Mahathir is moving closer to Japan, but he is not pushing China away.
On November 2, Malaysia’s Finance Minister Lim Guan Eng tabled the much-anticipated Budget 2019 speech in parliament. After the Election Manifesto and the Mid-Term Review of the 11th Malaysia Plan, Budget 2019 offers the clearest indication of the Pakatan Harapan (PH) government’s policy direction. Major themes in the budget speech include strategies to alleviate financial burdens, encourage home ownership, and generate revenue through new methods of taxation. Another statement that caught media attention was the plan to issue “samurai” bonds in Japan.
Samurai bonds are yen-denominated bonds that foreign entities can issue in Japan to raise capital. The Japanese government has pledged to guarantee $1.8 billion worth of 10-year Malaysia-issued bonds at an indicative coupon rate of 0.65 percent. Shortly after this was announced, Malaysian Prime Minister Mahathir Mohamad stated that the capital raised from these bonds would be used to retire loans taken by the previous Barisan Nasional (BN) government, which he believed were taken at exorbitant rates.
The low interest rate accompanying samurai bonds is viewed as beneficial to Malaysia. If sufficient capital can be raised, then this would prove to be a cost-effective method to pay off older loans. In practical terms, the success of this strategy will be contingent upon whether investors have confidence that the bonds will yield an attractive return. A prospectus on the bonds has not yet been released, so this remains to be seen.
The Malaysian government also plans to receive financing from Japan for infrastructure, transportation and human resource development projects. Japanese Prime Minister Shinzo Abe has also said that he was interested in reviving Japanese involvement in these projects. Thus, the samurai bonds announced in the budget are likely only to be the first tranche of bonds issued, and Japanese participation in Malaysia’s development projects looks set to increase.
Mahathir chose Japan for his first trip abroad as prime minister.
