KUALA LUMPUR, July 2, 2009 (AFP) - Foreign investment in Malaysia has plummeted this year, Trade Minister Mustapa Mohamed said Thursday after the government announced liberalisation measures aimed at luring investors.

"Foreign direct investment for 2008 was 46 billion ringgit (13 billion dollars) and for January to May this year we have only seen 4.2 billion ringgit," Mustapa told reporters.

Wahad Hamid, deputy head of the Malaysian Industrial Development Authority, said the investment climate was extremely tough despite a strong performance by Malaysia in the three previous years.

"Last year, total investment was about 62 billion ringgit but this year we are only targetting half of that, about 30 billion ringgit," he told reporters.

Mustapa said he was confident that liberalisation measures announced by Prime Minister Najib Razak this week would help bring in more funds, amid forecasts of a 5.0 percent economic contraction this year.

"We are confident that investor sentiment will improve, we are encouraged by all the measures taken by the government," he said.

The liberalisation moves targeted a decades-old policy of positive discrimination for Muslim Malays, which critics say is making Malaysia uncompetitive.

Najib scrapped a rule requiring initial public offerings to reserve 30 percent of stock for Malays - who dominate the population of the multicultural nation - and dumped regulatory approval for foreign property purchases.

However, Mohammed Ariff, head of the influential Malaysian Institute of Economic Research, said the measures were poorly timed and would not bear fruit until the global economy recovers.

"The liberalisation announcements should have been made in the good times instead of now, as there would have been a lot of responses from foreign investors," he told AFP.

Ariff said that despite hopes for a recovery next year, Malaysia's economy is unlikely to really get back up on its feet until 2012.

"To me real recovery is not just positive growth but going back to the growth we are used to, of around six percent, and that is way off - until 2012," he said.