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March 11, 2009

Malaysia announces ‘unprecedented’ $16bn package

Malaysia on Tuesday unveiled a stimulus package worth 16.2 billion dollars but warned the export-driven economy could still shrink by 1.0 percent this year despite the massive spending.

The 60 billion ringgit plan was much larger than expected, and comes with the Southeast Asian nation fighting slowing growth as the global downturn dries up demand for its exports in the United States and Europe.

"The implementation of such a large stimulus package is unprecedented in the nation's economic history," AFP quoted deputy premier and finance minister Najib Razak as saying.

Najib, who will take over as prime minister at the end of this month, said the package would "contribute towards mitigating the impact of the global contraction on the domestic economy."

But despite the measure, and a $1.9 billion stimulus package announced last year, he said the economy could still be headed for a contraction. The government had previously stuck to its 2009 forecast of 3.5 percent growth.

"Taking into account these measures, GDP growth is expected to be in the range of minus 1.0 percent to 1.0 percent for 2009. Without these efforts the economy faces the prospect of a deep recession," he told parliament.

The plan accounts for almost 9 percent of GDP and will be implemented over 2009 and 2010. Malaysia's growth slowed to just 0.1 percent in the fourth quarter of 2008, hit by declining exports and manufacturing as demand from its trading partners evaporated.

January exports plunged 27.8 percent year-on-year to their lowest level since 2001. Yeah Kim Leng, an economist with ratings agency RAM Holdings, said the huge stimulus package could avert a fully-fledged recession, although a technical recession of two consecutive quarters of negative growth was unavoidable.

"We can see this is a response to a once-in-a-lifetime economic crisis. This is a larger-than-expected stimulus package," he told AFP. "It should be adequate to address the needs of the country in facing the exports downturn, which is having a strong knock-on effect on domestic demand and investors' confidence levels."

The spending plan is a major test for Najib, who is taking on the top job one year after general elections that saw the ruling coalition battered by a resurgent opposition.

Within days of taking office he faces a series of by-elections which will be seen as a barometer of his popularity, and the coalition's ability to claw back support after the electoral drubbing.

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