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Malaysia in transition

Malaysia to drop high-speed rail link to Singapore

Mahathir seeks to reduce pull-out penalty of up to $125 million

Malaysia's Prime Minister Mahathir Mohamad, right, meets with Singapore's Prime Minister Lee Hsien Loong in Putrajaya, Malaysia on May 19.   © Reuters

KUALA LUMPUR -- Malaysian Prime Minister Mahathir Mohamad said Monday the proposed high-speed rail linking the country's capital to Singapore would not be happening, and that he planned to negotiate with his southern neighbor over reducing the penality for pulling out of the project which could reach as high as 500 million ringgit ($125 million).

Mahathir's predecessor Najib Razak signed a legally-binding deal with his counterpart Lee Hsien Loong in December 2016 for the 350 km cross-border link as a symbol of closer bilateral cooperation. But since his surprise win in Malaysia's May 9 election, Mahathir has discovered the extent of fiscal debt chalked up by Najib, which have reached 65% of gross domestic product -- far more than the 50.8% reported for the end of 2017. 

"It's a final decision," said Mahathir when asked if he would abort the proposal. "It's not beneficial. It is going to cost us a huge sum for a short track."

Mahathir has said that his government's priority is tackling the financial burden related to the embezzling scandal at state fund 1Malaysia Development Berhad and trimming fiscal expenses as he delivers on election promises which included abolishing the unpopular goods and services tax. 

France's Alstom and Siemens of Germany were among the high-speed train manufacturers intending to bid in the Malaysia-Singapore rail project.   © Reuters

The high-speed rail project, which was estimated to cost 60 billion ringgit, is currently at the pre-tender stage, with potential bidders given a deadline of the end of June to submit proposals. A large portion of the 350 km line lies on the Malaysian side of the border.

Capital Economics wrote in a note on Monday that canceling big ticket projects such as the high-speed rail and the 55 billion ringgit East Coast Rail Link may be in Malaysia's interest, as the country's economy is already on a strong footing and in little need of further support. "If the projects go ahead on the scale originally planned by the government, instead of providing a boost to growth, they could have caused the economy to overheat, leading to a rise in inflation."

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