[Home]History of Malaysia/Economy

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Revision 2 . . September 27, 2001 11:06 am by Koyaanis Qatsi
Revision 1 . . May 20, 2001 8:10 am by KoyaanisQatsi
  

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Economy - overview:
Malaysia made a quick economic recovery in 1999 from its worst recession since independence in 1957. GDP grew 5%, responding to a dynamic export sector, which grew over 10% and fiscal stimulus from higher government spending. The large export surplus has enabled the country to build up its already substantial financial reserves, to $31 billion at yearend 1999. This stable macroeconomic environment, in which both inflation and unemployment stand at 3% or less, has made possible the relaxation of most of the capital controls imposed by the government in 1998 to counter the impact of the Asian financial crisis. Government and private forecasters expect Malaysia to continue this trend in 2000, predicting GDP to grow another 5% to 6%. While Malaysia's immediate economic horizon looks bright, its long-term prospects are clouded by the lack of reforms in the corporate sector, particularly those dealing with competitiveness and high corporate debt.

GDP:

After nearly a decade of strong economic growth averaging 8.7% annually, Malaysia was hard hit by the regional financial crisis of 1997-99. The economy suffered a sharp 7.5% contraction in 1998 but rebounded in 1999 to grow by 5.6% for the year. The Government of Malaysia predicts 5.8% real GDP growth in the year 2000, but most analysts predict growth will exceed 8% for the year. The economic recovery has been led by strong growth in exports, particularly of electronics and electrical products, to the United States, Malaysia's principal trade and investment partner. Inflationary pressures remain benign, and, as a result, [Bank Negara]?, the central bank, has been able to follow a low interest rate policy. Since September 1998, the Malaysian ringgit has been pegged at an exchange rate of RM3.8/U.S.$1.0. Most analysts believe that, with consumer demand and investment finally recovering from the crisis, Malaysia should broaden its economic growth this year.

Malaysia remains an important trading partner for the United States. In 1999, two-way bilateral trade between the U.S. and Malaysia totaled U.S. $30.5 billion, with U.S. exports to Malaysia totaling U.S.$9.1 billion and U.S. imports from Malaysia increasing to U.S.$21.4 billion. Malaysia was the United States' 12th-largest trading partner and its 17th-largest export market. During the first half of 2000, U.S. exports totaled U.S.$5 billion, while U.S. imports from Malaysia reached U.S.$11.6 billion.

At independence, Malaysia inherited an economy dominated by two commodities--rubber and tin. In the 40 years thereafter, Malaysia's economic record had been one of Asia's best. From the early 1980s through the mid-1990s, the economy experienced a period of broad diversification and sustained rapid growth averaging almost 8% annually. By 1999, nominal per capita GDP had reached $3,238. New foreign and domestic investment played a significant role in the transformation of Malaysia's economy. Manufacturing grew from 13.9% of GDP in 1970 to 30% in 1999, while agriculture and mining, which together had accounted for 42.7% of GDP in 1970, dropped to 9.3% and 7.3%, respectively, in 1999. Manufacturing accounted for 30% of GDP (1999). Major products include electronic components--Malaysia is one of the world's largest exporters of semiconductor devices--electrical goods, and appliances.

The Malaysian Government encourages [Foreign Direct Investment]? (FDI). According to Malaysian statistics, in 1999, the U.S. ranked first among all countries in approved FDI in Malaysia's manufacturing sector with approved new manufacturing investments totaling RM5.2 billion (US$1.37 billion). Principal U.S. investment approved by the [Malaysian Investment Development Authority]? (MIDA) was concentrated in the chemicals, electronics, and electrical sectors. The cumulative value of U.S. private investment in Malaysia exceeds $10 billion, 60% of which is in the oil and gas and petrochemical sectors with the rest in manufacturing, especially semiconductors and other electronic products.

Malaysia's [New Economic Policy]? (NEP), first established in 1971, seeks to eradicate poverty and end the identification of economic function with ethnicity. In particular, it was designed to enhance the economic standing of ethnic Malays and other indigenous peoples (collectively known as "bumiputeras" in Bahasa Malaysia). Rapid growth through the mid-1990s made it possible to expand the share of the economy for bumiputeras without reducing the economic attainment of other groups. One controversial NEP goal was to alter the pattern of ownership of corporate equity in Malaysia, with the government providing funds to purchase foreign-owned shareholdings on behalf of the bumiputera population. In June 1991, after the NEP expired, the government unveiled its [National Development Policy]?, which contained many of the NEP's goals, although without specific equity targets and timetables.

GDP:

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