==

Malaysia
SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S June 19, 2008

important your attention is drawn to the statement on the back cover of this report which affects your rights.
Analyst: Camilla Löwenhielm. Tel : +46 8 763 98 11. E-mail : camilla.lowenhielm@seb.se

After decades of mostly stable rule Malaysia has entered a period of political uncertainty, as
reflected in market spreads. The political patronage structure – including preferential treatment of
ethnic Malays – may be coming to an end judged by recent election results and frustration over
growing corruption and inequalities.
Country Risk Analysis

`Ü~åÖáåÖ= éçäáíáÅ~ä= ä~åÇëÅ~éÉK= In Iasl Marcl, lle ruIing coaIilion, Barisan
NasionaI (BN), von generaI eIeclions bul neverlleIess suffered a selbacI Ioosing
lle lvo-llirds majorily il lad enjoyed for decades and aIso five of 13 slale
governmenls. Tlis las Iefl lle coaIilion, incIuding ils main parly, Umno, in a
crisis mode. SlocI marIels feII 10° vlen resuIls vere announced as inveslors
became nervous aboul poIilicaI uncerlainly. A main reason belind lle eIeclion
selbacI vas lle Ioss of supporl from ellnic Clinese and Indian minorilies. Iasl
year Hindi groups slaged mass demonslralions againsl aIIeged discriminalion.
Tlis cosl lle MaIaysian Indian Congress (one of lle former governing coaIilion
parlies) ils re-eIeclion.

Irime Minisler,
AbduIIal Badavi,
las responded lo lle
inlernaI crilicism by
llroving oul some of
lle oId guard from
lle nev governmenl
and beginning lo
address issues vlere
le lad promised
reform vlen firsl
eIecled, sucl as
eradicaling corruplion in lle judiciary and lle poIice force. Mr Anvar, vlo
Ieads lle opposilion, las llrealened lo loppIe lle governmenl by mid-Seplember
by caIIing a no-confidence vole. To succeed, le needs 30 governmenl members of
parIiamenl lo defecl from lle coaIilion and join lis camp bul cIaims lo lave
enougl supporl aIready. Tle opposilion is made up of llree very differenl
parlies (incIuding an IsIamic parly), vlo managed lo unile volers from differenl
ellnic groups in a figll againsl cIass inequaIily and corruplion. Il is, lovever,
uncIear lov uniled lley vouId remain as a governmenl coaIilion.
GDP growth and current account
balances
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2002 2003 2004 2005 2006 2007
GDP
CA

Tle poIicy of preferenliaI lrealmenls of MaIays las been a cornerslone of
MaIaysian poIilics for decades. Il iniliaIIy reduced Iarge income gaps in lle
popuIalion. Hovever, increasing corruplion and broller-in-Iav poIilics lave
caused poorer MaIays as veII as oller ellnic minorilies lo Ioose faill in llese
poIicies as inequaIily belveen ricl and poor las videned again.
SEB Merchant Banking Country Risk Analysis June 19, 2008

2

eÉ~äíÜó= dam= ÖêçïíÜ= ïáíÜ= ëíêçåÖ= ÉñíÉêå~ä= éçëáíáçåK= Tle currenl accounl
surpIus remains Iarge ( 15° of GDI in 2007). In ApriI, foreign currency reserves
reacled USD 124bn, covering aImosl 10 monlls of imporls. Tlere lave been
vorries llal lle economy couId suffer from Iover US grovll as eIeclronics and
eIeclrics (LL) maIe up lle Iargesl slare of exporls. Hovever, ligl commodily
prices lave been compensaling up lle decIine in LL exporls as lle counlry is a
nel exporler of oiI, naluraI gas and paIm oiI. Consumplion remains slrong and
GDI grovll is expecled lo loId up al 5-6° in 2008 despile poIilicaI uncerlainly.

The fiscal position is relatively weak with an increasing dependence on oil
revenues. Malaysia recorded a fiscal deficit of 3.2% of GDP in 2007. As the
extensive fuel subsidy system was becoming increasingly costly - subsidies
would have amounted to almost 7% of GDP this year - the government
recently announced bold plans to restructure the system, implementing a
doubling of fuel prices. It recently raised fuel prices by 40% and said it plans
to bring them up to market rates by August. This is a highly unpopular move
at a sensitive time for the government. Mr Anwar has promised to lower fuel
prices if he comes to power. Inflation has remained relatively benign in
Malaysia helped by extensive price controls and subsidies. The hike in fuel
prices is estimated to increase inflation from 3% to 4-5% on a full-year basis,
probably peaking at 6-7% in the near future.

--˘--

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c| stcc|c cn! prc!ictcc|c ru|c in Mc|cusic cc|cnv tc t|c pcst. A scricus cppcsiticn tc t|c
|cnv-stcn!inv cn! c|tcn cut|critcricn ru|c c| t|c !cmincnt Umnc-pcrtu |cs cccn
cstcc|is|c! cn! t|rcctcns tc tcpp|c t|c vctcrnmcnt in Scptcmccr. ct c timc u|cn t|c
pcpu|critu c| t|c vctcrnmcnt ui|| !rcp |urt|cr !uc tc rcccnt cn! p|cnnc! pricc incrccscs
|cr |uc|. 1|is rcccnt|u prcmptc! ScP tc c|cnvc t|c cut|cc| cn Mc|cusic tc stcc|c |rcm
pcsititc. 1|c cccncmu |cs |c|! up uc|| t|cn|s strcnv !cmcstic !cmcn! cn! |iv| priccs
|cr ccmmc!itics. cnc c| Mc|cusic´s mcin cxpcrt prc!ucts. u|ic| s|cu|! suppcrt
ccntinuc! |crvc trc!c surp|uscs !cspitc t|c s|cu!cun in t|c US cn! v|ccc| cccncmics.

hÉó=ê~íáçë OMMU
IopuIalion (miII.) 27
GDI/capila ($) 8396
GDI (°clg.) 5,1°
InfIalion 6°
Curr.Acc. BaIance/GDI 15°
Reserves/imporls (monlls) 8
Budgel baIance/GDI -5°
Governmenl debl/GDI 38°
dê~éÜW SIovaI Rep's risI profiIe is slronger on Iong
lerm faclors sucl as resiIience, absence of evenl risI
and informalion llan lle average for aII emerging
marIel counlries, bul somevlal veaIer on Iiquidily
and macro baIance.
bñíÉêå~ä=ê~íáåÖëW=
Iilcl: A (RC3)
Moody's: A1 (RC3)
S&I: A (RC3)
mÉÉêëW
Lslonia (RC 4)
Czecl Rep. (RC 4)
Hungary (RC 5)
dê~éÜW MaIaysia's risI profiIe is slronger on aII
accounls bul informalion llan lle average for aII
emerging marIel counlries. Il scores somevlal beller
llan Korea on macrobaIance bul vorse on resiIience.
bñíÉêå~ä=ê~íáåÖëW=
Iilcl: A-
Moody's: A3
S&I: A-
mÉÉêëW
Korea
Clina
Czecl Rep.
0
2
4
6
8
10
12
14
16
Resilience
Liquidity
Information
Absence of event
risk
Macro balance
Malaysia Average EM
Korea
Hcu tc rcc! t|c c|crt?
Moving oul from lle
cenler reduces risI.

