Malaysia PM says economy sound, as fears mount

Prime Minister Najeeb Razzak said on Thursday that Malaysia's economy was on a sound footing, seeking to assuage growing public and investor fears over the nation's plummeting currency and slowing growth.

"Malaysia's financial system resilience remains intact," Najeeb said, according to a statement from his office. Najeeb, who is also finance minister, added that the plunging ringgit would not be pegged against the greenback to stem its decline, a step taken in the late 1990s amid an earlier precipitous fall. The ringgit is Asia's worst-performing currency over the past year. It began falling initially on concerns that the world slump in oil prices will harm economic growth in oil-exporting Malaysia. But market sentiment also has been hit by political uncertainty stemming from corruption concerns that have exploded following the revelation last month that hundreds of millions of dollars have been put into Najeeb's personal bank accounts since 2013.

China's surprise devaluation of the yuan last week also has pressured the ringgit. The ringgit was at 4.12 to the dollar (Dh3.67) in Thursday trade, its lowest level since 1998, when Malaysia imposed a peg of 3.8 to the dollar during a regional financial crisis. It lasted seven years.

Najeeb said there would be no currency peg or other capital controls this time, citing Malaysia's "strong fundamentals and significantly different environment" today. He added that ongoing diversification of the economy would help buffer it from the oilprice shock. Malaysia's economy grew 4.9 per cent in the second quarter, its slowest pace in nearly two years. The scandal over the nearly $700 million revealed to have been transferred to Najeeb's bank accounts is the biggest crisis of his six-year tenure.

Najeeb initially denied the allegation, first exposed by a Wall Street Journal investigative report. But Malaysia's anti- graft agency and Najeeb's cabinet ministers have since admitted he received the money, saying it was from unidentified Middle Eastern "donors", but provided no other details.

Analysts say concerns over that, as well as massive debt and alleged financial irregularities at a stateowned investment firm linked to Najeeb, have shaken investor confidence. "The falling confidence from foreign investors and the drama from political uncertainty and financial mismanagement allegations certainly casts a pall over Malaysia's long-term economic plans," IG Markets strategist Bernard Aw said. Najeeb "needs to shore up confidence domestically, which might be a tall order," he said.

Bloomberg News reported in July that $3 billion (Dh11 billion) in foreign funds have been pulled from the country this year.

Meanwhile, Najeeb Razzak said that he would not peg the ringgit currency to the US dollar or implement capital controls. "The flexibility of our exchange rate is important to absorb global adjustments and volatility," he said in a statement. Separately, Malaysian central bank Governor Zeti Akhtar Aziz said foreign exchange reserves had fallen but it was not a cause for worry. "We've seen it decrease before and there's no issue to be concerned because that's what the reserves are there for, to represent a buffer to adjust during such periods," she told reporters.