VZCZCXRO0216
RR RUEHBC RUEHCHI RUEHDA RUEHDE RUEHDT RUEHFK RUEHGI RUEHHM RUEHJS
RUEHKSO RUEHKUK RUEHLH RUEHNAG RUEHNH RUEHPB RUEHPW RUEHROV
DE RUEHKL #0926/01 2950801
ZNR UUUUU ZZH
R 210801Z OCT 08
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 1790
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHGV/USMISSION GENEVA 1621
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/APEC MEMBER COLLECTIVE
RUCNISL/ISLAMIC COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 0804

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 000926 
 
STATE PASS USTR - WEISEL AND BELL 
STATE PASS FEDERAL RESERVE AND EXIMBANK 
STATE PASS FEDERAL RESERVE SAN FRANCISCO TCURRAN 
SINGAPORE PASS TO SBAKER 
USDOC FOR 4430/MAC/EAP/M.HOGGE 
TREASURY FOR OASIA AND IRS 
GENEVA FOR USTR 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ECON ETRD PGOV MY
SUBJECT: MALAYSIAN POLICIES ADDRESS FINANCIAL UNCERTAINTIES 
 
¶1. (U) Summary:  On October 16, Malaysia's central bank announced an 
expanded deposit insurance program designed to dampen local concerns 
raised by the global financial crisis (septel Singapore).  With a 37 
percent year-to-date fall of the Malaysian stock market and revised 
2009 economic growth forecasts from 5.5 percent down to 3.5 percent, 
Deputy Prime Minister/Finance Minister Najib Razak announced a 
second set of measures on October 20 to shore up the financial 
sector, increase investment and boost the country's economic 
competitiveness.   Najib told the press that the assets of a 
government-owned mutual fund would be doubled to ten billion ringgit 
to revive confidence in the stock market.  In addition, Najib said 
foreign investment restrictions on the property and commercial 
sectors would be reviewed, and the services sector would be 
liberalized with details to be announced later.  Addressing fiscal 
issues, Najib said government expenditures for 2009 would not be 
cut, but priorities could change.  End summary. 
 
 
FINANCE MINISTER ANNOUNCES NEW MEASURES 
 
¶2.  (U) On October 20 DPM/Finance Minister Najib Razak, who is 
expected to take over as Prime Minister within the next six months, 
announced three new measures to support the economy which is 
weakening in the face of pressures created by the global financial 
crisis.   First, the government would double the size of Valuecap, a 
state-owned asset management body, to RM 10 billion (USD 2.9 
billion) to enable it to buy undervalued shares in an effort to prop 
up the local stock market.  Second, in an effort to attract more 
overseas interest in the property and commercial sectors, foreign 
investment rules would be "reviewed," he said.  Third, in order to 
boost Malaysia's competitiveness in a slowing world market, the 
services sector would be liberalized.  Details would be announced 
later, he said.  These measures followed on the central bank's 
announcement of expanded deposit insurance October 16 designed to 
convince jittery investors to keep their funds in country. 
 
¶3.  (U) The Malaysian government drew up these policy measures to 
counter negative economic trends growing out of the global financial 
crisis.  From the beginning of the year to October 20, the Kuala 
Lumpur Composite Index has lost 37 percent, foreign exchange 
reserves have dropped and leading think tanks have begun announcing 
substantial downward revisions in 2009 GDP growth figures.  The 
Malaysian Institute for Economic Research (MIER) last week predicted 
2009 economic growth would slow to 3.5 percent, in contrast with the 
government's figure of 5.4 percent.  MIER also stated that Malaysia 
risked falling into a real recession at the end of 2009.  On October 
20 the Malaysian Rating Corporation Berhad (MARC) issued its GDP 
forecast of 3.4 percent growth for 2009. 
 
 
2009 BUDGET MAY NEED TO BE "TWEAKED" 
 
¶4.  (U) Najib also told reporters Malaysia may need to "tweak" its 
budget deficit targets.  As a net exporter of oil, the GOM receives 
nearly 40 percent of its federal budget from Petronas, the national 
oil company.  Earlier budget deficits, based on record high oil 
prices, put the fiscal deficit at 4.8 percent for 2008 and 3.6 
percent for 2009.  In spite of ballooning deficit projections, Najib 
said that there would be no cutback in planned expenditures for 
2009; however, the GOM may need to "shift its priorities" to 
projects that "improve the social safety net" and "yield greater 
economic returns."  Earlier statements by the PM suggested that 
planned infrastructure and development projects could be sidelined. 
 
 
 
COMMENT 
 
¶5. (SBU) Doubling the money to buy up distressed stocks appears to 
come at a good time, with Asian markets just now showing signs of a 
bounceback.   One local investment banker told Econoff that he 
believed the RM 5 billion injection would be sufficient to give a 
boost to the market.  Najib's proposals for liberalizing foreign 
investment restrictions and the services sector are a welcome 
indicator that some in the government realize it needs to address 
domestic reforms to counter external pressures.  Although too vague 
at this stage to prompt a serious response from investors, they are 
 
KUALA LUMP 00000926  002 OF 002 
 
 
a positive counterpoint to the "old think" proposals of the Second 
Finance Minister Nor Yakcop who continues to rail against the 
"system of liberal capitalism led by the United States." 
UK-trained Najib is perceived as a decisive leader who can get 
things done.  Najib's takeover as Finance Minister could leave 
anti-free market Nor Yakcop a lame duck, and the global financial 
crisis might provide Najib the political cover to implement the 
kinds of reforms Malaysia needs to rejuvenate its flagging 
competitiveness if he is willing to risk challenging vested 
interests.