MALAYSIA IS FIRMLY ON RECOVERY PATH

KUALA LUMPUR, March 24 (Bernama) – The country's economy is now firmly on
the recovery path, thanks largely to the prudent management, swift and concerted
policy measures of the government and Bank Negara Malaysia in facing the global
financial meltdown.

The government's whopping RM67 billion (US$1=RM3.3) stimulus package and
incentives, an accommodative monetary policy, among others, and an overnight
policy rate capped at an all time low of two per cent has, to a large extent,
stimulated growth.

Greater access to financing and the robust financial sector provided crucial
support for the domestic economy and helped avoid a fundamental recession.

Other measures included a blanket guarantee on deposits and access to the
bank's liquidity facility for insurance companies and Takaful operators.

Malaysia posted a better-than-expected fourth quarter growth of 4.6 per cent
and an overall Gross Domestic Product (GDP) of –1.7 per cent in 2009.

The nation is now set to register a commendable growth rate of between 4 and
5.5 per cent this year.

Domestic demand is expected to strengthen further with better employment
conditions and uninterrupted credit flows.

The investment climate is also set to rebound with the planned investment in
infrastructure and the recovery in external demand.

"The growth in 2010 will be underpinned by strengthening domestic demand and
supported by the improving external environment," Governor Dr Zeti
Akhtar Aziz said in Central Bank of Malaysia's 2009 Annual Report released
Wednesday.

She said growth would be increasingly driven by private sector activity and
consumption was anticipated to grow by 20.8 per cent this year.

"All sectors of the economy are also expected to perform better in 2010 with
the services sector remaining the key driver of growth," Zeti added.

Inflation is expected to see modest increase of between 2 and 2.5 per cent
this year amid an upward trend in global commodity prices and revisions in
administered prices by the government.

The government's effort to diverse the nation's trading partners away from
traditional markets to non-traditional markets also paid off well as the country
was no longer heavily depended on the United States or Europe, which was
expected to see modest growth, going forward.

China and the Asian region have slowly emerged as Malaysia's larger trading
partners and these economies are anticipated to lead the recovery process.

"While downside risk to growth remain in the advanced economies, emerging
economies in general, and Asia in particular, have shown a higher degree of
resilience and have better prospects for sustained recovery," Zeti said.

Asia is expected to continue to lead the global recovery as the source of
growth becomes more broad-based.

As the threat of fundamental recession was no longer there, steps have been
taken to normalise interest rates, "the extraordinary conditions under which the
interest rate were reduced now no longer prevailed," she said.

The central bank increased the Overnight Policy Rate (OPR) by 25 basis point
to 2.25 per cent recently.

"Maintaining an extremely low interest rate enviroment for an extended
period of time could result in disintermediation, financial imbalances and
underpricing risk, which could undermine economic recovery," she said.

Going forward, as the implementation of the 10-year Financial Sector
Masterplan will end in 2010, a new blueprint is being developed to chart
the transformation of the financial sector over the next decade beginning 2011.

Almost all the recommendations under the Masterplan have been implemented.

The new blueprint, that is being developed, will articulate strategies to
further evolve the Malaysian financial sector to support and drive the next
phase of Malaysia's economic development, she said.

"This will encompass strategies that will address the desired financial
structure for Malaysia, the financing for new growth areas, the development of
financial markets, talent development and the deepening of international
linkages and regional financial integration," she noted.

Among others, seven new banking licenses were announced, of which two are
for Mega Islamic Bank and the remaining five for commercial banks that offer
financing in areas that is not yet available in Malaysia such as Green
Technology.

Interest for all seven banking licences eminated from Asia, the Middle-East
and Europe and it is envisaged that the banks which ultimately secure the
licences within this year and bring significant value propositions to the
banking industry.

BNM recently issued a new licence to the largest commercial bank in
China to establish operations in Malaysia in a move to forge stronger
partnership and relations between both countries.

This licence was issued as part of a very limited number of banking licences
that Malaysia may consider issuing, from time to time, under bilateral
arrangement, the central bank said.

The government, on the other hand, is preparing polices that will
accommodate the private sector to lead the country's economic growth and
gradually exit the stimulus package.

Prime Minister Najib Tun Razak is expected to announce the first
stage of the New Economic Model (NEM) on March 30, 2010.

The NEM is expected to be more versatile in bringing about a quantum leap
towards achieving a developed nation status for the country and to become a
high-income economy.

-- BERNAMA




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