Talk of Malaysia in 1997/98 style meltdown unduly alarmist

MALAYSIAN Prime Minister Najib Razak's warning last week that the country should brace itself for headwinds could be considered timely but market talk of a repeat of the 1997/98 meltdown is overblown and unduly alarmist. As Mr Najib, who is also finance minister, pointed out, the high household debt at 87.6 per cent of GDP is a worry, but it is growing at a slower pace and a substantial amount of that debt involves loans to purchase assets and local properties.

The other point of concern has been the weakening ringgit. Currency markets are rife with speculation about when the US Federal Reserve will raise interest rates. This has led to the US dollar gaining against almost all currencies and volatile capital flows. But, as Malaysia's central bank has pointed out, the current situation of the country's external position is very different from the circumstances leading to the East Asian financial crisis.

According to the International Monetary Fund's estimates, Malaysia's foreign currency assets stand at about US$100 billion. Its current account has been in surplus for every quarter since 2005.