23/12/2008 (Bernama), KUala Lumpur - Malaysia has strong fundamentals which makes the economy resilient enough to ride through next year when the fallout of the global economic slowdown begins to take effect.

Analysts' said the ongoing economic measures are expected to help drive the country through the "bumpy" journey next year, no thanks to the United States and the massive failure of its financial system.

Even before the crisis, it was still a difficult year as the government had to contend with rising crude oil prices which touched US$147 per barrel in July before receding to US$36.50 just last week.

As if this was not enough, the United States sub-prime crisis boiled over soon after the tabling of the 2009 Budget on Aug 29, spreading its ill-effects all around the globe.

As a policy response towards the global financial crisis, Malaysia unveiled a stimulus package, injecting RM7 billion into the economy to ensure sustained growth.

"Extraordinary times require extraordinary measures," said Deputy Prime Minister and the new Finance Minister Datuk Seri Najib Tun Razak.

Pragmatic government policies and prudent measures practised by Bank Negara Malaysia and relevant agencies such as the Securities Commission, have made the country's financial system stable.

The country's financial and property markets are not surrounded by speculative bubble symptoms as in the 1997/98 Asian Financial crisis.

Furthermore, analysts say, less than five percent of Malaysian assets are exposed to the US economy.

Malaysia is also not exposed to the "complex and uncontrollable" innovative financial products which finally became the main cause of the US sub-prime crisis.

Malaysia's capital market meanwhile is largely based on Syariah principles, which requires "proper" debt level and financial management.

In addition, the country has a total funding of about 37 percent to gross domestic product (GDP), indicating that it has ample liquidity that can be used to churn economic activities.

The banking sector remains strong with a low non-performing loans (NPLs) level of 2.5 percent and risk weighted capital ratio (RWCR) of 13.2 percent, which is more than the eight percent international requirement level.

However, Malaysia is not an exception in having to face the current challenging time with the 2009 Budget having already indicated slower growth.

In line with regional peers, the GDP growth for next year has been revised to 3.5 percent, with the government confident of achieving five percent for 2008.

In the wake of a fall in most commodity prices in mid-2008 due to the lack of global demand, the government realised potential federal earnings would be squeezed while at the same time having to continue to spend for mass development.

The fiscal deficit for 2009 is projected at 4.8 percent, the same level as this year.

At this level, the government will carry on implementing an "expansionary" fiscal policy, which is also being adopted by other countries at present.

In the 2009 Budget, the government has indicated that it had the flexibility to implement high impact projects through savings from the oil subsidy.

It must be noted that there is no change in the total amount to be spent under the 2009 Budget.

The government allocated RM207.9 billion for the 2009 Budget, of which RM154.2 billion is for operating expenditure and RM53.7 billion for development.

A prudent fiscal move is that the government will review some projects and give priority to those that can be speeded up with high multiplier effects, besides having low import ingredients.

The RM7 billion,savings from the oil subsidy, would then be channelled into sectors like construction, residential, transport, investment, and training and information technology.

As for inflation, the government has projected that the level could be in the range of three to four percent for next year, subject to the continuing downtrend in the global crude oil prices.

Malaysia's inflation rate rose to a new 26-year high of 8.5 percent in July 2008, driven by the escalating cost of fuel and electricity.

In an effort to curb rising inflation, "jump-started" by the increase in retail fuel prices up to RM2.70 per litre, Bank Negara Malaysia reduced the Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent in November.

It was the first such cut since April 2006.

Crude oil prices are now hovering below US$40 per barrel, dropping significantly from its all time high of US$147 per barrel recorded in July this year.

The petrol price at pump was reduced to RM1.80 on Dec 15, the fifth time since the increase of 78 sen in June 2008.

As for crude palm oil (CPO) prices, the government is currently working with its Indonesian counterpart to stabilise the price at RM2,000 to RM2,600 a tonne level.

Among the other measures taken to reduce supply is the oil palm replanting program while promoting the usage of bio-diesel from palm oil to increase demand.

The CPO prices have fallen by almost 60 percent from a record high of RM4,486 per tonne in March after the global economic crisis hit the commodity market.

As for domestic economic activities, the government will give extra attention to generate growth, as international trade and external demands gets slower.

This time around, the government has said the "export-led recovery" policy could not be implemented as successfully as during the 1997/98 crisis.

The government also realises that slower economic growth could see a reduction in job creations, thus projecting the unemployment rate of about four to 4.5 percent, a level that the government said was "managable".

Meanwhile, in an effort to stimulate the capital market, the government on Oct 20 announced the injection of RM5 billion into Valuecap Sdn Bhd, the government investment agency, to buy undervalued stocks in the local bourse.

Valuecap's portfolio has grown from RM5 billion initially to RM8 billion now.

To attract Foreign Direct Investment (FDI), the government on Nov 14 announced pre-emptive measures, among others, manufacturing licenses would be issued automatically effective from Dec 1.

The move is aimed at cushioning the impact on investment in the midst of global economic slowdown.

There would also be full import duty exemption on raw materials and intermediate goods to be used for domestic manufacturing activities.

The total FDI for the January to August period in the manufacturing sector was RM36.8 billion, surpassing last year's figure of RM33.4 billion.

However, the Minister of International Trade and Industry Tan Sri Muhyiddin Yassin said there might be some impact next year or the following year on FDI due to the economic slowdown.

Elsewhere, the government will continue to support initiatives by growth corridor operators for investment missions particularly to India, China and the Middle East.