Malaysia - International University of Japan · consisted of the Straits Settlements (Malacca, Penang and Singapore), the Federated Malay States (Selangor, Perak, Negeri Sembilan

Country Profile 2003

MalaysiaThis Country Profile is a reference work, analysing thecountry’s history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit’s Country Reports analyse current trends and provide atwo-year forecast.

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Malaysia 1

© The Economist Intelligence Unit Limited 2003 www.eiu.com Country Profile 2003

Contents

3 Regional overview3 Membership of organisations

5 Basic data

6 Politics6 Political background8 Recent political developments11 Constitution, institutions and administration12 Political forces14 International relations and defence

16 Resources and infrastructure16 Population17 Education18 Health19 Natural resources and the environment19 Transport, communications and the Internet20 Energy provision

21 The economy21 Economic structure22 Economic policy26 Economic performance29 Regional trends

30 Economic sectors30 Agriculture31 Mining and semi-processing32 Manufacturing33 Construction34 Financial services36 Other services

37 The external sector37 Trade in goods39 Invisibles and the current account39 Capital flows and foreign debt41 Foreign reserves and the exchange rate

42 Appendices42 Sources of information43 Reference tables43 Population43 Labour force44 Transport statistics44 Energy production44 Federal government finances45 Consolidated public-sector finances45 Money supply45 Interest rates

2 Malaysia


46 Gross domestic product46 Gross domestic product by expenditure47 Gross domestic product by sector47 Consumer price index47 Agricultural and forestry production48 Minerals production48 Manufacturing production48 Construction statistics49 Banking statistics49 Stockmarket indicators49 Exports50 Imports50 Main traditional exports50 Imports by end use51 Main trading partners52 Balance of payments, IMF series52 Balance of payments, national series53 External debt, World Bank series53 Official development assistance53 Foreign reserves54 Exchange rates

Malaysia 3


Regional overview

Membership of organisations

The Association of South-East Asian Nations (ASEAN) was established in1967. The five original members were Indonesia, Malaysia, the Philippines,Singapore and Thailand. Subsequent joiners were Brunei (1984), Vietnam (1995),Laos and Myanmar (1997) and, more recently, Cambodia (1999).

ASEAN summit meetings, which bring together the heads of government ofmember states, must now be held every three years. The most recent was inPhnom Penh, Cambodia, in November 2002. Informal summits of heads ofgovernments are also held. In addition, member states’ foreign and economicaffairs ministers meet annually. Joint meetings of foreign and economic affairsministers are held before each ASEAN summit. There is also a standing committee(consisting of the members’ accredited ambassadors to the host country), whichusually meets every two months. There is a permanent secretariat, based inJakarta, Indonesia, and a number of committees.

The organisation started with grand objectives, but has generally failed todeliver. Early hopes that ASEAN could engineer a regional economicdevelopment strategy—with particular countries concentrating on particularindustries—were soon dashed. In 1977 the Basic Agreement on theEstablishment of ASEAN Preferential Tariffs was concluded, but a decade lateronly about 5% of trade between members was covered by this system.(Members had been permitted to exclude “sensitive” sectors, a let-out clausethat a subsequent agreement in 1987 only slightly curtailed.)

Plans for a proper ASEAN free-trade area (AFTA) were unveiled in 1992, withthe aim of achieving this by 2008. A common effective preferential tariff (CEPT)scheme was applied in 1993, providing for the gradual reduction of tariffs onintra-ASEAN trade in certain goods over a number of years. Again, however,member states could exclude “sensitive” items, limiting progress. A new AFTAprogramme, with a wider spread of products covered, was launched in 1994.During the mid-1990s the timescale for implementing the programme wassteadily tightened, with the aim being to reduce tariffs on most goods to below5% by 2000. A limited AFTA, between the original five members of ASEAN andBrunei and involving a reduction on tariffs on intra-ASEAN trade to between0% and 5%, came into operation on January 1st 2002. (Recent joiners have beenallowed more time.)

The 1997-98 regional financial crisis exposed ASEAN’s failings in a brutalfashion. The organisation was unable to stop the regional currencydevaluations, or to alleviate the subsequent economic hardship. A Statement onBold Measures, released at end-1998, was exactly the opposite of what the titleimplied. Unfolding events in Indonesia then moved the focus on to theorganisation’s security plans. ASEAN members’ commitment to the principle ofnon-interference in the internal affairs of other members complicated theresponse to the East Timor crisis. (Some members did eventually participate in

Association of South-EastAsian Nations (ASEAN)

4 Malaysia


the multinational force that oversaw the territory’s transition to independencefrom Indonesia, but not under ASEAN auspices.)

On the economic front, ASEAN’s slow progress towards AFTA has encouragedsome of its members, notably Singapore, to opt instead for bilateral trade pacts.Singapore’s bilateral trade agreement with New Zealand in 2000 promptedprotests from other ASEAN members, but the island state is pursuing similaragreements with other countries, including the US, and in 2002 concluded anagreement with Australia. (It is unlikely that this approach will prove universallyapplicable, as the absence of an agricultural sector in Singapore makes it mucheasier for it to negotiate with trading partners with heavily protected primarysectors.) A decision in 2001 by various ASEAN members to set up bilateralcurrency-swap arrangements to protect against currency volatility is limited inscope, and does not presage further ASEAN economic collaboration.

The organisation’s political hopes could be severely tested in the next few years.Changing governments in member states could undermine any remainingpretence about political consensus in the region. On the security front, theASEAN Regional Forums (ARFs—which bring together the ASEAN ministers offoreign affairs with those of other countries, notably China) are likely to remainjust talking shops, with little impact on changing geopolitical trends.

Malaysia 5


Basic data

330,113 sq km

25.1m (mid-2003 estimate)

Population in ’000 (2002)

Kuala Lumpur (capital) 1,367Johor Baharu 724Ipoh 601Klang 503Petaling Jaya 460

Tropical

Hottest months, April and May, 23-33°C (average daily minimum andmaximum); coldest month, December, 22-32°C; driest month, July, 99 mmaverage rainfall; wettest month, April, 292 mm average rainfall

Malay (the official language); main other languages: Chinese dialects (includingMandarin), English, Tamil, Iban (in Sarawak), Banjar (in Sabah). There are 139living languages altogether

The metric system has gradually replaced the UK (imperial) system. Localmeasures include:

1 pikul=25 gantang=100 katis=60.48 kg1 koyan=40 pikul=2.419 tonnes

Malaysian dollar or ringgit (M$, or RM)=100 sen (cents). Average exchange ratesin 2002: 3.80:US$1 (pegged at this rate since September 2nd 1998); M$5.70:£1.Exchange rates on October 7th 2003: M$3.80:US$1; M$6.35:£1

