Country Study: Malaysia

1. Country Study: Malaysia

2. Overview • In 1948, the British-ruled colonies on Malay Peninsula formed a Federation of Malaya, which became independent in 1952 • Malaysia was formed in 1963 when Singapore and Eastern states of Malaysia joined the Federation • In 1965, Singapore was forced to leave the Federation

3. Overview (cont.) • Under the 22-year leadership of the Prime Minister Mahathir (1981-2003), Malaysia reduced its dependence on raw material exports • Malaysia diversified into manufacturing service sector and tourism • Malaysia’s population is 25.7 million, working age population being 63.6%

4. Overview (cont.) • Populationgrowth rate is relatively higher (1.73%), infant-mortality rate is 16 per 1000 live births • Ethnicity is an important element in Malaysia’s development • Malays constitute 50%, Overseas Chinese 24%, Indians 7%

5. Overview (cont.) • Malaysia is primarily a Muslim country 60.4%, Buddhist 19%, Christians 9% and Hindu 6.3% • Government expenditures on Education are high 6.2% of GDP • Government represents ‘Constitutional Monarchy’. United Malay National Organization has played an important role country’s economic development

6. Development Model • Role of state is very important in Malaysia’s economic growth • Per Capita Income of Malaysia is $15,000. Growth rates have been uneven. During 1980-1990, growth-rates averaged at around 8%. However, recently, Malaysia is growing at around 6% • Gini Index of 46.1 is among the highest in South East Asia

7. Development Model (cont.) • Malaysia’s agriculture sector contributes 13% to the GDP • Manufacturing sector has grown in the areas of medical technology, Pharmaceuticals, and computer parts • Spill over effects of Singapore’s growth • Malaysia’s major exports are rubber, palm oil, logging, electronics, and petroleum products

8. Development Model (cont.) • Malaysia attracts significant amount of foreign direct investment in its manufacturing sector ($92 billion) • External debt stands at $54 billion • “Growth vs Equity” has remained an important trade off in Malaysia’s economic development

9. Development Model (cont.) • Government has made deliberate efforts in National Economic Policy (NEP) and in National Development Plan (NDP) to improve the lot of Bhumiputras (Indigenous Malays) • Foreign firms and domestic businesses are encouraged to form partnerships with Bhumiputras • Low levels of income and educational achievement combined with lack of entrepreneurial skills of Bhumiputras has hampered economic growth

10. Development Model (cont.) • Ethnic tensions against rich, entrepreneurial Chinese • Steps to achieve equality come in the way of faster economic growth • Realizing the issues with government policy of encouraging Bhumiputras participation, recent policies aim at higher growth rates

11. Asian Financial Crisis and Aftermath • High inflation rate, and unequal distribution of income have remained the major development issues in Malaysia • Malaysia was not as much affected by Asian Financial Crisis as Thailand, Indonesia, and South Korea were affected • Malaysia followed a cautious path with liberalization and foreign investment

12. Asian Financial Crisis and Aftermath (cont.) • During the crisis, Malaysia took an unpopular step of capital controls, but it moderated the effect on currency depreciation • In 2005, Malaysia “unpegged” the Ringgit to dollar and the currency appreciated by 6%

13. Current Problems and Progress • Economic well-being of Bhumiputras • Inequalities of income and poverty • Current recession in global market • government is trying to reduce the dependence on exports and generate domestic demand in Ninth Five Year Plan • General inflationary pressures (6%)

14. Current Problems and Progress (cont.) • Concentrated efforts to attract foreign investment in manufacturing hub such as Penang • Nepotism but steady leadership • Corruption • Territorial issues with neighboring states – Thailand, Indonesia, Singapore