More Malaysians fret over economy

(The Malaysian Insider) Malaysians are increasingly worried about their economy in the light of the global financial crisis and continuing political turmoil on the domestic front.

More than half of the respondents to a survey just conducted by the independent Merdeka Centre said they were worried about the prospects for the economy, a sharp jump from the 25 per cent recorded a year ago.

Fifty per cent of the 1,002 respondents said economic issues, such as price hikes, inflation and unemployment, were most important to them. Twenty-one per cent cited political issues as most important, up from one per cent when another survey was conducted in March.

Forty per cent of respondents also said they were “very dissatisfied” with the government’s performance on licking inflation and curbing price hikes, while 41 per cent were ‘very dissatisfied’ with its performance over the economy in general.

Bank Negara governor Zeti Akhtar Aziz warned yesterday that the country’s growth might be affected by the continuing financial crisis in the United States, adding that this was in its early stages.

She said that growth had become ‘more of a concern’ because of falling commodity prices coupled with the US crisis.

The Kuala Lumpur Composite Index, which reached an all-time high of 1,524 points in January, fell to 1,157 after the March elections, which saw the ruling Barisan Nasional (BN) coalition lose its traditional two-thirds majority in Parliament.

Earlier this month, the bourse tumbled to a two-year low of 963, and ended last week at 1,020.53.

The political turmoil, combined with the turbulence in the US financial markets, offered “not much hope” for the market to revive before year end, according to Stephen Soo, a senior analyst at local brokerage TA Securities.

“Investor sentiment is still weak and foreign funds have been pulling out of the market. The political scenario is definitely a deterrent to foreigners,” he added.

Yeonzon Yeow, Kenanga Investment Bank’s head of research, said the country’s economic outlook should be positive, given that the government had presented an economic development blueprint until 2010 under the Ninth Malaysia Plan.

But the continuing turbulence on the political scene has meant that the implementation of projects has been delayed. Prime Minister Abdullah Badawi has also come under intense pressure to step down after the BN’s poor showing in the general elections.

“The economy has been on a downtrend since the general elections. Political uncertainties result in economic paralysis. A lot of time is spent on politics instead of economics. That will slow down the whole process,” Yeow said.

A decision by Umno – the main component in the ruling coalition – to postpone party polls to next year will serve only to further prolong the uncertainty over the country’s leadership and economic situation, he added.

“For the market to revive by the year end would require some form of resolution on the political front,” he said.

But others were more sanguine about prospects, with an editorial in The Edge financial weekly saying that a “significant improvement in growth” was expected next year.

Indeed, the government still expects growth to reach 5.7 per cent this year, despite recent economic woes.

However, the Malaysian Institute of Economic Research – a government think-tank – has cut its growth projection for this year to 4.6 per cent, partly due to the domestic political turmoil. – The Straits Times

Political crisis paralysing Malaysian economy, say analysts

(The Malaysian Insider) The political crisis in Malaysia since the March election that humiliated the ruling coalition, has stifled the stock market, deterred foreign investment and crimped growth forecasts.

And economic observers said that with Prime Minister Abdullah Ahmad Badawi still clinging on to power despite mounting calls for a speedy departure, there is no end in sight to the uncertainty.

Abdullah has said he may not seek re-election as the ruling party leader in internal polls next year, but the coalition also faces an unprecedented challenge from the opposition, which says it has the numbers to seize power.

The prospect of a messy change of government — the first in the history of Malaysia, which has been ruled by the Barisan Nasional coalition since independence in 1957 — is making investors very nervous.

The Kuala Lumpur Composite Index, which reached an all-time high of 1,524 points in January, dived to 1,157 shortly after the March elections. On Sept 18, the bourse plunged to a two-year low of 963, and ended last week at 1,020.53, in a malaise worsened by the stream of bad news from Wall Street.

“It has been on a downtrend since the general elections and we expect it to remain so as there are no signs that the political situation is easing,” said Stephen Soo, a senior analyst at local brokerage TA Securities.

He said the political turmoil, combined with the turbulence in the US financial markets, offered “not much hope” for the market to revive before year-end. “Investor sentiment is still weak and foreign funds have been pulling out of the market. The political scenario is definitely a deterrent to foreigners.”

Citigroup chief economist for Singapore and Malaysia, Kit Wei Zheng, said the political situation has forced the ­government to resort to unsustainable policies that could widen the budget deficit. “When you have an unstable political situation, you are forced to make populist promises needed to secure power,” he said.

