Malaysia to inject 1.4 bln dlrs into stock market, cut ‘09 GDP target

KUALA LUMPUR (AFP) – Malaysia will inject 1.4 billion dollars into the ailing stock market and cut its growth forecast for 2009 amid a worsening global financial crisis, the Finance Minister said Monday.

Najib Razak also said the government may review its 2008 and 2009 fiscal deficit forecast and scale back on infrastructure projects “with limited economic multiplier effect” for the year to cushion the impact of the economic crisis.

“We had projected GDP growth of 5.4 percent for 2009. However in the light of the worsening external developments, the growth forecast for 2009 will be reviewed downwards,” Najib said in a speech at a conference in Kuala Lumpur.

In a separate event, the finance minister said Malaysia will not slide into recession, following its major trading partner the United States, which is in the middle of an economic crisis .

“Malaysia will not go into recession,” he said, according to state Bernama news agency.

A leading think-tank last Thursday slashed its 2009 economic growth forecast for the country to 3.4 from 5.0 percent, and said there was a risk of recession if the US economy falls.

Earlier, Najib said the government will double the size of its state-run investment company Valuecap Sdn. Bhd, which was formed in 2003 to invest in under-valued, but fundamentally strong shares, by pumping in an additional 5 billion ringgit (1.4 billion dollars).

“Yes, our stock market is affected by the sentiments in other markets but I would like to stress that we are not in a financial crisis, and certainly we should not talk ourselves into one,” he said.

Kaladher Govindan, research head at local brokerage TA Securities said the move “is a positive boost for the stock market,” which has dropped 37 percent this year.

Najib, who will take over as prime minister in March, said the 2009 growth forecast revision as well as the new deficit estimates and details of the government’s policy response will be announced in parliament on November 4.

He said the government will not cut back its overall expenditure but some “lumpy” projects could be postponed for the year.

Projects planned for 2009 will still continue, he said.

“Even if we consider the financial turmoil an external shock, which necessitates short term responses and measures, this must not come at the expense of the long-term development imperatives of the country,” he said.

He said the government will look at liberalizing the service sector — the cornerstone of the economy — and review foreign investment guidelines to attract overseas investment in property.

Malaysia’s economy grew by 6.3 percent in 2007 and the government targets a 5.7 percent expansion for 2008.

Kuala Lumpur had projected the 2008 budget deficit to reach 4.8 percent of GDP, substantially higher than the 3.1 percent forecast earlier, and expects a 3.6 percent deficit in 2009.