From November 20, 2004

Malaysia Viewed as Investors' Darling

Malaysia is viewed as the investors' darling. Being on the right track for balanced and steady growth, there is every reason to believe that the country will continue to provide an attractive environment for international investment.

KWR International Inc, a consulting firm which conducts global economic, political and financial analysis, said in its report that Malaysia is one of the most open economies in South-East Asia with a stable policy amid a growing economy and will continue to benefit from a greater boost from global growth than many of its neighbours.

The report, which was posted on Asia Times online yesterday, noted that Malaysia's inflation was low and the nation's external debt has been capably managed.

"We think Malaysia enjoys the advantage of high oil prices. But when they fall, the nation is still poised to prosper as it has diversified its industrial base.

"The current account has been in surplus since 1998. As of mid-October 2004, exports had risen 24% year-on-year. The strong balance of payments has allowed the central bank to accumulate more than a quarter of its international reserves in 2004 - (US$54.5 billion as of August 2004) - to the point that they now exceed the external debt."

Adding that the Malaysian Government has taken steps to reduce its external debt, the country has shown progress in passing structural reforms.

Malaysia's on-track growth, it said, had prompted credit rating agencies to take notice of its prospects.

"We expect Moody's to upgrade its 'Baa1' rating of Malaysia by one notch to 'A-'. Standard and Poor's has already given Malaysia an 'A-' rating," KWR said.

A credit rating upgrade is not only an important boost for Malaysian credit quality, but also an affirmation of the Government's fiscally prudent policies.

Looking back at the tabling of the 2005 Budget, KWR said its proposal for a moderate pace of fiscal consolidation is realistic and investor-friendly as it eases the ruling on foreign investors in brokerages, fund management, futures brokerages and venture capital firms.

"It removes the tax on interest income for non-resident investors, which should drive more investor interest into Malaysia's domestic bond markets," KWR said.

Bank Negara Malaysia was commended for its emphasis in cautioning against rising interest rates such as that no increase is expected for six to 12 months.

The firm said the Government's estimation that investment would grow by 14.8% last year was achievable as private investment growth was picking up.

"While the Government plans for fiscal consolidation, balancing the budget is not sacrosanct. The Government intends to narrow the fiscal deficit from 4.5% of GDP (gross domestic product) in 2004 to 3.8% in 2005."

In its report, KWR noted that the Malaysian economy was not without risks, hence the country must continue to attract foreign direct investment when oil prices eventually decline.

©2004 Business Times