UPDATE 1-Malaysia says to cut subsidies, boost investment

* To cut subsidies gradually, seek public feedback

* To grow private investments by 12.8 pct annually

* Expects 6 pct average annual GDP growth until 2015

* To cut budget deficit to 2.8 pct of GDP in 2015
(Recasts, adds comment and measures)

By Royce Cheah and Razak Ahmad

KUALA LUMPUR, June 10 (BestGrowthStock) – Malaysian premier Najib
Razak set out on Thursday a five-year plan to cut subsidies and
accelerate investment but outlined few measures to boost
competitiveness, reinforcing doubts about his reform agenda.

In the blueprint, Najib said the government would reduce
its fiscal deficit and gradually phase out subsidies while
aiming for average 6 percent annual economic growth.

“This plan is critical to make sure our ambition to become
a fully developed country by the year 2020 succeeds,” the prime
minister said when presenting the plan in parliament.

“The target to reach 6 percent growth needs a massive leap
in investments, especially more robust private sector
investment.”

He gave few clues on how the government would attract more
investment apart from a plan for it to partner private firms in
63 billion ringgit of “high-impact” projects including building
highways, a new financial district in the capital and coal
electricity generation plants.

Malaysia needs an average 115 billion ringgit ($34.66
billion) in private investment annually to achieve its target
of growing investment by 12.8 percent a year, the plan said.
Investments grew only 2 percent on average between 2006-2010.

The government will cut its subsidy bill to 15.7 billion
ringgit in 2015 from 18.3 billion ringgit this year, according
to the plan.

But the plan avoided thorny issues such as dismantling a
four-decade old race-based policy in favour of the politically
dominant Malays, a change that analysts say is crucial for
Malaysia to compete with other economies.

Financial markets want to see more aggressive reforms after
a recent string of government policy reversals cast doubt on
Najib’s commitment to open up the economy to more competition.

The stock market (.KLSE: ) was little changed after the
announcement, up about 0.2 percent by the midday break.

A decade ago Malaysia accounted for half of total capital
inflows into Southeast Asia’s emerging economies that included
Thailand, Malaysia and Indonesia. Increasing competition means
it now accounts for about a third. [ID:nKLR450668]

Net portfolio and direct investment outflows (MYFLO=ECI: )
hit $61 billion in 2008 and 2009, according to official data,
although money came back into the bond market this year fuelled
by two Malaysian interest rate hikes and the use of the ringgit
(MYR=: ) as a proxy for a possible Chinese yuan revaluation.

VOTES OR REFORM?

Critics have charged Najib with sacrificing Malaysia’s
economic interests for political expediency, and say he needs
to act decisively to win over voters.

“He will try to carry out (reforms) as soon as possible,
since he has to show the electorate that he can push through
unpopular but necessary policies. Time is not on his side,”
said Ooi Kee Beng, a political analyst at the Institute of
Southeast Asian Studies of Singapore.

“His coalition is also in a bad way, and the only chance he
has of winning back Chinese votes is to be steadfast in his
reform agenda.”

Najib’s 14-month old government had previously U-turned on
its decision to raise fuel and electricity prices, and delayed
the implementation of a goods and services tax after a public
outcry. [ID:nSGE62D03R]

Analysts said Najib’s reforms so far including liberalising
27 service sub-sectors have avoided core issues like
dismantling the pro-Malay New Economic Policy. The prime
minister has promised to make the policy more needs-based but
has not detailed how he will do so.

A recent survey by independent polling outfit Merdeka
Center showed 43 percent of the 1,028 respondents were not
confident Najib would meet his economic targets within two
years.

More than half the respondents polled from May 6 to 16 also
felt that Najib’s reforms merely repackaged old ideas and would
be fouled by weak implementation.
($1=3.318 Malaysian Ringgit)

Investment

(Additional reporting by Loh Li Lian and Soo Ai Peng;
Writing by Liau Y-Sing; Editing by Jeremy Laurence)

UPDATE 1-Malaysia says to cut subsidies, boost investment