In addition, the attainability of the baseline growth estimate also depends on how rapidly the fiscal stimulus is translated into economic activities in 1998. In any case, any delay in programme implementation in 1998 will spill over to 1999, which should benefit from the fiscal stimulus. In an environment of slowing growth, it is important to ensure that productive activities receive adequate financing at the right time and cost. Limited accessibility of investors to investible funds as a result of credit tightening creates financial difficulties for business and leads to widespread individual and corporate bankruptcies. In the first quarter of 1998, the loans given by the banking system contracted by RM2.09 billion, while the deposits fell by RM4.01 billion.
Interest rates have an important bearing on business viability.
During the past few months, interest rates have risen. The 3-months fixed deposit rates increased from 7.43 in June 1997 to 9.06 in December 1997and 12.1 in June 1998. However, these interest rates do not reflect the cost of funds faced by the lender. As a matter of course, banks charge an interest margin above the base-lending rate, which is the effective cost of funds to the borrowers. The maximum spread is 4 per cent above the BLR or cost of funds, and the lending rate was 16.2 per cent.