(AFP) Education and training should be the focus of Prime Minister Dr Mahathir Mohamad's proposed stimulus package to offset the negative impact of the US terrorist attack, analysts said today.

Analysts agreed the attack on the world's biggest economy was unlikely to push Malaysia into a sharp economic slowdown but would hurt the export dependent manufacturing industry.

One Singapore-based economist said Mahathir should put the funds to the best use since government spending cannot sustain growth for long.

"A lot of money has been poured into infrastructure. You (Malaysia) have world class infrastructure, you now need world class people to manage it," the economist who requested anonymity told AFP .

"Unlike consumer spending and exports, pump-priming cannot generate positive net growth. It is hard to see government spending as the main engine of growth," he added.

Further measures

On Friday the premier said the government was considering further measures to mitigate a weakening of the US economy due to this week's terrorist attacks.

The premier said the Malaysian economy was "closely-pegged" with that of the United States and the "incident will divert all attention away from pure trade and things like that to matters of security."

The analyst said Malaysia should avoid pumping money into "over capacity" areas such as technology but instead build schools and enhance rural development.

"Malaysia already has the Multimedia Super Corridor. It should concentrate to bring the population into the knowledge-based economy, skill training and education," he said.

The government in March unveiled a RM3 billion supplementary budget to shore up the economy.

The United States accounts for about 19 percent of Malaysia's global trade, mainly in rubber products, textiles and clothing, optical and scientific goods, electrical and electronics products and wood products.

Bilateral trade last year was estimated at RM120 billion. In the first two months of 2001, Malaysia's exports to the US rose 13 percent year-on-year to RM11.5 billion.

Nizam Idris, regional economist with IDEA Global in Singapore told AFP that the anticipated regional recovery was now likely to be delayed to the second quarter of 2002 instead of the first quarter.

The consumer confidence in the US would be affected by the terrorists attacks, he said. "If demand falls, it will affect Malaysia's exports. The manufacturing sector will be the hardest hit."

Negative impact

Fong Chan Onn, human resources minister said yesterday that the government would monitor the operations of American electronics companies to help them counter the negative impact of the terrorists attacks.

Nizam said there was no need for Malaysia to revalue its peg, even though it was overvalued. The local ringgit has been pegged at 3.80 to the dollar since 1998.

The government will for a second time revise its official growth forecast for this year when it unveils its 2002 budget in October.

In March it cut its growth estimate from seven percent to between five and six percent amid the US slowdown. The economy grew 8.5 percent in 2000.