-My-Second-Home) initiative. Judging by the uptake, high net worth British, Gulf Arabs, Pakistanis, Indians and Chinese are taking up this offer with its in-built tax, immigration and other incentives.

 


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