Gov't eyes capital market to fuel economic growth

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The government plans to develop its capital market to bolster economic growth after a slowdown in new foreign direct investments in certain sectors as China emerges as a popular investment destination in Asia, a senior official said Tuesday.

Mustapa Mohamed, executive director of the National Economic Action Council, which is set to chart growth strategies, said Malaysia had to reduce its reliance on foreign investment to drive economic growth.

The coming years would pose a challenge as Malaysia would have to retain existing foreign investment as China further liberalises its markets after gaining World Trade Organization entry, he said.

"There is a need to reduce dependency on foreign direct investments, even if it plays an important role in the country's economy, by identifying new sources of growth and aggressively develop these new sectors... and the capital market will have to gear itself for a greater role for domestic investment in the overall economy," he said at a seminar.

Mustapa said Malaysia has introduced the 10-year capital market masterplan, to enhance the market because "a healthy and vibrant capital market is one of the engines that powers economic growth".

The masterplan identifies visions, objectives, strategies and priorities, and recommends measures for the future development of the capital market, he said.

Mustapa said the plan recognises the bond market has much potential for growth, while over-reliance on equity and bank financing in the absence of a deep and liquid bond market raises vulnerability to sudden shifts in capital flows.

Projected growth

The volatility in US capital markets has not significantly affected the domestic economy, which was still on track to achieve its projected 3.5 percent growth this year, he said.

Mustapa said Malaysia expects economic growth to improve in the second half of this year compared to the first half, supported by continued reasonable growth in exports and the services sector.

"What's happening in (the) US has no major impact on our economy. Our growth course is on track... although our stockmarket has not bounced back for the last few days, the real economy is doing fine.

"The second half of the year will be better (than the first half) as far as the real economy is concerned," Mustapa added.

The United States and Japan continue to rank as the top two investor countries, with total investments of RM3.3 billion each (US$868 million), the ministry of International trade and industry announced in its 2001 report. — AFP



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