Peninsula: 7 hours ahead of GMT; Sabah and Sarawak: 8 hours ahead of GMT

January 23rd-24th (Chinese New Year); February 2nd (Hari Raya Haji); February22nd (Islamic New Year); May 1st (Labour Day); May 2nd (the ProphetMohammed’s birthday); June 2nd (Vesak day); June 5th (the king’s birthday);August 31st (National Day); November 12th (Deepavali); November 14th (HariRaya Puasa, the end of Ramadan); December 25th (Christmas Day)

Total area

Climate

Weather in Kuala Lumpur(altitude 39 metres)

Languages

Measures

Currency

Time

Public holidays (2004)

Population

Main towns

6 Malaysia


Politics

Fundamental to the understanding of Malaysia’s political development is anappreciation of its geographical, ethnic and cultural diversity. Political partiesare largely based on ethnicity, locality or religion. Basic themes of post-warpolitical history are the maintenance of racial harmony, positive discriminationin favour of the bumiputera (“sons of the soil”, the ethnic Malays and otherindigenous peoples) and friction between Islamic parties and the government.Since independence in 1957, Malaysia has been ruled by coalition governmentsdominated by the principal Malay party, the United Malays NationalOrganisation (UMNO). Dr Mahathir Mohamad has been prime minister since1981, but has announced his intention to step down at the end of October 2003.He will be replaced by his deputy, Abdullah Badawi.

Political background

British colonial policy was the major formative influence on Malaysia. Fromthe late eighteenth century, British influence was gradually extended across theMalay peninsula and North Borneo. The colonial administration encouraged(and sponsored) the arrival of immigrants from southern China and southernIndia to work in tin mines and on rubber plantations. As the region developedinto a commodity exporter, it remained administratively fragmented, withinternal government largely under local control. By the 1930s, “Malaysia”consisted of the Straits Settlements (Malacca, Penang and Singapore), theFederated Malay States (Selangor, Perak, Negeri Sembilan and Pahang) and theunfederated states (Kedah, Perlis, Kelantan, Terengganu and Johor), as well asNorth Borneo (Sabah) and Sarawak.

After the second world war, the restored British colonial system sought to createa more integrated territory, a more cohesive society and a stronger centralgovernment. The ethnic Chinese were in the majority on the Malayanpeninsula, including Singapore. The new Malayan Union (1946-48) sooncollapsed on opposition from the Malay rulers to a loss of sovereignty andproposed citizenship for non-Malays. Relations between the different ethnicgroups, especially between the Malays and the Chinese, have remained ahighly sensitive issue in Malaysian political life.

After the second world war, many of the ethnic Chinese sympathised with thecommunist revolution in China. A guerrilla war was started by the largelyethnic-Chinese Malayan Communist Party (MCP), leading to the declaration ofa State of Emergency in 1948, which did not officially come to an end until1960. One of the measures used by the colonial regime to suppress theinsurrection was detention without trial, a practice that successive Malaysiangovernments have continued to employ. The Emergency was to cast a longshadow over Malaysian politics.

Malaya under British influence

A delicate ethnic balance

Malaysia 7


Rapid progress towards full independence—which was proclaimed in 1957—andthe establishment of democracy in a pluralist society formed part of theanti-insurgency strategy. The successor of the Malayan Union, the Federation ofMalaya (1948-63), passed some powers back to the states. Singapore, with itslargely Chinese population, was excluded from both arrangements. Thepolitical framework that emerged at this time reflected Malaysia’s ethnicvariety. The United Malays National Organisation (UMNO) was formed in 1946,the Malaysian Chinese Association (MCA) and the Malayan Indian Congress(MIC) in 1949. These three parties formed the Alliance in 1952 and haveremained the core of post-independence governments.

British decolonisation policy continued to shape the country afterindependence. Sarawak, Sabah and Singapore were added to the peninsula-based federation in 1963 to form a new Federation of Malaysia, with the NorthBorneo territories offsetting the preponderance of ethnic-Chinese citizensresulting from Singapore’s membership. Brunei refused to join the federationbecause of a disagreement over the position of the sultan and the control of oilresources. When Singapore withdrew from the federation in 1965, there was adecisive switch in political power towards the ethnic Malays and the centralgovernment in Kuala Lumpur.

Losses for UMNO in the 1969 general election stirred up anti-Chinese sentimentand provoked serious racial riots, in which many Chinese were killed. The riotswere a political and an economic turning point. In the crisis that followed,parliamentary government was suspended for 21 months. The Alliance thathad ruled since independence was replaced by a broader-based coalition, theBarisan Nasional (BN, National Front). With minor changes in its composition,the BN has ruled Malaysia ever since. After the riots, the BN governmentinstituted a 20-year New Economic Policy (NEP), a programme of positivediscrimination aimed at reducing interracial tensions by improving the incomesand economic weight of the bumiputera (Malays and other native peoples,accounting for 63% of the population). The National Development Policy (NDP),which followed the NEP after 1990, relaxed some of the positive discriminationmeasures that favoured the bumiputera. An extended period of strong economicgrowth—at least until 1998—made it possible to raise the status of thebumiputera and avoid serious intercommunal conflict.

A decisive shift towards more authoritarian government occurred in 1987, whenthere was a serious split in UMNO in which Dr Mahathir, who had been partypresident and prime minister since 1981, nearly lost power. After his victory,Dr Mahathir consolidated his power within UMNO, making it difficult tochallenge an incumbent leader. The judiciary was stripped of much of itsindependence and power, and the constitution was changed after thegovernment lost a number of cases in the High Court. The following year, thegovernment intimidated the judiciary by sacking the chief justice, suspendingfive Supreme Court judges and increasing the powers of the attorney-general,leaving little or no check on the government’s exercise of power.

Independence was proclaimedin 1957

The Federation of Malaysiawas formed in 1963

The 1969 racial riots were apolitical watershed

A shift towardsauthoritarianism in 1987

8 Malaysia


Recent political developments

The 1997-98 Asian financial crisis plunged Malaysia into a severe economicdownturn, but also exposed corruption within UMNO. Calls for politicalreform and a change in leadership intensified, especially among youngerUMNO politicians. The deputy prime minister, Anwar Ibrahim, who becamethe focal point of the reformasi movement, was dismissed from the governmentin September 1998, expelled from UMNO and later jailed for a total of 15 yearson charges of obstruction of justice, sodomy and corruption. The dubioustreatment of Dr Mahathir’s long-standing heir apparent and his controversialtrials unleashed a vigorous campaign for political reform that revitalised theopposition. In the November 1999 general election, UMNO’s share of the voteplunged. The main beneficiary was the Malay-based Islamist opposition party,the Parti Islam sa-Malaysia (PAS), which gained control in Terengganu, whileretaining the neighbouring state of Kelantan, and made strong inroads in othernorthern Malay-belt states, including Dr Mahathir’s native Kedah. It was onlybecause of the continued allegiance of a majority of the Chinese electorate thatthe BN retained its two-thirds majority in parliament. Despite this humiliatingloss of Malay allegiance, Dr Mahathir’s position remained strong enough forhim to resist calls for his resignation. Instead, he set out in 2000 and 2001 toreform UMNO and act against blatant corruption and cronyism.

