New Malaysia Finance Chief Seen as Safe Pick to Fix Budget


Malaysia’s new finance minister is seen as a safe pair of hands as he takes on the immense task of bringing down debt while scrapping a consumption tax that was key to Prime Minister Mahathir Mohamad’s unexpected election win last week.

The 92-year-old leader moved quickly to name top cabinet posts on the weekend amid heightened investor concern about the policy outlook. He picked Lim Guan Eng as finance minister, and brought back some old names, like former central bank Governor Zeti Akhtar Aziz, to an economic advisory board.

Source: AFP/Getty Images

Lim, who is secretary general of the mostly ethnic Chinese Democratic Action Party, was chief minister of the northern Penang state before the election and is a trained accountant. Penang is the country’s second-smallest state, but one of the largest contributors to the economy and home to foreign electronics companies, including Intel Corp.

His appointment “is encouraging,” said Julia Goh, an economist at United Overseas Bank Ltd. in Kuala Lumpur. “The new government understands the key economic issues and fiscal weaknesses at hand. We hope they can deliver the promises to the people yet ensure economic growth remains stable and the fiscal deficit is manageable.”

Malaysian stocks initially slumped but quickly rebounded after trading resumed on Monday, while the currency weakened. The FTSE Bursa Malaysia KLCI Index was 0.5 percent higher as of 9:30 a.m. in Kuala Lumpur, while the ringgit was down 0.9 percent to 3.986 against the dollar.

Fiscal Risks

Lim’s main priority will be to reassure investors he can carry through Mahathir’s populist spending pledges without increasing government debt. Mahathir promised to remove a 6 percent goods and services tax within 100 days, raise fuel subsidies and increase minimum wages. He also wants to review large-scale investment projects awarded during the term of his predecessor Najib Razak.

Moody’s Investors Service and Fitch Ratings have already warned of risks to the budget if GST is abolished and not offset by other revenue-raising measures. The previous government had narrowed the deficit over time to 3 percent of gross domestic product, while pledging to keep debt under 55 percent of GDP.

Decades of Deficit

Government budget shortfall narrowed to 3% of GDP last year

Source: Bloomberg data


Mahathir’s focus is also to tackle corruption scandals that have dogged Najib’s administration. Top of the list is reopening a probe into state investment company 1MDB that Najib helped set up. The state fund has spawned billion-dollar investigations in at least 10 countries including the U.S. and Switzerland.

Lim’s comments so far have been limited to reassuring Malaysians that the new government will work for all Malaysians, state contracts will be reviewed and help will be given to the poor. He is the first ethnic Chinese to hold the post in 44 years in a country that has to manage tensions between the majority Malay group and minorities, and where economic advantages are given to ethnic Malays.

‘Practical’ Choice

“Our primary focus will still be on helping those who find it very hard to make ends meet,” he told reporters on Saturday. “Our focus is to see how we can make their lives a little bit easier, whether in terms of abolishing GST,” maintaining cash handouts or through fuel measures, he said.

On Sunday, he said he won’t make any specific comments on economic plans, including scrapping GST within 100 days, until he is sworn in as finance minister. But he pledged that policy “would be in order to restore confidence in the economy that’s been affected by scandal after scandal, especially 1MDB.”

Key to boosting confidence will also be details on fiscal plans.

“Lim will be seen as a practical choice and a safe pair of hands, but ultimately the market is probably waiting for the fiscal direction,” said Rahul Bajoria, an economist at Barclays Plc in Singapore.

Familiar Faces

Mahathir also created an advisory council, tapping familiar names who were part of his team when he was previously prime minister from 1981 to 2003. Zeti, 70, was the first female governor of the central bank, took the reins shortly after Mahathir’s controversial move to peg the currency and impose capital controls in the aftermath of the Asian financial crisis two decades ago. 

Under Zeti, the central bank had urged criminal proceedings at least twice against 1MDB, before slapping a fine of an undisclosed amount on the state fund days before she left the position in 2016.

QuickTake Q&A: Malaysia’s 1MDB Spurs Voter Backlash, Global Probes

Daim Zainuddin is also a member of the council, and served twice as finance minister under Mahathir, helping spearhead Malaysia’s economic recovery after the Asian crisis.

The team will ensure “balance between experienced hands and fresh names in the government,” said Suhaimi Ilias, an economist at Maybank Investment Bank Bhd. in Kuala Lumpur. There’s also the possibility that some, if not all, of the team will get a permanent role in the government after the 100-day mandate of the council is completed, he said.

Others on the council are economist Jomo Kwame Sundaram and Hassan Marican, former president at state oil company Petroliam Nasional Bhd., as well as palm oil tycoon Robert Kuok, whose fortune is valued at $19.9 billion, according to Bloomberg calculations.

— With assistance by Yudith Ho, and Michelle Jamrisko



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *