(MENAFN- Gulf Times) Prime Minister Najib Razak said yesterday that Malaysia's economy was on a sound footing, seeking to assuage growing public and investor fears over the nation's plummeting currency and slowing growth.
"Malaysia's financial system resilience remains intact," Najib said, according to a statement from his office.
Najib, who is also finance minister, added that the plunging ringgit would not be pegged against the greenback to stem its decline, a step taken in the late 1990s amid an earlier precipitous fall.
The ringgit is Asia's worst-performing currency over the past year. It began falling initially on concerns that the world slump in oil prices will harm economic growth in oil-exporting Malaysia.
But market sentiment also has been hit by political uncertainty stemming from corruption concerns that have exploded following the revelation last month that hundreds of millions of dollars have been put into Najib's personal bank accounts since 2013. China's surprise devaluation of the yuan last week also has pressured the ringgit.
The ringgit was at 4.12 to the dollar in yesterday trade, its lowest level since 1998, when Malaysia imposed a peg of 3.8 to the dollar during a regional financial crisis. It lasted seven years.
Najib said there would be no currency peg or other capital controls this time, citing Malaysia's "strong fundamentals and significantly different environment" today.
He added that ongoing diversification of the economy would help buffer it from the oil-price shock.
Malaysia's economy grew 4.9% in the second-quarter, its slowest pace in nearly two years. The scandal over the nearly $700mn revealed to have been transferred to Najib's bank accounts is the biggest crisis of his six-year tenure. Najib initially denied the allegation, first exposed by a Wall Street Journal investigative report. But Malaysia's anti-graft agency and Najib's ca0binet ministers have since admitted he received the money, saying it was from unidentified Middle Eastern "donors", but provided no other details. Analysts say concerns over that, as well as massive debt and alleged financial irregularities at a state-owned investment firm linked to Najib, have shaken investor confidence.
"The falling confidence from foreign investors and the drama from political uncertainty and financial mismanagement allegations certainly casts a pall over Malaysia's long-term economic plans," IG Markets strategist Bernard Aw said. Najib "needs to shore up confidence domestically, which might be a tall order," he said. Bloomberg news reported in July that $3bn in foreign funds have been pulled from the country this year.
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