UMNO’s appeal received a boost from the discrediting of Islamist extremismafter the September 11th 2001 terrorist attacks on the US. During the past twodecades, the government has actively promoted and favoured Islam, which isthe country’s official religion. There has been little public opposition toIslamisation, notwithstanding the fact that on independence Malaysia wasdeclared to be a secular nation; there have only been limited protests from thenon-Muslim 40% of the population. To counter the pledge made by PAS that itwould set up an “Islamic state” should it win the next general election,Dr Mahathir declared in September 2001 that Malaysia was already an Islamicstate and promised further Islamisation. By associating PAS with Islamistextremism and economic backwardness, UMNO hopes to rally the moderateMalays. Dr Mahathir has tried to balance supporting the US war oninternational terrorism and cracking down on Islamist extremists with strongcondemnation of the US-led war in Iraq, while promoting a moderate versionof Islam in Malaysia. Dr Mahathir’s retirement in October 2003, after 22 years ofstrong leadership as prime minister and UMNO president, is likely to beaccompanied by generational changes in many political parties, power strugglesbetween senior politicians, and shifts in policy. The appointed successor, thedeputy prime minister, Abdullah Badawi, lacks Dr Mahathir’s charisma, single-mindedness, and power base. But as an Islamic scholar, not linked to anyknown scandals, he may be better able to defend the government’s secularversion of Islam against PAS. It is unclear what role Dr Mahathir will have afterhis retirement, but it won’t be a passive one. UMNO divisions will hurt theparty in a general election, which has to be held by December 2004. Islam, andMalaysia’s status as an Islamic state, will feature prominently in the campaign.If Mr Abdullah does not improve UMNO’s performance in the general election,his leadership is likely to be challenged at the next party elections.

The 1997-98 Asian crisis led tocalls for political reform

The impact of September 11th2001 helped the government

Malaysia 9


Malaysia’s particular political culture is the result of its racial and geographicaldiversity, as well as the way in which political institutions have been shapedand altered under Dr Mahathir. Political stability has to some extent been theresult of Dr Mahathir’s authoritarian influence. The removal of that influencewill not change the political institutions, but is likely to lead to calls for greaterdemocratic freedom—with uncertain consequences. Divisions within the Malaymajority are potentially destabilising, with negative implications for relationsbetween the races and, more broadly, for the economic outlook. Dr Mahathir’ssuccessor will need to fight the endemic corruption within the government andUMNO, reform bumiputera privileges, and find a way of dealing effectivelywith conservative Islam. The BN will not lose power: incumbency givesconsiderable advantages. Government control of the Election Commission,which supervises elections and checks electoral rolls, the redrawing ofconstituency boundaries, and rock-solid support for the BN in Sarawak andSabah make another BN victory highly likely at the next general election.However, the coalition may lose more seats in peninsular Malaysia.

Parliamentary forces(no. of seats)

Election 1995 Election 1999 Sep 2003Barisan Nasional (BN, National Front) 162 147 151 United Malays National Organisation (UMNO) 88 72 73 Malaysian Chinese Association (MCA) 30 28 28 Parti Pesaka Bumiputra Bersatu Serawak (PBB) 13 10 10 Sarawak United Peoples’ Party (SUPP) 6 7 7 Malaysian Indian Congress (MIC) 6 7 7 Parti Gerakan Rakyat Malaysia (PGRM) 7 7 6 Parti Bangsa Dayak Sarawak (PBDS) 4 6 6 Sarawak National Party (SNAP) 4 4 4 United Sabah National Organisation (UPKO) 4 3 4 Parti Bersatu Sabah (PBS)a 8 3 3 Sabah Progressive Party (SAPP) 0 2 2 Liberal Democratic Party Sabah (LDP) 0 1 1Barisan Alternatif (BA, Alternative Front)b - 42 31 Parti Islam sa-Malaysia (PAS) 7 27 26 Parti Keadilan Nasional (PKN) - 5 5 Parti Melayu Semangat ‘46 (S46)c 6 - - Democratic Action Party (DAP)d 9 10 10Independent 0 1 1Total 192 193 193

Note. The next election is due to be called by November 2004.

a Rejoined the Barisan Nasional in 2001. b The 1999 election was the first contested as a coalition. c Reunited with UMNO in 1996. d The DAP leftthe Barisan Alternatif in September 2001.

Source: Election Commission.

The opposition alliance, the Barisan Alternatif (BA, Alternative Front), consistsof PAS and the Parti Keadilan Rakyat (Keadilan), the party led by Wan Azizah,the wife of the jailed former deputy prime minister, Anwar Ibrahim. Themainly Chinese-based left-wing Democratic Action Party (DAP) left the BA inSeptember 2001, protesting at the intention of PAS to found an Islamic stateshould the BA win the next general election. PAS is likely to tone down its

Malaysia’s political culture

The opposition is divided

10 Malaysia


Islamic agenda outside the Malay heartland at the general election campaignand focus on UMNO corruption and government abuse of power.Disagreement between Keadilan and DAP on which constituencies to contestwill split the opposition vote.

Important recent events

September 1998

Anwar Ibrahim, deputy prime minister and deputy president of the United MalaysNational Organisation (UMNO), is sacked from government and expelled by the party.After leading rallies against the prime minister, Mahathir Mohamad, he is arrested,beaten in custody and indicted on charges of obstructing justice and of sodomy.

April 1999

Following a five-month trial, Mr Anwar is controversially convicted of obstruction ofjustice and sentenced to six years in jail for corruption; the following year, Mr Anwaris sentenced to a further nine years in jail for sodomy, to be served consecutively.

November 1999

The ruling Barisan Nasional (BN, or National Front) wins the general election, but itsshare of the vote drops sharply, especially that of Dr Mahathir’s United MalaysNational Organisation (UMNO). The government nonetheless retains more than two-thirds of the seats in the national parliament. The BN loses control of a second stateassembly—that of Terengganu—to the opposition Parti Islam sa-Malaysia (PAS).

September 2001

Following the September 11th 2001 attacks on the US, the government tightens thealready stringent security regulations. UMNO gains support among Malay moderatesby associating PAS with Islamist extremism. Dr Mahathir declares that Malaysia isalready an Islamic state, in an attempt to strengthen UMNO’s Islamic credentials andrespond to the declared intention of PAS to set up an Islamic state, should it win ageneral election. The government announces further Islamisation measures,triggering concern among the ethnic minorities that it may want to change thesecular constitution. The opposition coalition Barisan Alternatif (BA) splits, as theethnic-Chinese Democratic Action Party (DAP) leaves over PAS’s Islamic agenda.

June 2002

Dr Mahathir announces to the UMNO annual congress that he intends to retire fromall his functions immediately, but he is persuaded by the UMNO supreme council tostay on until October 2003.

April 2003

The appeal by Anwar Ibrahim against his sodomy conviction to the Court ofAppeals is rejected. But rumours continue that Anwar could be released early,perhaps through a royal pardon.

