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Malaysia: Scrabbling on the precipice

When the Asian crisis took hold the notion was that Malaysia was somehow different and could escape the worst effects. There's little room for such optimism now. How hard Malaysia lands may depend on Japanese recovery and the extent to which the government is willing to relax its fiercely nationalist economic policies. Nicholas Bradbury reports.

Although few observers are prepared to make unconditional predictions of collapse in Malaysia, prognoses are far less optimistic than six months ago, and deteriorating by the week. "Given the pace of the economic slowdown that we are seeing from the most recent numbers, the risk is all on the downside," says Gan Chin Lee, Singapore-based senior economist at Nikko Research. "I'm just in the middle of revising down my GDP forecasts for 1998 from plus 2% to minus 1%." Growth in 1997 was around 7% and just weeks ago the government was forecasting 4.5% growth this year.

With Indonesia suffering riots and near collapse of the government, Korea facing the restructuring of much of its industrial base and Thailand feeling the strain of the IMF austerity package, a pessimistic view of Malaysia is understandable. Yet in the middle of last year, when events in Thailand prompted the financial rout that spread across Asia, Malaysia was reckoned to be very different from its neighbours.

Its property sector was much less speculative than that in Thailand, the arguments ran, and its banking system was better capitalized. If the ringgit weakened, exports would boom, rapidly improving the current account and stabilizing the exchange rate.

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