Abdullah’s 2009 budget offered tax cuts and sweeteners designed to restore support for the beleaguered coalition and spur growth in the face of a global slowdown. Kit said the premier’s flip-flop on petrol prices — with two cuts that partly reversed a deeply unpopular 41 per cent price hike in June — “is not a good signal to foreign investors.”

“As long as this political situation does not resolve itself, even if there is a global recovery, Malaysia might be passed by in favour of other destinations,” he said.

Despite the gloom, the Malaysian government’s forecasts remain relatively rosy. Deputy Premier Najib Razak, who last week took over the finance portfolio from Mr Abdullah as part of a succession plan, said the government still expected the economy to grow by about 5.7 per cent this year.

However, the Malaysian Institute of Economic Research — a government think-tank — has cut its 2008 growth projection to 4.6 per cent, partly due to the domestic political turmoil. “The government has been unable to respond to the economic crisis with even a basic plan of action,” said Tengku Razaleigh Hamzah, a veteran figure in the ruling party and one of Abdullah’s most vocal critics.

“Business confidence has plummeted as capital flees the country. Political crises come and go, but the present crisis might well be the beginning of a cascade of failures leading to long-term instability and destruction,” he said in a statement last week. – Today

Malaysian Ringgit Will Be a `Washout’ This Year, Institute Says

By David Yong, Bloomberg

Malaysia’s ringgit will be “almost a washout” for the rest of this year as a growing fiscal deficit, political turmoil and policy inaction on inflation turn investors away, the nation’s biggest economic think-tank said.

The ringgit will probably weaken to 3.5 per dollar by year end, Ariff Kareem, executive director of the Malaysian Institute of Economic Research, said in an interview in Kuala Lumpur yesterday. The partially government-funded think tank had previously forecast the ringgit would strengthen to 3 per dollar by the end of 2008.

Malaysia on Aug. 29 said its budget deficit will widen to 34.5 billion ringgit ($10.1 billion) this year, or a five-year high of 4.8 percent of gross domestic product, because of a trebling in food and oil subsidies. The ringgit fell this week to near the lowest in a year.

“The deficit is enormous and doesn’t speak well for fiscal management,” Ariff said. “The ringgit is almost a washout. It’s partly a verdict on how the country is being governed. This budget doesn’t help, it worsens the currency position.”

The ringgit may take another three years, instead of two, to reach its “fair value” of 2.8 against the U.S. currency, Ariff said.

Prime Minister Abdullah Ahmad Badawi is counting on oil prices to average $125 a barrel in 2009, unchanged from 2008, to lift revenue by 9.1 percent to 176.2 billion ringgit and narrow the deficit to 3.6 percent of GDP.

`Obsessed’

The ringgit traded at 3.4215 against the dollar as at 9:20 a.m. in Kuala Lumpur today, down from 3.3875 on Aug. 28, the day before the budget announcement that included tax cuts, a bonus for government employees, and free electricity to the poor.

The currency slumped 4.2 percent in August, the worst month since Bank Negara Malaysia scrapped a dollar link in July 2005, amid concern opposition leader Anwar Ibrahim will grab power by Sept. 16 via defections by lawmakers from Abdullah’s ruling coalition.

“Political uncertainty, perception about the country’s leadership, all these don’t augur well for investor perception,” Ariff said. “The sovereign rating could be affected.”

Malaysia’s gross domestic product grew 6.3 percent in the second quarter, the slowest pace in a year. Annual growth will ease to 5.7 percent in 2008 and 5.4 percent in 2009, from 6.3 percent in 2007, the government said last week.

“We are too obsessed with growth,” Ariff said. “There’s no way we can get back to the growth rate of the late 1980s and it’s not in our interest to get back on track when we grew too fast for our own good.”

`Out of Sync’

The government may be overreacting in its attempt to pump- prime the economy, depleting its resources before a further slowdown in 2009, Ariff said. The institute will probably lower its 5 percent growth forecast for 2009 at a later date, he said.

Fiscal measures to boost the purchasing power of consumers will “unwittingly” fuel inflation, while a “laid back” interest-rate policy will push inflation-adjusted interest rates deeper into negative territory and spur capital flight, he said.

The central bank has kept its overnight policy rate at 3.5 percent in 19 straight meetings since April 2006, even as other Asian nations raised borrowing costs this year to cool soaring prices. Ariff predicts inflation will accelerate from a 26-year high of 8.5 percent in July in the months ahead.

“Local interest rates are artificially low and they are out of sync with what we see in the region,” Ariff said. “Some marginal adjustments are required to send the right message that we are doing something, or else the credibility issue sets in.”