September-October 2003

Preparations for Dr Mahathir’s departure enter their final stages. His deputy,Abdullah Badawi, had previously announced that he would not appoint deputiesuntil after his accession to the premiership.

Malaysia 11


Constitution, institutions and administration

Malaysia is a federal, constitutional monarchy within the Commonwealth. Theposition of king (yang di-pertuan agung, meaning “supreme ruler”) is rotatedevery five years. The nine-strong Conference of Rulers of the states of thepeninsula, excluding Malacca and Penang (the sultans of Kedah, Perak, Johor,Selangor, Pahang, Terengganu and Kelantan; the yang di-pertuan besar, orsupreme minister, of Negeri Sembilan; and the raja of Perlis) elects one of itsnumber to serve as king.

The king’s powers have been cut back under Dr Mahathir. After a constitutionalcrisis in 1983, the powers granted to the traditional rulers on independence werereduced. Although the constitution does not say so explicitly, the king must, ineffect, accept the government’s advice and must not withhold royal assent fromparliamentary bills. In 1992 UMNO drew up a code of conduct for rulers, afterthe rulers and their families were accused of abusing their power for privategain and exceeding their constitutional authority. In February 1993 constitutionalamendments were passed that limited rulers’ personal legal immunity.

The federal parliament consists of an upper chamber, the Senate or DewanNegara (Council of the Nation), of 69 members, of whom 43 are appointed bythe king and 13 pairs are elected by the state legislatures, and a lower chamber,the House of Representatives or Dewan Rakyat (Council of the People), directlyelected by universal suffrage. The number of seats in the Dewan Rakyat will beincreased from 193 to 219 at the next general election. The lower house has longbeen a rubber stamp for the BN, and little real debate on draft legislation orissues takes place there.

Each of the 13 states in the Federation has an Executive Council dealing withnon-federal matters under a menteri besar (chief minister), who is answerable toelected state assemblies. The constitutional head of each state government iseither one of the traditional rulers or (in Penang, Malacca, Sabah and Sarawak)a state governor appointed by the king on the advice of the federal government.

The Malaysian judicial system still resembles the UK system inherited from thecolonial period, but also borrows from the US system. The constitution gives anindependent judiciary the powers to pronounce on the constitutionality andlegality of executive acts. The independence of the judiciary was effectivelycurbed by Dr Mahathir in 1987-88 in response to a court ruling on the April 1987UMNO leadership contest, which declared the elections invalid. Dr Mahathirpushed through amendments to the constitution, stripping the High Courts ofthe power of judicial review and terminating the separation of executive andjudicial power. As with the traditional rulers, the government has established acode of conduct for judges, the breaching of which may result in dismissal.Changes in recent years, such as the abolition of the jury system in 1995, havetended to increase the power of the executive and curb independent action bythe judiciary. The legal framework leaves little room for the judiciary to reassertits independence, and dubious appointments of officials with a controversialpast have further reduced the likelihood of judicial reforms.

A federal constitutionalmonarchy

The federal parliament

The states’ executive councils

Changes to the judicial system

12 Malaysia


After the May 1969 racial riots, the government decided to marginalise Chineseand Indians in the civil and armed services, which they previously joined as anautomatic first choice. The government practises tokenism and has raised a fewnon-Malays to a high rank, but the careers of non-Malays are strictlycircumscribed unless they become Muslim. The government is having secondthoughts about the its racial policies but, after 30 years, finds it difficult tochange the attitudes of Malay public servants or arouse interest in a civilservice or army career among non-Malays.

Political forces

The United Malays National Organisation (UMNO), the party of Malaynationalists in the colonial period, remains the most important of the Malayparties. Although it attracted only just over half of the total Malay vote in the1999 election, it has since rebuilt its support. The president of UMNO invariablyserves as the prime minister. Elections to leading party posts and to the UMNOsupreme council determine the leadership succession and can also affect theposts occupied by ministers in the cabinet. An incumbent leader is rarelychallenged; when this happened to Dr Mahathir in the internal UMNO electionof April 1987 he altered the voting mechanism in favour of the incumbent infuture party elections. UMNO is the dominant party in the multiracial rulingcoalition, the Barisan Nasional (BN).

The Parti Islam sa-Malaysia (PAS) is an Islamic party and a haven for Malayprotest votes, offering a greater devotion to Islam and possibly also a strongercommitment to Malay nationalism than UMNO. From its inception, PAS hasintended to set up an Islamic state and introduce Islamic law. It continues tobenefit from the Islamic resurgence that started in Malaysia after the Iranianrevolution in 1979. It is very unlikely that PAS could wrest power from UMNOwith an austere Islamic agenda: as only 60% of Malaysians are Muslims: it willneed to align itself with other parties. But the intention to create an Islamicstate presents a major obstacle to the building of a coalition of oppositionforces. In September 2001 the largely Chinese-based Democratic Action Party(DAP) left the opposition alliance Barisan Alternatif (BA) over the PAScommitment to transform Malaysia into a theocracy. The Islamic state issuelimits the appeal of PAS—and the BA—as a viable alternative for those votersdissatisfied with UMNO, especially when attention is focused on Islamistextremism and terrorism. But PAS remains a formidable competitor of UMNOfor the hearts and minds of the Malays. At independence, the MalaysianChinese Association (MCA) was the acknowledged political representative ofthe ethnic Chinese. It quickly became an apologist for the government coalitionin which it served, and was identified with the richer Chinese and businessinterests. It is the second largest party in the BN after UMNO, but it suffers frominternal divisions and the leadership has been accused of links with Chinesecriminal secret societies. Gerakan Rakyat (Parti Gerakan Rakyat Malaysia, orPGRM, the Malaysian People’s Movement Party) was founded as a left-of-centremultiracial party, and has an awkward relationship with the MCA in the BN.The DAP is also a multiracial party, but further to the left and in opposition.

UMNO is the dominantMalay party

Racial discrimination inadministration

PAS commitments causestresses in other parties

Malaysia 13


Both Gerakan and DAP attract mainly ethnic-Chinese voters (although the DAPalso has prominent Indian and Malay members).

One of the features of political activity in the past was the open and directparticipation by coalition parties in entrepreneurial activities and companyownership as a means of obtaining party funds. UMNO, the biggest party(open since 1992 to other bumiputera besides Malays, and with a totalmembership of more than 2m), had the biggest portfolio of businesses. Theseactivities were criticised for putting temptation in the way of both businessmenand politicians, creating “money politics”. They have been officially wounddown since the 1997-98 Asian financial crisis, but company shares weretransferred to “safe hands”—in practice, groups or individuals with close links toinfluential party members. UMNO’s major business interest is the heavilyindebted conglomerate, Renong, which is in the process of being restructuredafter the government took over the failing company in July 2001.

The MCA was also engaged in business activities grouped under holdingcompanies, Multi-Purpose Holding (MPH) and Huaren Holdings. It has beenless successful than UMNO in retaining influence over management after thefailures of MCA businesses in the late 1980s. Huaren Holdings, which owns theEnglish-language daily, The Star, was used to extend the MCA’s influence overthe Chinese-language press in 2002.

