'1MDB mess could hit Asean economy'

Modified 16 Jul 2015, 10:44 am

Corruption allegations hanging over Malaysia’s Prime Minister Najib Razak and the state owned 1MDB, will hit the Asean economy, said the  Asian Nikkei Review today.

In an opinion piece published today, the business journal said foreign investment is flowing out of the country following the allegations surrounding Najib and 1MDB.

"Anxiety is spreading into other Southeast Asian financial markets. The Najib government and investigators have a responsibility to quickly clear up the situation," it wrote.

"If Malaysian politics become mired in instability, it will not be a domestic problem alone. Confidence in Southeast Asia as a whole will also take a hit," it said.

Malaysia is the third-largest economy in the 10-member Association of Southeast Asian Nations, after Indonesia and Thailand. Its gross domestic product grew six percent last year, to  US$326.9 billion (RM1,245 billion).

Its per capita GDP exceeds US$10,000 (RM38,089), and it has a broad middle class capable of driving consumption and supporting growth. 

"Many consider Malaysia a model for emerging countries," said the journal but added the region could hardly afford additional stress. 

"Asian countries' stocks and bonds are under pressure due to multiple factors - from China's slowing economy and sharp stock downturn, to the US Federal Reserve's plan to raise interest rates in the near future," it said.

It also further noted, the weak-performance of Malaysia's currency, the ringgit, remains weak after July 7, where it hit a 16-year low against the dollar.

"The central bank has reportedly intervened in the market to avert a further fall. If such interventions fail, Malaysia could be stuck with not only a depreciating currency but also declining stocks and bonds," it said.

The journal said it’s unlikely there will be a repeat of the 1997 Asian currency crisis. However it added as long as Malaysia is engulfed by political uncertainty, Southeast Asia cannot expect to maintain stable economic growth.

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