Originally created 10/24/98

Malaysia proposes budget to pull economy out of recession



KUALA LUMPUR, Malaysia -- Prime Minister Mahathir Mohamad on Friday proposed a 1999 budget designed to pull the economy out of its first recession in more than a decade.

The plan, which calls for a series of tax cuts for favored industries, reflects Mahathir's philosophy of spending more to boost corporate health, spur recovery and create employment.

Unlike other Asian nations pummeled by financial turmoil, Malaysia has not embraced the policies of spending cuts and high interest rates promoted by the International Monetary Fund and Western governments.

With the new budget, the government projected the economy would grow just 1 percent next year. The economy is expected to contract nearly 5 percent this year, marking the first recession in more than a decade.

"This plan aims at freeing Malaysia from the grip of the Asian financial crisis and to place Malaysia's economy on a stronger footing," Mahathir told members of Parliament.

He renewed his attacks on foreign currency speculators and the IMF, saying their greed and policies were to blame for much of the Asian crisis.

"The interests of developing countries like Malaysia are not important to them," he said. "As such, we cannot depend on their assistance -- our destiny is in our own hands."

Mahathir took over as finance minister following his sacking last month of Deputy Prime Minister Anwar Ibrahim, who also served as finance chief.

Meanwhile, thousands of anti-government demonstrators were prevented from marching on Parliament as Mahathir presented the budget to lawmakers.

They were protesting the jailing of Anwar, who faces charges of corruption and illegal homosexual activities. He insists the charges were trumped up by political opponents and says he was beaten unconscious by police after his arrest.

Riot police used water cannons to disperse the demonstrators who gathered at a mosque to demand political reforms.

Under the new budget, Mahathir proposed tax measures designed to revive the flagging economy by helping some sectors and penalizing others.

International trading companies, for example, would be given a 70 percent tax exemption in 1999. Income from domestic tour packages of at least 1,200 tourists annually would be exempt from income tax.

The tax on alcohol would go up 20 percent, and import duties on cigarettes would rise sharply. The tax on casino wins would rise to 25 percent from 22 percent.

The budget projects a hefty deficit of 6 percent of economic output. Since 1993, budgets have recorded surpluses.