Key political figures

Mahathir Mohamad

Prime minister and president of the United Malays National Organisation (UMNO)since July 1981. Dr Mahathir is the principal architect of the economic advance of theMalay community and the rapid industrial growth of Malaysia. His retirement inOctober 2003 could have a destabilising effect. Despite his protestations to thecontrary, Dr Mahathir is expected to remain influential in Malaysian politics.

Abdullah Ahmad Badawi

The deputy president of UMNO and deputy prime minister, and Dr Mahathir’sofficial successor. Mr Badawi, who has a degree in religious studies, lacksDr Mahathir’s charisma and power base, but has not been linked to any knownscandals. Many question his ability to keep UMNO united.

Anwar Ibrahim

Dr Mahathir’s former deputy in UMNO and the former deputy prime minister, jailedfor a total of 15 years for abuse of power and sodomy. The figurehead of themovement for political reform and a possible bridge between UMNO andfundamental Islam. Mr Anwar’s various appeals against his conviction have allfailed. His best hope for a comeback to the political arena lies in a royal pardon,proposed by the new prime minister, Mr Badawi, as a gesture of reconciliation.

Najib Tun Razak

UMNO’s senior vice-president, defence minister and son of a former prime minister,Tun Razak. He is the preferred choice of Dr Mahathir to succeed Mr Badawi asdeputy prime minister but, being Mr Badawi’s principal rival, he may be passedover. Mr Najib will sooner or later challenge Mr Badawi for the party leadership.

The BN’s corporate links

14 Malaysia


Abdul Hadi Awang

The president of the opposition Parti Islam sa-Malaysia (PAS) and the chief ministerof the hydrocarbon-rich north-eastern state of Terengganu. Under Mr Abdul’sleadership, PAS has become more aggressive in opposition. PAS is campaigning forthe implementation of Islamic law and against government corruption.

International relations and defence

Malaysia, aware of its limited influence as a small country acting on its own, isan active member of numerous international bodies, especially Asian regionalorganisations (see Appendices: membership of regional organisations). TheAssociation of South-East Asian Nations (ASEAN) remains central to thecountry’s foreign policy objectives. Under Dr Mahathir, Malaysia has followed apolicy of non-alignment and, in the post-cold war era, has become a championof the interests of the developing world and, with even less success, a defender ofthe interests of the Islamic world. Dr Mahathir has frequently been highly vocalon a number of international questions, which have attracted strong criticismfrom the West.

Relations with Indonesia are generally good, notwithstanding the country’sapparent failure to deal with terrorist threats within its borders, illegalimmigration and air pollution from forest fires. Relations with Singaporeremain sensitive, with frequent quarrels over what—to outsiders—appear smallissues. Malaysia has border disagreements with Indonesia, Singapore, thePhilippines and China.

Relations with the US, which had suffered over human rights and the treatmentof the jailed deputy prime minister, Anwar Ibrahim, improved substantiallyafter the September 11 attacks, as the US sought moderate Islamic allies inSouth-east Asia. But relations deteriorated again after Dr Mahathir’s outspokencriticism of US behaviour over the Iraq war. Close co-operation with the US inthe fight against terrorism has nonetheless continued.

Regional co-operation to suppress and prevent terrorist activity has becomemore urgent after the bomb attacks in Bali, Indonesia, on October 12th 2002demonstrated the seriousness of the terrorist threat to regional stability.Without Dr Mahathir at the helm, Malaysia’s ability to bring influence to bearon developments abroad is likely to diminish. In recent years, Malaysia hasstrengthened its links with Muslim countries, at least in part for domesticreasons, and a similar motive is behind improved relations with China.Domestic political interests will remain one of the driving forces of foreignpolicy, but the broader economic interests may be more difficult to defendwithout Dr Mahathir’s vocal, sometimes innovative, interventions.

In 2002 Malaysia restarted the modernisation of the armed forces that wasderailed by the Asian economic crisis. The intention is to develop an all-roundmodern conventional capability, with enhanced maritime security, from whatwas originally a counter-insurgency force. Malaysia, together with Singapore,the UK, Australia and New Zealand, is a member of the Five Power Defence

Active participation ininternational bodies

Relations with the US havedeteriorated over Iraq

Malaysia’s influence maydecline without Dr Mahathir

Defence spending is to remainhigh

Malaysia 15


Arrangement, which provides for co-operation and consultation in case ofattack. Malaysia co-operates on border security with its neighbours. Accordingto the defence minister, Najib Razak, Malaysia’s primary security threat isinternal; counter-terrorism and urban warfare capabilities are being developedto deal with violent extremism. In 2004, Malaysia will start an obligatorynational service, but mainly as a nation-building exercise.

Security risk in Malaysia

The security risk to foreign companies operating in Malaysia has increased since theSeptember 11th 2001 terrorist attacks on the US and the October 12th 2002 Balibombings, and in particular since the war in Iraq. The major threat comes fromIslamist extremism, especially the militant Islamist group, Jemaah Islamiah (JI),which is linked to al-Qaida. JI acts as a central co-ordinator for radical groups acrossthe South-east Asian region, as it works towards its goal of establishing an Islamiststate embracing Malaysia, Indonesia, Singapore, Brunei and the southern Philippines.Planned terrorist attacks were foiled in September 2002 with the arrest of terroristsuspects in Singapore; they included attacks on foreign targets, private companiesand embassies, with the intention of destabilising the governments of Singapore andMalaysia and fomenting ethnic strife between Singapore’s Chinese majority and theMalay Muslim majority in Malaysia. The Malaysian branch of the JI is KumpulanMujahidin Malaysia (Malaysian Mujaheddin Group, or KMM). By August 2003,Malaysia had arrested more than 200 KMM and JI members, while around 90 werebeing held under the Internal Security Act (ISA), which allows for indefinitedetention without trial. Investigations of Islamist terrorist acts and individualsuspected terrorists have made it clear that for many years Malaysia was considereda safe haven by Islamic extremists. However, the government has blamedIndonesians for inspiring Islamic militancy in Malaysia. It co-operates withneighbouring countries and the US in the fight against terrorism, and in 2003 a co-ordinating regional counter-terrorism centre was opened in Kuala Lumpur.

Social unrest

The major risk to business comes from the return of economic and politicalconditions that may contribute to the outbreak of inter-racial violence. Tensionspersist below the surface between the majority Malays on the one hand and theminority ethnic Chinese and Indian populations on the other. In the most seriouspost-war racial conflict in 1969, divisions within the Malay majority led to thescapegoating of the ethnic Chinese, hundreds of whom were killed in riots. TheMalay majority is once again split and this may be exacerbated by tensions betweenthe moderate and more conservative faces of Islam that are becoming increasinglydivided in the country. However, given the tight controls by the government, theshort-term risk of large-scale racial violence appears quite low.

There is no immediate risk of a return of the large-scale demonstrations against thegovernment and the ruling United Malays National Organisation (UMNO) of 1998,when the deposed deputy prime minister, Anwar Ibrahim, led reformasi (“reform”)demonstrations. But there is widespread frustration with the government, which hasblocked most traditional means of protest through censorship, libel suits, tightcontrols on demonstrations and control of the judiciary. There is widespread

16 Malaysia


awareness within Malaysia that it is heavily dependent on foreign direct investment.The opposition is unlikely specifically to target foreign businesses.

Armed conflict

The risk of armed conflict affecting business is low. Sporadic Islamism-inspiredviolence has occurred during the past couple of years. In 2001, KMM members werearrested, accused of involvement in bank robberies, the murder of a state assemblyrepresentative, and the bombing of a church and a temple. Previously the suspicionwas that some of the incidents might have been staged by the government in anattempt to compromise the main opposition party, PAS, by associating it withIslamist extremism. There are no “no-go” areas in Malaysia and the governmentclearly remains very much in control of the country. It is unlikely that Islamistextremists could develop an ability to stage an armed conflict.

Organised crime

Malaysia is, in general, a fairly safe country. Violent crime, kidnapping and extortionare rare and organised crime is seldom a threat to foreign business. Foreigners are,however, often the target of pickpockets, burglars, car break-ins and purse-snatching.Credit card fraud is a growing problem.

Resources and infrastructure

Population

The Malaysian population is estimated to have reached 25.1m by mid-2003. TheEighth Malaysia Plan forecasts an annual average increase of 2.3% in 2001-05; in1996-2000 the annual average rate of growth was 2.4%. Around 80% of thepopulation lives in peninsular Malaysia. The rate of growth has been the fastestin Malaysia’s more developed states, at 2.8% in 1996-2000. The dependencyratio (those under the age of 15 and over the age of 64 divided by the rest of thepopulation) is expected to continue to decline, from 59.1% in 2000 to 55.3% in2005, as the median age rises from 23.9 years in 2001 to 25.3 years.

In the 2000 census, 94.1% of the total population of Malaysia were Malaysiancitizens. Bumiputera comprised 65.1%, Chinese 26.0% and Indians 7.7% ofMalaysian citizens, compared with an ethnic composition of 60.6%, 28.1% and7.9% respectively in 1991. Non-Malaysian citizens numbered 1.4 million or 5.9%of the population. In Sarawak, the predominant ethnic group was the Ibans,accounting for 30.1% of the state’s total Malaysian citizens, followed by theChinese (26.7%) and Malays (23%). In Sabah, the predominant ethnic group wasthe Kadazan Dusun (18.4%) followed by Bajau (17.3%) and Malays (15.3%).

The average population density, at 73 persons per sq km in 2001, is relativelylow. However, there are wide disparities between the peninsula and thesparsely populated Borneo states. The proportion of the population living inurban areas stood at 61.8% in 2000, up from 55.1% in 1995.

Fairly rapid population growth

Malaysia 17


Population, 2001(mid-year estimates)

‘000 %Total 23,795 100.0Malaysian 22,529 94.7 Bumiputera 14,886 62.6 Malay 12,341 51.9 Other bumiputera 2,545 10.7 Chinese 5,720 24.0 Indian 1,671 7.0 Others 252 1.1Non-Malaysian 1,266 5.3Age structure0-14 7,881 33.115-64 14,956 62.965+ 958 4.0Median age (years) 23.9 -

Source: Department of Statistics, Monthly Statistical Bulletin.

Rates of population growth vary considerably between the main ethnic groups,probably owing to differences in geographical location, income levels andtraditions. In 1996-2000 the annual average rates of growth of the bumiputera(“sons of the soil”, ethnic Malays and other indigenous peoples), Chinese andIndian communities were 3.2%, 1.4% and 1.8%, respectively. The Chinese, longurbanised and enjoying higher average incomes, now have smaller families; theMalay urban population is growing, but most families remain in rural areas.

Mean monthly gross household income increased from M$2,020 (US$532 at thecurrent pegged exchange rate of M$3.80:US$1) in 1995 to M$2,472 in 1999, anaverage growth rate of 5.2% a year, according to official data. The proportion oflower-income households, defined as those earning between M$1,500 andM$3,000, increased from 32.3% in 1995 to 37% in 1999. Growth rates varied byethnic group. The mean monthly income of Malay households expanded by5.5% annually to M$1,984, that of Chinese households by 4.6% a year toM$3,456, and that of Indian households by 6.3% a year to M$2,702. The meanmonthly income of urban households rose by 4.6% annually to M$3,103 in1999, and that of rural households by 6.7% to M$1,718.

Slowing death and birth rates presage an increase in the proportion of thepopulation aged over 65 and a decline in the under-14 age group, as well as arise in the median age, accompanied by further urbanisation.

Education

The government places great emphasis on education, which is the largest itemon the federal budget. The aim is to provide a “world-class quality educationsystem.” Primary education is compulsory for all Malaysian children. Primaryand secondary education is free for students aged 7-17 in the public schoolsystem (which includes national-type schools teaching in Mandarin and Tamil).Malaysia has a literacy rate of 93%. Over 97% of seven-year olds are enrolled inthe public school system. The private fee-paying sector only plays an important

Growth rates vary betweenthe main ethnic groups

Education is given highpriority

18 Malaysia


role in higher education. There are public examinations at the end of theprimary (at age 12), lower secondary (usually at 17) and higher secondary (at 19)levels. Malay and English are compulsory subjects. The matriculation exam atthe end of the higher secondary level gives access to Malaysian publicuniversities. The main split in students happens at 17, when many students optfor private colleges and universities; around 271,000 students, including 15,000international students, were enrolled by 690 private colleges, 14 privateuniversities and four foreign university branch campuses, which teach inEnglish; compared with 80,000 students at the 16 public universities, which useMalay as a medium of instruction. Sending pupils abroad was especiallypopular before the Asian financial crisis but the need to do so has beenreduced by twinning arrangements with foreign universities. There is also alarge number of private and public colleges offering vocational and skill-basededucation and training. State assistance mostly takes the form of soft loans,repayable when students graduate and take paid employment. Under the termsof the New Economic Policy (NEP), almost all government assistance wasdirected towards the children of bumiputera. The government, disappointedwith the failure of bumiputera students to qualify for university places,announced that from 2002 university entrance would be based on merit. From2003 science and mathematics will be taught in English, starting at primarylevel, with the aim of boosting Malaysia’s international competitiveness. Afterindependence in 1957, the role of English was systematically reduced for Malay-nationalist reasons.

