The loans taken out in yen will be converted to US dollar or ringgit where applicable and used to pay of the existing 1MDB debt, Mahathir (centre) explained. — Picture by Miera Zulyana

KUALA LUMPUR, July 23 — The government will employ soft loans from Japan to pay down 1MDB’s debts that are held either in the US dollar or ringgit, Prime Minister Tun Dr Mahathir Mohamad told Parliament today.

He said the move would allow Malaysia to reduce the cost of repaying the debt and associated interest of 6 per cent annually by taking advantage of comparative exchange rates.

“The Japanese yen is lower than the ringgit. One yen is US$0.01, whereas RM1 is US$0.25. The low value of yen does not mean a cheaper loan,” he said.

The loans taken out in yen will then be converted to US dollar or ringgit where applicable and used to pay of the existing 1MDB debt, Dr Mahathir explained.

Dr Mahathir was responding to a question from Opposition Leader Datuk Seri Ahmad Zahid Hamidi, who asked why the government was seeking loans in the Japanese yen.

He also explained that previously, Japan had offered Malaysia a soft loan with an interest rate of only 0.7 per cent with a 40-year repayment period.

“We don’t know if the Japanese government can give an interest rate as low as that anymore. But paying debts with a low interest rates means we will not be burdened with a high interest rate, exceeding six per cent of the original debt,” Dr Mahathir added.

“We are working on it. We are already talking to the Japanese. It’s not easy for the Japanese to just give a soft loan to anybody. They have their own government to satisfy first,” Dr Mahathir told reporters later.

Dr Mahathir last month said he had asked Japan to extend a yen credit to Malaysia to which his counterpart Shinzo Abe said he would consider, Bernama reported.

Dr Mahathir reportedly said he mentioned to Abe at their meeting, about the soft loan extended by Japan when he was the prime minister previously, with an interest rate of just 0.7 per cent, repayable over 40 years.