Budget 2003, touted as marking a fundamental change in economic management, has received a mixed reaction.

Kuala Lumpur Stock Exchange executive chairman Mohd Azlan Hashim said the budget, presented Friday by Prime Minister Mahathir Mohamad, who is also finance minister, was positive for the corporate sector.

"The overall effect is one that would certainly encourage greater participation in investment while improving investor confidence and positive sentiments in the Malaysian capital market," Mohd Azlan said in a statement.

The absence of proposals to cut corporate taxes across the board is a disappointment, but it is not likely to have much impact on the market, analysts said.

Only small and medium-sized companies saw tax dropped from 28 percent to 20 percent on initial chargeable income.

Pankaj Kumar, manager at OSK Research, said: "It's a disappointing budget because there's no corporate tax cut except for SMI (small and medium industries), which should have no impact on the market as it is basically for small companies."

Paradigm shift

The Federation of Malaysian Manufacturers (FMM) welcomed the budget's attempt to "address the issue of long-term structural transformation of the Malaysian economy required to meet the challenges of globalisation, increasing competition and ICT (information, communications and technology)."

Mahathir said in presenting the budget that political conflicts and economic developments abroad "demand a paradigm shift in our approach in managing the economy."

For decades, the country had been overly reliant on external developments, foreign investment and trade, he said, and growth now should be "domestic driven".

The FMM said, however, "there is also a need to continue to attract FDI (foreign direct investment) inflows given the associated access to advanced technologies and markets.

More foreign companies will be attracted to locate their regional headquarters in Malaysia following the proposals to exempt them from income tax for 10 years, American Malaysian Chamber of Commerce president Timothy Garland said.

"The tax exemption (proposal) for companies that are locating their headquarters in Malaysia is very exciting as this will encourage more companies to move their office here," Garland told AFP's financial news unit

Consistent policy

Garland said the budget was consistent with the government's policy to maintain a pro-business environment and to stimulate the private sector.

The government's 2003 economic growth forecast of 6.0-6.5 percent is optimistic, although its current year growth estimate of 4.0-5.0 percent is largely in line with expectations, economists said.

The measures announced by Mahathir are expected to stimulate greater private sector participation and improve exports, they said.

MMS International regional economist David Cohen said the 2003 gross domestic product numbers are "at the optimistic end but not totally beyond reach".

Hong Leong Bank economist Lee Heng Guie also sees the forecast as being "on the high side" in view of the external risks, compared with his own projection of 5.0 percent.

The external risks include the possibility that global recovery may soften as well as a possible Iraq war which would impact oil prices.

Economists said next year's growth would be supported by growth in the manufacturing, services and construction sectors, with the government expected to continue enhancing domestic demand and private sector involvement. AFP