(Petaling Jaya, Saturday): The acid test of the 1998 Budget is whether it could restore investor confidence to address the twin ringgit and stock market crisis.
The Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim had recognised this when in his budget speech yesterday, he stressed that "The major challenge facing the economy is restoring economic stability and confidence in the economy".
Although the local mass media had glowing headlines for the 1998 budget, like the New Straits Times headline "A confidence boosting national Budget for 1998", the Star headline "Good Mix - Anwar unveils confidence-boosting measures", the Sun headline "Confidence boost" and the Business Times headline "A necessary prescription", a different chord is highlighted by foreign newspapers.
For instance, the Singapore Business Times today carries the headline "Anwar’s austerity budget fails to impress", with the following report:
Finance Minister Anwar Ibrahim announced a suprise 2 percentage point cut in corporate tax and moved to rein in the economy with an austerity budget yesterday.
But his measures were poorly received by fund managers and analysts who felt they did not go far enough to address the overheating economy. Mr. Anwar did spell out measures to narrow the current account deficit, enhance the country’s export competitiveness and property market, and took steps to strengthen the financial sector.
He also signalled that further monetary measures may follow to curb runaway credit growth.
The markets responded by sending the ringgit down to 3.27 against the US dollar, against 3.17 on Thursday. Although most of the budget speech was delivered during the last hour of trading, the Kuala Lumpur Stock Exchange Composite Index fell 7.22 points to 794.80 points.
Analysts said the bourse had expected "more pain" and is likely to react negatively when it resumes trading on Monday.
"The cut in government spending is not deep enough to bring a sharp shrinkage in the current account deficit," said Daniel Lian, head of Asian markets research at ANZ Investment Bank in Singapore. "There's no relief for the ringgit."
Anwar should give serious consideration to these negative reactions to the 1998 as they are critical in determining as to whether the 1998 budget could succeed in its major challenge to restore economic stability and confidence in the economy and enable Malaysia to emerge from the twin currency and capital crisis with stronger fundamentals.