Malaysia may slow subsidy cuts

Malaysian Prime Minister Najib Razak said he will unveil more
investments to spur growth and consider slowing subsidy cuts to shield
consumers from rising prices.

“We have to be seen as doing
something,” Najib, 57, said in a March 29 interview in Putrajaya, near
Kuala Lumpur. “We want to satisfy the confidence of the global market
towards Malaysia and at the same time we have got some domestic
considerations.”

Malaysia joins neighboring Thailand and
Indonesia in trying to reduce budget deficits and support economic
expansion while preventing accelerating inflation from upsetting voters.
Thai Prime Minister Abhisit Vejjajiva has promised to “put money in
people’s pockets” so that families can cope with rising fuel and food
costs that threaten to undermine his party’s gains ahead of this year’s
national elections.

Najib will complete his second year as leader
on April 3, after inheriting a contracting economy and a ruling
coalition with the smallest majority in parliament since independence in
1957. Now, voters and investors are waiting for him to deliver on
pledges to transform the Southeast Asian country into a developed nation
by 2020, narrow the budget gap and ensure preferential economic
policies benefiting the Malay majority are extended to the poor of other
races.




Meanwhile, Bernama reports that Najib has given the assurance that the
government will announce a slew of new major and exciting projects in
the next few months, providing traction in implementing effectively
Malaysia's Economic Transformation Programme.

Having announced 60
projects so far, Najib said he wants the plan to take off by focusing
on the entry point projects, the big ticket items as well as high-impact
projects and not just infrastructure projects.

"It's the whole
works, including high investment projects that will create high-value to
the economy and jobs," which was key for the remainder of the
government's current term, he said during an interview with Bloomberg
television channel at his office in Putrajaya today.

During the
wide-ranging interview on his achievements after two years in office
with Bloomberg journalists Robyn Meredith and Barry Porter on the
economy, he said Malaysia's clear aim was to become a fully-developed
nation by 2020.

Among other things, the interview touched on
inflation, subsdies, Malaysia's nuclear ambition, its leadership in
Islamic finance, the upcoming Sarawak elections and possible date for
the general election, the Bumiputera affirmative policy, Kuala Lumpur's
involvement in the Trans-Pacific Partnership and impact of China's Yuan.

Asked
whether Malaysia would be able to meet Bank Negara Malaysia's Gross
Domestic Product target of between five and six per cent this year, he
said: "I believe we are still on track to achieving 6.0 per cent with
positive government intervention in the form of entry point projects and
massive underground mass urban transport system for Greater Kuala
Lumpur.

"That will create multiplier effects (and) those are the
kind of investments that will make us achieve 6.0 per cent growth this
year," he said.

As to financing the mass rail transit project, he
said: "We can finance it in a creative way so that it will not be too
taxing in terms of our development expenditure.

"So, it is, in a
way, a project that has got the viability because the returns are good
and will create a multiplier effect," he said.

Najib also said the government might sell bonds to finance the project which was within the government's means domestically.

"We have huge savings in Malaysia, so those are sources of investments or borrowings we can use to finance it,' he said.

The
Prime Minister dismissed notions that the government would refrain from
raising petrol prices, saying however that there should be some
flexibility in the way subsidies are rationalised.

"We do not
want rising prices in Malaysia to be a major burden for the people," he
said, adding the government would continue to keep a close watch on
inflation which was "creeping up slightly" but was still below 3.0 per
cent.

On the possibility of pausing on subsidy cuts and doing
more later, Najib said:"That is what we are looking at now in total,
because we have to see how much more subsidies we can bear.

"At
the same time, we are committed to reducing the deficit. The deficit
cannot go up. It's at 5.6 per cent now. We hope to bring it down to 5.4
per cent and eventually to around three to four per cent.

"But
that's a medium-term goal. At the same time, we have to look in terms of
our revenue. How do we increase our revenue as a government? We are
looking at some of the challenges we need to do between domestic
requirement and the need to give that confidence in terms of our macro
management," he said.

On whether this was a change from the
government's earlier deficit target of 2.8 per cent by 2015, he said:
"Its about three to four per cent" in the next five years or so.
Najib said Malaysia was committed towards reducing federal debts.

As
to helping people cope with inflation, he said that domestically, the
government was looking at the supply side, for instance, increasing the
supply of chicken to bring down the prices, which, he said, might come
down next month.
However, he said imported inflation or rising imported food prices were going to be a challenge for Malaysia.

"We are also looking at whether we can have shops selling at discounted prices to the people," he said.

Najib
however cautioned that commodity price inflation was a global worry,
not only for Malaysia, meaning Malaysia would "have to maintain
subsidies at quite a high level, including petrol subsidies."

"I
am also looking at new initiatives to help people who are facing the
brunt of rising prices. We have not reached the maximum threshold yet,
but there are some signs people are feeling the pinch of rising food
prices.

"We have to look at the government package and as well as try to stimulate supply," said Najib.

Touching
on the emergence of China's Yuan as a reserve currency and currency for
trade settlement, he said: "We have to maintain the US dollar as the
most important international reserve currency. The euro is also an
important reserve currency, despite what's happened in Europe (and) we
have confidence in the long-term stability of the euro currency."

Najib
stressed that Malaysia has a very good relationship with China,
particularly on the economic front, saying that "we can now settle trade
between our countries in local currencies."
On whether Malaysian
trade settlements in Yuan could double, he said that it was "very
likely. I think it is a very positive step."

To questions in
safeguarding against hot money flowing in and out of the country, Najib
said the government was "monitoring this very, very closely."

"We
do not like excessive volatility, whether it is in the stock market or
in our currency. As long as there is steady growth based on strong
fundamentals, that is what we are trying to achieve.

"So, it is
going to be a combination of a very, very strict supervision of what's
happening (and) if it gets overheated in any way, I think we will take
the necessary steps," he said.
-- Bloomberg/Bernama