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Economy
of Malaysia
In the 17th century, they were found in several Malay states. Later, as
the British started to take over as administrators of Malaya, rubber and
palm oil trees were introduced for commercial purposes. Over time, Malaya
became the world's largest major producer of tin, rubber, and palm oil.
These three commodities, along with other raw materials, firmly set
Malaysia's economic tempo well into the mid-20th century.
Instead of relying on the local Malays as a source of labour, the British
brought in Chinese and Indians to work on the mines and plantations.
Although many of them returned to their respective home countries after
their agreed tenure ended, some remained in Malaysia and settled
permanently.
As Malaya moved towards independence, the government began implementing
economic five-year plans, beginning with the First Malayan Five Year Plan
in 1955. Upon the establishment of Malaysia, the plans were re-titled and
renumbered, beginning with the First Malaysia Plan in 1965.
In the 1970s, Malaysia began to imitate the four Asian Tiger economies
(Taiwan, South Korea, Hong Kong and Singapore) and committed itself to a
transition from being reliant on mining and agriculture to an economy that
depends more on manufacturing. With Japanese investment, heavy industries
flourished and in a matter of years, Malaysian exports became the
country's primary growth engine. Malaysia consistently achieved more than
7% GDP growth along with low inflation in the 1980s and the 1990s.
During the same period, the government tried to eradicate poverty with the
controversial New Economic Policy (NEP), after the May 13 Incident of
racial rioting in 1969. Its main objective was the elimination of the
association of race with economic function, and the first five-year plan
to begin implementing the NEP was the Second Malaysia Plan. The success or
failure of the NEP is the subject of much debate, although it was
officially retired in 1990 and replaced by the National Development Policy
(NDP). Recently much debate has surfaced once again with regards to the
results and relevance of the NEP. Some have argued that the NEP has indeed
successfully created a Middle/Upper Class of Malay businessmen and
professionals. Despite some improvement in the economic power of Malays in
general, the Malaysian government maintains a policy of discrimination
that favours ethnic Malays over other races—including preferential
treatment in employment, education, scholarships, business, access to
cheaper housing and assisted savings . This special treatment has sparked
envy and resentment between non-Malays and Malays.
The Chinese control of the locally-owned sector of the country's economy,
meanwhile, has been ceded largely in favour of the Bumiputras/Malays in
many essential or strategic industries such as petroleum retailing,
transportation, agriculture and etc. The minority of Indian descent has by
and large been the most adversely affected by this policy. Indicators
point to a higher incidence of crime and gang related activities among the
Indians in recent years.
The rapid economic boom led to a variety of supply problems, however.
Labour shortages soon resulted in an influx of millions of foreign
workers, many illegal. Cash-rich PLCs and consortia of banks eager to
benefit from increased and rapid development began large infrastructure
projects. This all ended when the Asian Financial Crisis hit in the fall
of 1997, delivering a massive shock to Malaysia's economy.
As with other countries affected by the crisis, there was speculative
short-selling of the Malaysian currency, the ringgit. Foreign direct
investment fell at an alarming rate and, as capital flowed out of the
country, the value of the ringgit dropped from MYR 2.50 per USD to, at one
point, MYR 4.80 per USD. The Kuala Lumpur Stock Exchange's composite index
plummeted from approximately 1300 points to around 400 points in a matter
of weeks. After the controversial sacking of finance minister Anwar
Ibrahim, a National Economic Action Council was formed to deal with the
monetary crisis. Bank Negara imposed capital controls and pegged the
Malaysian ringgit at 3.80 to the US dollar. Malaysia refused economic aid
packages from the International Monetary Fund (IMF) and the World Bank,
however, surprising many analysts.
In March, 2005, the United Nations Conference on Trade and Development (UNCTAD)
published a paper on the sources and pace of Malaysia's recovery, written
by Jomo K.S. of the applied economics department, University of Malaya,
Kuala Lumpur. The paper concluded that the controls imposed by Malaysia's
government neither hurt nor helped recovery. The chief factor was an
increase in electronics components exports, which was caused by a large
increase in the demand for components in the United States, which was
caused, in turn, by a fear of the effects of the arrival of the year 2000
(Y2K) upon older computers and other digital devices.
However, the post Y2K slump of 2001 did not affect Malaysia as much as
other countries. This may have been clearer evidence that there are other
causes and effects that can be more properly attributable for recovery.
One possibility is that the currency speculators had run out of finance
after failing in their attack on the Hong Kong dollar in August, 1998 and
after the Russian ruble collapsed. (See George Soros)
Regardless of cause/effect claims, rejuvenation of the economy also
coincided with massive government spending and budget deficits in the
years that followed the crisis. Later, Malaysia enjoyed faster economic
recovery compared to its neighbours. In many ways, however, the country
has yet to recover to the levels of the pre-crisis era.
While the pace of development today is not as rapid, it is seen to be more
sustainable. Although the controls and economic housekeeping may not have
been the principal reason for recovery, there is no doubt that the banking
sector has become more resilient to external shocks. The current account
has also settled into a structural surplus, providing a cushion to capital
flight. Asset prices are now a fraction of their pre-crisis heights.
The fixed exchange rate was abandoned in July 2005 in favour of a managed
floating system within an hour of China's announcing of the same move. In
the same week, the ringgit strengthened a percent against various major
currencies and was expected to appreciate further. As of December 2005,
however, expectations of further appreciation were muted as capital flight
exceeded USD 10 billion.
In September, 2005, Sir Howard J. Davies, director of the London School of
Economics, at a meeting in Kuala Lumpur, cautioned Malaysian officials
that if they want a flexible capital market, they will have to lift the
ban on short-selling put into effect during the crisis. In March 2006,
Malaysia removed the ban on short selling. Currently, Malaysia is
considered a newly industrialised country.
resource : http://en.wikipedia.org/wiki/Malaysia |