KUALA LUMPUR: The Malaysian government will inject RM20 billion ($4.6 billion) into a state investment firm to shore up the stock market, Prime Minister Najib Razak said on Monday, in a bid to boost confidence in a country reeling from a political scandal.
Najib has rebuffed calls for him to quit over a corruption scandal raging round heavily indebted state fund 1Malaysia Development Berhad (1MDB), and for his handling of the economy as the ringgit currency slumped to its weakest levels since the Asian financial crisis nearly 18 years ago.
The embattled prime minister announced some new measures on Monday at a news conference, and offered reassurances meant to improve sentiment.
He said the equity investment firm, ValueCap, would be given funds to invest in undervalued Malaysian companies.
“As such, the government will reactivate ValueCap with funds of 20 billion ringgit,” he told reporters at the Prime Minister’s office.
The prospect of government support for the share market helped lift Malaysia’s benchmark stock index 1.7 percent to 1,630 points in afternoon trade, but it was still 8.7 percent weaker compared with the start of the year.
A Kuala Lumpur-based fund manager with a bank-backed insurance firm told Reuters that the move bode well for the share market, where foreign holdings are relatively low. But the ringgit was largely unmoved.
Najib also announced that the factory sector would be exempted from import duties until the economy recovers from a slowdown, but did not specify which specific sectors would benefit.
The ringgit’s fall reflects a deterioration in Malaysia’s trade position because of falling prices for its liquefied natural gas and commodity exports. But capital outflows accelerated in July as the political storm over 1MDB worsened.
Najib’s failure to adequately explain how 1MDB racked up $11 billion debt, or who deposited over $600 million in a bank account held in his name has led to mounting public unease over his leadership.
Najib has denied wrongdoing. He said on Monday that the rationalisation plan for 1MDB was on track. The fund is in the process of divesting its energy and real estate assets.
He also sought to allay concerns over the ringgit.
“The ringgit’s decline is not expected to have adverse impact on government debt as 97 percent of the debt is denominated in ringgit and mostly funded by domestic sources,” Najib said.
The country’s international reserves have fallen to $94.7 billion, more than $37 billion less than a year earlier, worrying some economists.
Reflecting those concerns, Najib called on state-linked firms to bring funds home.
“Companies have profited from investments made (abroad) and now it’s time to bring those funds back home,” Najib said.
He also reiterated that there were no plans to introduce capital controls, adding that the government was on track to achieve fiscal consolidation target for 2015.