SEB Merchant Banking Country Risk Analysis June 19, 2008

3
hÉó=Ç~í~W OMMP OMMQ OMMR OMMS OMMT OMMU OMMV OMNM
GDI (biII. US$) 110 125 138 156 187 227 239 275
GDI/capila (US$) 4457 4952 5379 5992 7035 8396 8713 9839
GDI (clange) 6° 7° 5° 6° 6° 5° 4° 6°
Inveslmenls/GDI 23° 22° 22° 23° 23° 23° 24° 24°
Budgel baIance/GDI -5° -4° -4° -3° -3° -5° -6° -5°
Govl debl/GDI 44° 43° 43° 42° 41° 38° 38° 38°
CII infIalion (°) 1,0° 1,5° 3,0° 3,6° 2,0° 5,9° 3,9° 2,1°
Money demand (°) 8° 16° 21° 11° 11° 8° 5° 6°
SlocI prices (°clange) -1° 21° 6° 6° 37°
Inleresl rales 3° 3° 3° 3° 4° 3° 3° 3°
Lxcl. Rale ($) 3,8 3,8 3,8 3,7 3,4 3,3 3,4 3,2
Trade/GDI (°) 167° 181° 182° 182° 169° 161° 164° 156°
OiI price (Brenl) 29 38 54 65 73 96 50 53
_áääáçåë=rp=A
Lxporl of goods 105 127 142 161 176 205 211 229
Imporls of goods 79 99 108 124 139 160 181 199
Oller: -12 -12 -13 -11 -8 -11 -10 -13
Currenl accounl 13 15 21 26 29 34 20 1
as ° of GDI 12° 12° 15° 16° 16° 15° 8° 6°
IDI 1 3 1 0 -3 1 3
Ioan re
7
3
paymenls (MUSD) -7 -7 -7 -5 -9 -10 -10 -11
Nel oller capilaI fIovs (M -1 8 3 -16 0 -5 -10 4
BaIance of paymenls 6 18 18 5 18 21 3 13
Reserves 37 55 73 78 96 117 120 1
TolaI debl 48 51 52 52 47 48 50 53
o/v slorl lerm debl 9 10 13 12 16 17 18 2
o~íáåÖ=Üáëíçêó
Iilcl (eo
33
0
y) BBB BBB+ BBB+ A- A- A-
S&I (eoy) BBB BBB+ A- A- A- A-
qóéÉ=çÑ=ÖçîÉêåãÉåíW
Nexl eIeclions 2011
líÜÉêW
Ialesl IC deaI None
Ialesl IMI arrangemenls None

Spot Rates
EUR/MYR USD/MYR
Source: Reuters EcoWin
02 03 04 05 06 07 08
3.00
3.25
3.50
3.75
4.00
4.25
4.50
4.75
5.00
5.25



KL Stock Exchange Index
Source: Reuters EcoWin
02 03 04 05 06 07 08
I
n
d
e
x
600
700
800
900
1000
1100
1200
1300
1400
1500
1600


Consumer Price Inflation [ar 12 months]
Policy Rates
Source: Reuters EcoWin
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
06 07 08
P
e
r
c
e
n
t
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0


Exports
Exports, Electronics and electricals [ma
Total exports [ma 12]
Source: Reuters EcoWin
00 01 02 03 04 05 06 07
M
Y
R

(
b
i
l
l
i
o
n
s
)
15
20
25
30
35
40
45
50
55
Repo rate and CPI

SEB Merchant Banking Country Risk Analysis June 19, 2008

4

aáëÅä~áãÉê=

`çåÑáÇÉåíá~äáíó=kçíáÅÉ=

Tle informalion in llis documenl las been compiIed by SLB Merclanl BanIing, a
division villin SIandinavisIa LnsIiIda BanIen AB (pubI) (“SLB¨).

Opinions conlained in llis reporl represenl lle banI's presenl opinion onIy and are
subjecl lo clange villoul nolice. AII informalion conlained in llis reporl las been
compiIed in good faill from sources beIieved lo be reIiabIe. Hovever, no
represenlalion or varranly, expressed or impIied, is made vill respecl lo lle
compIeleness or accuracy of ils conlenls and lle informalion is nol lo be reIied upon
as aullorilalive. Anyone considering laIing aclions based upon lle conlenl of llis
documenl is urged lo base lis or ler inveslmenl decisions upon sucl invesligalions
as le or sle deems necessary. Tlis documenl is being provided as informalion onIy,
and no specific aclions are being soIiciled as a resuIl of il: lo lle exlenl permilled by
Iav, no IiabiIily vlalsoever is accepled for any direcl or consequenliaI Ioss arising
from use of llis documenl or ils conlenls.

SLB is a pubIic company incorporaled in SlocIloIm, Sveden, vill Iimiled IiabiIily. Il
is a parlicipanl al major Nordic and oller Luropean ReguIaled MarIels and
MuIliIaleraI Trading IaciIilies (as veII as some non-Luropean equivaIenl marIels)
for lrading in financiaI inslrumenls, sucl as marIels operaled by NASDAO OMX,
NYSL Luronexl, Iondon SlocI Lxclange, Deulscle B∏rse, Sviss Lxclanges,
Turquoise and Cli-X. SLB is aullorized and reguIaled by IinansinspeIlionen in
Sveden: il is aullorized and subjecl lo Iimiled reguIalion by lle IinanciaI Services
Aullorily for lle conducl of designaled inveslmenl business in lle UK, and is
subjecl lo lle provisions of reIevanl reguIalors in aII oller jurisdiclions vlere SLB
conducls operalions.

SLB Merclanl BanIing. AII riglls reserved.