KUALA LUMPUR - Malaysia's economy is expected to expand by at least four percent this year but a war in Iraq will derail growth, Prime Minister Mahathir Mohamad said in remarks published today.

Gross domestic product (GDP) grew by 4.2 percent last year, within the official forecast of between four and five percent.

The government projected GDP to grow between six to 6.5 percent this year but Mahathir, who is also finance minister, said growth in 2003 would be lower at four percent.

"We hope to achieve four percent, maybe more, but this is dependent o­n the world situation," he was quoted as saying by the

New Sunday Times.

"If war breaks out, it will affect our country and we may not be able to achieve our target. But if there is no war and with the programs we have launched, I am confident we will achieve a growth of four percent."

The veteran premier, who has pledged to step down in October after 22 years in power, said Malaysia wanted to cut dependence o­n foreign investment for growth.

Stimulus package

Just like Japan and South Korea, he said the government would nurture local entrepreneurs and investors so that "local economic contribution assumes a more important role than foreign contributions."

Mahathir, who has transformed Malaysia from an agricultural backwater into a manufacturing powerhouse, is expected to unveil a stimulus package at the end of March to enhance competitiveness and promote new growth industries, particularly in services and biotechnology.

Economists said growth last year was propped up by the government's expansionary fiscal policy, but exports fell in the December quarter and the slowdown was expected to flow into the first half of this year.