Health

Malaysia’s public healthcare system, with its emphasis on community-based,preventative care, provides high-quality services at little or no cost toconsumers and compares favourably with provision in most other Asiancountries. There is an extensive network of primary healthcare services, whichis supported by more than 4,000 health and dental clinics and 114 publichospitals (with more than 28,000 beds). Clean water, safe food, and sanitarydisposal of waste are generally available. But there are wide geographicalvariations: health indicators for Sabah, Sarawak and some predominantly ruralstates on the Malayan peninsula are well below average. The 225 privatehospitals are generally smaller and better equipped, providing around one-fourth of total beds. But there is an acute shortage of manpower; in partbecause of this, the government is developing electronic medical services andpaperless hospitals.

Already low by regional standards, government spending on the health sectorfell from 3% of GDP in 1990 to 2.4% in 1998, reflecting the authorities’ desiregradually to reduce their role as a provider. But the Eighth Malaysia Plan, whichcovers 2001-05, has targeted government spending on heath at M$5.5bn(US$1.4bn), or 5% of the social sector development budget, representing a 48.6%increase compared with the M$3.7bn allocated in the Seventh Malaysia Plan.The government is developing a healthcare financing mechanism, in anattempt to restrain the escalating costs of the system.

A model system, albeit withgeographical disparities

Malaysia 19


Whereas the Seventh Malaysia Plan (1996-2000) focused on an expansionarydevelopment programme that saw a strong increase in the numbers of newprivate hospitals and clinics, the Eighth Malaysia Plan aims for an overallimprovement in the quality of public health services with greater emphasis onthe use of information technology, improvements in the quality of healthpersonnel and an upgrading of rural facilities. A total of M$715m (US$188m) hasbeen allocated for rural and environmental health.

Natural resources and the environment

Malaysia has a tropical climate. Its economic development was dominated bythe cultivation of plantation crops, such as natural rubber and palm oil, as wellas by tin mining. Malaysia lost its dominant position as the world’s largestproducer of tin concentrates after depletion of the richest, lowest-cost tindeposits. However, it is still one of the world’s main centres of tin refining,although it must supplement declining domestic mine output with importedconcentrates. Malaysia is also no longer the world’s biggest producer of naturalrubber, its declining output having been overtaken in 1993 by rising productionin Thailand and Indonesia. Plantation companies have for many years beenswitching to the more profitable cultivation of palm oil. The country is theworld’s largest producer of palm oil.

Malaysia is one of the world’s leading producers of tropical saw logs. Controlson tree-felling by loggers continue to be flouted but output is graduallydeclining. Bans on log exports were originally imposed as much to encouragemore downstream processing as to preserve the Malaysian rainforest. Controlsare now linked to replanting.

Crude oil and natural gas are now far more important mineral products. Bothoil and natural gas are extracted from two main areas in the South China Sea,off Terengganu and off Sabah. Malaysia is, by international standards, a smallproducer of crude oil but a large exporter of natural gas. It has been the aim ofsuccessive Malaysian governments to raise earnings from all primary productsby increasing the degree of domestic processing. The country now has largecommodity-based industries, which continue to expand, especially thechemical industries based on oil and gas, but also the manufacture of rubbergoods and wooden furniture.

Transport, communications and the Internet

Malaysia’s physical infrastructure compares favourably with that of most othercountries in the region, having benefited from substantial investment—bothprivate and public—during the boom years. Between 1995 and 2000 the totalroad network in peninsular Malaysia increased from 61,380 km to 65,880 km.The road network in Sabah totalled 10,740 km and in Sarawak 4,990 km.A slowdown in private investment owing to the 1997-98 financial crisis wasoffset to some extent by increased government spending on roads. Malaysia hasmade considerable progress in the creation of a more integrated, efficient andreliable urban transport system, although the economic downturn caused

Plantation crops still have animportant economic role

Domestic processing is beingstepped up

Large investments ininfrastructure

20 Malaysia


several rail projects to run into financial difficulties; since then, an expressrailway link between the new international airport, the administrative capital,Putrajaya, and Kuala Lumpur has been completed.

Kuala Lumpur International Airport (KLIA) was opened in June 1998, with acapacity of 25m passengers a year, which it has found difficult to fill. After afall-off in business and a reduction in the number of international carrierslanding at KLIA during 2001, the government concluded “open sky” policyagreements with several developed countries, obtained additional internationallanding rights, increased flight frequencies and added new destinations. In thesame year, the government bailed out the national carrier, Malaysia Airlines(MAS). Malaysia is determined to become the regional hub for air transport. InSeptember 2003 landing and parking fees at all airports were waived forinternational flights for a period of five years.

Around 95% of Malaysia’s international trade is conducted through its sevenmajor ports, which handled 204.1m tonnes in 2002, up from 132m tonnes threeyears earlier. Growth was due to a rise in containerised and liquid bulk cargobut also to diversion of traffic from the Port of Singapore (POS). A hugeexpansion is under way on the central west coast at Port Klang, as well as at thePort of Tanjung Pelepas (PTP) in Johor, in direct competition with POS. Malaysiais determined to become the preferred regional transshipment point.

State-owned Telekom Malaysia is the dominant provider of fixed-line servicesand an important operator of cellular services; five companies compete in eachmarket section. In 2002, the market for fixed-line telephones was stagnating,with 19 telephones for every 100 people. Cellular services continued to growrapidly. Mobile telephone subscribers increased from 872,000 in 1995 to 7.5m in2001 and 9.2m in 2002. Telekom continues to be favoured by the government;in July 2002 Malaysia awarded third-generation (or 3-G) spectrum licences toTelekom Malaysia and Maxis Communications, shutting out other bidders.

The government considers development of information and communicationstechnology (ICT) to be crucial to the enhancement of productivity andcompetitiveness. ICT usage, measured in terms of installed personal computers,rose from 47 per 1,000 head of population in 1997 to 126 in 2001, according togovernment officials. The number of Internet subscribers increased from205,000 in 1997 to 2.6m by September 2002, giving a penetration rate of 11%.The government estimated in 2001 that Internet penetration was 25 per cent,compared with between 40 and 50 per cent in Singapore, Japan, South Koreaand Taiwan. Malaysia has six Internet service providers, but the governmentkeeps a wary eye on the Internet, fearing uncensored criticism. The governmenthas set a target of 50% broadband penetration by 2007.

Energy provision

Malaysia is well endowed with energy resources. It is a net exporter of oil andgas, which are extracted from beneath the South China Sea. Receptioninstallations in Terengganu handle the oil and gas extracted from fields east of

Kuala Lumpur InternationalAirport attracts more traffic

Aggressive expansion of portcapacity continues

Telecommunications

There are substantial energyresources

The government pushes ICTdevelopment

Malaysia 21


the peninsula; other fields are located north of Sarawak and around the coastof Sabah. In mid-2003 crude oil reserves stood at 4.54bn barrels and natural gasreserves at 89 trn cu ft, sufficient for another 18 and 35 years, respectively, ofproduction. Large coal reserves are found in Sarawak and Sabah, but their lowgrade and difficulty of access have prevented development, except on Sarawak.High rainfall and rugged topography of both peninsular Malaysia and Sabahand Sarawak provide extensive scope for hydroelectric power. The biggesthydroelectric project is the 2.4 mw Bakun dam under construction in Sarawak.

