New Malaysian finance minister Lim Guan Eng seen as safe pick as budget risks rise

Malaysian Prime Minister Mahathir Mohamad (left) and Finance Minister Lim Guan Eng attending a press conference at the Sheraton Petaling Jaya Hotel on May 10, 2018.

KUALA LUMPUR (BLOOMBERG) - Malaysia's new finance minister is seen as a safe pair of hands as he takes on the immense task of bringing down debt while scrapping a consumption tax that was key to Prime Minister Mahathir Mohamad's unexpected election win last week.

With investors bracing themselves for a fallout when financial markets reopen on Monday (May 14), 92-year-old Mahathir moved quickly to name top Cabinet posts on the weekend. He picked Lim Guan Eng as finance minister, and brought back some old names, such as former central bank governor Zeti Akhtar Aziz, to an economic advisory board.

Lim, who is secretary-general of the mostly ethnic Chinese Democratic Action Party, was chief minister of the northern Penang state before the election and is a trained accountant. Penang is the country's second-smallest state, but one of the largest contributors to the economy and home to foreign electronics companies, including Intel.

Lim's appointment "is encouraging", said Julia Goh, an economist at United Overseas Bank in Kuala Lumpur. "The new government understands the key economic issues and fiscal weaknesses at hand. We hope they can deliver the promises to the people yet ensure economic growth remains stable and the fiscal deficit is manageable."


Lim's main priority will be to reassure investors he can carry through Mahathir's populist spending pledges without increasing government debt. Mahathir promised to remove a 6 per cent goods and services tax (GST) within 100 days, raise fuel subsidies and increase minimum wages. He also wants to review large-scale investment projects awarded during the term of his predecessor Najib Razak.

Moody's Investors Service and Fitch Ratings have already warned of risks to the budget if the GST is abolished and not offset by other revenue-raising measures. The previous government had narrowed the deficit over time to 3 per cent of gross domestic product (GDP), while pledging to keep debt under 55 per cent of GDP.

Mahathir's focus is also to tackle corruption scandals that have dogged Najib's administration. Top of the list is reopening a probe into state investment company 1Malaysia Development Berhad (1MDB) that Najib helped set up. The state fund has spawned billion-dollar investigations in at least 10 countries, including the US and Switzerland.

Lim's comments so far have been limited to reassuring Malaysians that the new government will work for all Malaysians, state contracts will be reviewed and that help will be given to the poor. He is the first ethnic Chinese to hold the post in 44 years in a country that has to manage tensions between the majority Malay group and minorities, and where economic advantages are given to ethnic Malays.


"Our primary focus will still be on helping those who find it very hard to make ends meet," he told reporters on Saturday. "Our focus is to see how we can make their lives a little bit easier, whether in terms of abolishing GST", maintaining cash handouts or through fuel measures, he said.

On Sunday, he said he would not make any specific comments on economic plans, including scrapping the GST within 100 days, until he is sworn in as finance minister. But he pledged that policy "would be in order to restore confidence in the economy that's been affected by scandal after scandal, especially 1MDB".

Key to boosting confidence will also be details on fiscal plans.

"Lim will be seen as a practical choice and a safe pair of hands, but ultimately, the market is probably waiting for the fiscal direction," said Rahul Bajoria, an economist at Barclays in Singapore.


Mahathir also created an advisory council, tapping familiar names who were part of his team when he was previously prime minister from 1981 to 2003. Zeti, 70, who was the first female governor of the central bank, took the reins shortly after Mahathir's controversial move to peg the currency and impose capital controls in the aftermath of the Asian financial crisis two decades ago.

Under Zeti, the central bank had urged criminal proceedings at least twice against 1MDB, before slapping a fine of an undisclosed amount on the state fund days before she left the position in 2016.

Daim Zainuddin is also a member of the council, and served twice as finance minister under Mahathir, helping spearhead Malaysia's economic recovery after the Asian crisis.

Others on the council are economist Jomo Kwame Sundaram and Hassan Marican, former president at state oil company Petroliam Nasional, as well as palm oil tycoon Robert Kuok, whose fortune is valued at US$19.9 billion (S$26.5 billion), according to Bloomberg calculations.

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