Saudi, Malaysia set up $2.5m investment fund

Malaysia's government, which has struggled to attract foreign investment, and Saudi Arabia's PetroSaudi International have set up a fund to invest in the southeast Asian country in the first of a series of deals with rich countries

Malaysia's Prime Minister Najib Razak told reporters on Wednesday that Malaysia would sell $1 billion of bonds to finance its share of the deal and that an investment of $1.5 billion by PetroSaudi International had already arrived in the country.

Petroleum, oil and gas, renewable energy and property would be investment targets for the joint venture whose Malaysian partner would be a fund called 1Malaysia Development and which would also be allowed to invest abroad, Najib said.

"We will construct other vehicles for investments with other capital surplus countries," he said.

Malaysia has struggled in recent years to attract investment and has recorded negative direct investment flows since the second quarter of 2008.

Foreign investment in Malaysia has plummeted this year as a result of the global financial crisis. Its economy is expected to contract by 5.0 percent this year.

Economists say that Malaysia, burdened by what is expected to be its biggest budget deficit this year since 1987, needs to cut government development spending and boost lackluster private sector investment.

The government is considering plans for its 2011-15 economic plan to cut government development spending over the five year period by 10 percent to 180 billion ringgit ($52 billion).

According to investment bank BNP, Malaysia's investment ratio relative to the size of the economy is the second-lowest in Asia after the Philippines.