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 25 Jan 2009

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Malaysia: Second stimulus package necessary to boost economy

Malaysia will need a second round of government spending to boost its export-dependent economy, Reuters quoted the country's finance minister as saying Saturday.

The government's existing boost to the economy worth nearly $2 billion, generated with savings from reduced petrol subsidies, has been criticised by businessmen as being too small and too slow to help offset falling demand caused by the global economic slowdown.

"It is better for us to do it progressively because we do not know the size of the global problem, but our assessment is that the second package is necessary," Deputy Prime Minister and Finance Minister Najib Razak told reporters on Saturday, state news agency Bernama reported.

Najib will become the country's prime minister after polls in the main ruling party in March.

Malaysia's budget deficit is expected by the government to come in at 4.8 percent of gross domestic product (GDP) this year.

The government is forecasting the economy will grow 3.5 percent in 2009 but many private sector economists say the country will fall into its first recession in eight years and the deficit will be far higher than forecast.

The central bank this week cut interest rates to 2.5 percent, their lowest level in more than 10 years, so as to boost the economy.

Royal Bank of Scotland economists said investors should go short of Malaysian debt due to the likelihood of a credit ratings downgrade thanks to the country's slowing economy and planned additional spending.

"Fiscal stimulus measures this year are likely to push the deficit out to 5 percent of GDP, and the collapse in export growth is likely to push the Malaysian ringgit to 3.70 per dollar in the coming months," the economists said in a report.

The investment bank said that Malaysian 5-year credit default swaps, a measure of how likely a country is to default on its debts, were expensive relative to the country's peers.

Najib has solicited public opinion in this Southeast Asian country of 27 million people to help the government decide on what to do to boost the economy.

Responses on his website ( ranged from more infrastructure spending and cutting taxes to dismantling the country's system of economic privileges for the majority Malay population, a measure that critics say has stymied growth.

One respondent among the 75 who had posted in the day since the consultation was launched said the economy would only be improved if Najib quit office.

At the same time as having to rescue the economy, Najib is under mounting political pressure to reform the coalition that has ruled Malaysia for 51 years.

The government lost a key by-election this month in a constituency dominated by ethnic Malays, the core voter base of the United Malays National Organisation (UMNO), the main party in the 13-strong ruling coalition.

Opinion polls have showed that voters are tired of corruption in UMNO and several low-ranking party officials were last week charged with bribery relating to the upcoming party vote.

"People have stated that they want UMNO to reform. That is public opinion, and the public wants UMNO to be free from money politics," Najib said on Saturday.




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