Prime Minister Dr Mahathir Mohamad today unveiled a RM7.3 billion stimulus package to mitigate the impact of Sars and revive the sluggish economy.

Mahathir said the package, comprising 90 measures, was "necessary to stimulate the economy and to lift confidence," to boost foreign investment, raise competitiveness and mobilise new sources of growth.

Among the wide-ranging measures were a RM1 billion relief fund and tax breaks for the tourism sector, liberalisation of foreign investment rules and new funds to help troubled traders.

Lower interest rates

In a live television broadcast, Mahathir also announced a widely expected 50 basis points cut in the central bank's key interest rate, the intervention rate, to 4.5 percent.

The rate cut, the first in two years, immediately led to lower lending rates for businesses, the central bank said separately.

To boost consumer spending, he said employees' contribution to the state pension fund would be cut by two percentage points to nine percent for a year from June and civil servants would get a half-month bonus.

For the next six months, hotels' monthly electricity bills will be cut by five percent, road tax for taxis slashed by half and there will be an exemption of service tax for hotels and restaurants to soften the blow of Sars.

To encourage health workers involved in the fight against Sars, the premier announced a RM400 special monthly bonus for doctors and RM200 for other medical staff until the epidemic is wiped out.

Funds internally generated

Some RM1 billion will be injected into a food fund and various grants set up for poor fishermen, farmers and small- and medium-sized industries.

To woo foreign investors, pioneer status and investment tax breaks will be extended and full income tax exemption given to operational headquarters while investment regulations will also be relaxed to attract more foreign firms to list o­n the stock exchange.

Tax breaks and low lending rates are also being given to encourage home ownership and to reduce a glut in residential properties.

The package will cost the government some RM800 million in lost revenue each year but Mahathir said Malaysia was "cash rich" and need not borrow or issue bonds to raise funds.

Funds will be internally generated with RM1.7 billion coming direct from the government's budget, RM2 billion from the central bank and RM3.6 billion from other development financial institutions, he said.

"With this package, we hope to achieve the (2003) growth target of 4.5 percent. The effects of Sars is much less than previously anticipated but we have to get more people to visit Malaysia ," the premier said.

Malaysia has cut its official economic growth forecast to 4.5 percent this year from 6.0-6.5 percent as a result of Sars.

The stimulus package, which has been delayed successively since March, is the country's third off-budget spending program since 2001.

Measures inadequate

For their part, economists warned that it may be inadequate to undo the damage that Sars had wreaked o­n the services sector, which accounts for 57 percent of gross domestic product.

"The package is a short-term relief, in particular to the travel industry. Without these incentives, we may witness massive layoffs," said Azrul Azwar, economist with MIDF Sisma Securities.

"But it may not be able to sustain 4.5 percent growth for 2003. The government hopes the situation will return to normal in six months but the damage due to Sars has been done already," he said, putting this year's growth at just 3.3 percent. AFP