Malaysian economy far more resilient than Indonesia in dealing with crisis

Malaysia is far more resilient compared with neighbouring Indonesia in dealing with any economic crisis much like the way it dealt with the Asian financial crisis of 1997/98 due to its diversity and well-developed financial system among other factors.

Minister in the Prime Minister's Office, Datuk Seri Abdul Wahid Omar said Malaysia's other strong points was that private investments which grew to 64 per cent of total investments in 2014 increased further to 71 per cent in the first half of this year with 97 per cent of government debts denominated in the Malaysian Ringgit.

"Malaysia's financial system is well developed with sizeable equity and debt capital markets," he said in rebutting a JP Morgan research note entitled "Is Malaysia taking the Indonesia Detour? by pointing out that the fundamentals of the two economies were far apart.

"Malaysia's economy is far more diversified where its dependency on commodities as at 2014 (before the significant drop in commodity prices) is much less, for example at 18 per cent in terms of GDP, 23 per cent in terms of exports and 30 per cent in terms of government revenue," he said in his response to the research note.

"Having led Maybank which has sizeable operations in Indonesia, I would say the economic fundamentals between our countries are very different," said Wahid Omar, who was the Chief Executive Officer of Maybank -- the fourth largest bank in Southeast Asia by asset size -- before being appointed a minister.

In April 2015, Malaysia implemented the Goods and Services Tax (GST) which broadened the revenue base further which helped to partially cushion the drop in oil and gas revenues, he said.

"Government debt level was at 54 per cent was below the self imposed limit of 55 per cent and was expected to decline gradually as we get the private sector to drive fixed capital formation and investments," he said.

"Our debt capital market is the most developed in ASEAN with the ability to fund long-term infrastructure projects. Our banks are well-capitalised, well-managed with good risk & liquidity management, well-regulated and effectively supervised by Bank Negara Malaysia," the minister said.

Corporate debt levels at 56 per cent for public listed companies were significantly lower than during 1997/98 and most corporate debts were denominated also in Malaysian Ringgit, while companies that borrow in US Dollar or other foreign currencies have matching assets or revenue streams.

With forward (price earnings) PE of 14 times, the market valuation could be considered reasonable as stated by Maybank Kim Eng's recent analysis on the resilience of local stock market.

"Indeed, I would say that Malaysia is more resilient now compared to our position during the previous crises and certainly more resilient than the neighbouring country mentioned if you were to do a side by side comparison.

"On my part, we will continue to focus on the fundamentals and let the market decide on the appropriate 'pricing' for our financial markets," Wahid Omar said.