Rapid industrial development has significantly boosted demand for electricity,and the resulting supply shortfall led the government in the early 1990s toaward contracts to private consortia, known as independent power providers(IPPs), to build and operate thermal generating plants to supply the nationalgrid. The IPPs produced 37% of peninsular Malaysia’s electricity in 2000; state-owned Tenaga Nasional (TNB) provided 63%. Fuel used for electricitygeneration is mostly natural gas, followed by coal, hydroelectricity and oil;renewable energy (especially biomass, from palm oil and wood waste) willsoon overtake oil. Malaysia’s reserve margin—the difference between installedcapacity and peak demand—remains large: by end-2000 the reserve marginstood at 32%. However, by 2005 TNB and the IPPs are expected to raise installedcapacity by 61% to meet an anticipated surge in demand. The government hasrevived the giant 2,400mw Bakun Hydroelectric Project in Sarawak; theenormous increase in electricity supply when Bakun is commissioned in 2006will be mainly used for a (highly polluting) bauxite smelting plant.

The economy

Economic structure

Main economic indicators, 2002GDP growth (%) 4.1

Consumer price inflation (av; %) 1.8Gross national savings (% of GDP) 24.5Current-account balance (US$ bn) 6.1

Total external debt (year-end estimate; US$ bn) 46.4Exchange rate (av; M$:US$) 3.8

Population (m; mid-year estimate) 24.5

Sources: Bank Negara Malaysia; official and Economist Intelligence Unit estimates.

For 30 years Malaysia has industrialised rapidly, transforming itself from aneconomy whose livelihood relied primarily on the production of mineral andagricultural export commodities—palm oil, natural rubber, tropical timber andother minor mineral and agricultural products—into an economy dominated bymanufacturing and services. In 2002 manufacturing accounted for 30.6% ofnominal GDP, up from 30.5% in 2001, whereas the share of services fell to 50.7%from 51.8%. The manufacturing sector tends to raise its share of GDP during(export-led) economic upturns; the share of services usually grows in a morestable manner. Malaysia aims to become a fully developed nation by 2020.

The power industry preparesfor a surge in demand

Manufacturing is the largestindustrial sector

22 Malaysia


Malaysia still plays a leading role in world markets for some of its commodities.It is still an important source of rubber and is the dominant world producer ofpalm oil. Palm oil output reached a record 11.9m tonnes in 2002. Manufacturesaccount on average for 85% of gross export earnings. Electronic goods are thesingle most important category and have grown at a double-digit rate for mostof the past 25 years, declining only in 1985 and in 2001. Electronic goodsproduction is heavily dependent on imported parts. It is government policy toraise the domestic content of exports and the value added in production. Thestrong export orientation of the electronics industry makes it vulnerable tofluctuations in global demand. In 2002 Malaysia’s total exports of goodsand services were equivalent to 114% of nominal GDP, a high figure byinternational standards.

A major change in economic structure in Malaysia during the last decade hasbeen the decline in capital investment. Two economic downturns in the pastsix years have severely dented gross fixed investment, which fell from 43.1% ofnominal GDP in 1997 to a low of 21.9% in 1999, to stand at 23.2% in 2002. Thereduction has been caused by lower foreign direct investment (FDI) and lowerprivate domestic investment. Fearing that a sustained level of lower investmentwill eventually lead to slower economic growth, the government introducedmeasures to stimulate private domestic investment in the 2003 budget, afterboosting public investment for four consecutive years.

Comparative economic indicators, 2002Malaysia Thailand Singapore Indonesia US

GDP (US$ bn) 94.9 126.0 87.0 173.0 10,446.0GDP per head (US$) 3,870 1,993 20,920 807 36,410Consumer price inflation (av; %) 1.8 0.6 -0.4 11.9 1.6

Current-account balance (US$ bn) 6.1 7.7 18.7 7.5 -481Current-account balance (% of GDP) 6.4 6.0 21.5 4.3 -4.6

Exports of goods fob (US$ bn) 92.0 66.8 128.4 58.8 681.9Imports of goods fob (US$ bn) 74.0 57.0 109.8 35.6 1,164.7

External debt (US$ bn) 46.4 60.1 14.2 131.9 n/aDebt-service ratio, paid (%) 6.1 17.1 2.1 20.5 n/a

Source: Economist Intelligence Unit, CountryData.

Economic policy

For the past six years the government has followed a stimulative fiscal policy,initially to aid economic recovery from the regional financial crisis and later onto help to narrow the wide, persistent gap between actual and potential output,which in 2002 amounted to 4.7% of nominal GDP. Previously fiscal policytended to be prudent, with revenue during the boom years outstripping currentoutlays and, for much of the 1990s, development spending as well. The budgetwent into deficit in 1998. The government introduced a series of domesticdemand-boosting packages, the latest in May 2003 with a value of M$7.3bn.

The 2004 budget is mildly stimulative, puts equal emphasis on the promotionof private-sector investment and consumption, and makes a start with thenecessary process of fiscal consolidation by cutting government net

Electronics productiondominates manufacturing

A high, but falling, rate ofcapital investment

Fiscal stimulus continues

Malaysia 23


development spending by 21.3%, on the assumption that private capitalinvestment will revive. The budget forecasts a decline in the fiscal deficit to 3.3%of GDP in 2004 from an estimated 5.4% in 2003. Also helping to reduce thedeficit are large increases in tax and non-tax revenue, in part connected with aforecast of faster growth for 2004 of 5.5%-6%, compared with an estimatedoutcome of 4.5% in 2003. The government remains committed to achieving abalanced budget by 2005, but it may find it difficult to reach this target.

Federal government finances, 2003a

M$ bn % change year on yearRevenue 89.2 6.8 Tax revenue 69.2 3.4 Direct taxes 46.5 4.8 Indirect taxes 22.7 0.8 Non-tax revenue 20.0 20.1Expenditure 110.0 6.2 Operating 73.2 6.6 Development (net)b 36.8 4.9Balance -20.8 3.0

a Estimated outcome. b Net of loan recoveries.

Source: Ministry of Finance, Economic Report 2003.

Monetary policy is accommodative, reinforcing the impact of the expansionaryfiscal policy. In May 2003, the Bank Negara Malaysia (BNM, the central bank)strengthened the impact of the M$7.3bn fiscal package by cutting its keyintervention rate by 50 basis points to 4.5%. Interest-rate increases are possiblefrom the second half of 2004, but are more likely in 2005. The BNM financespart of the May fiscal package. The central bank also continues actively topromote the structural reform of the financial sector.

The Malaysian ringgit has been pegged to the US dollar at M$3.80:US$1 sinceSeptember 1998. The weakness of the US dollar in 2002 came as a relief to theMalaysian authorities, after growing concerns that earlier persistent US dollarstrength was making Malaysia less competitive, especially in relation toneighbouring economies. There is no indication as yet that the government willwant to change the fixed currency regime, but it may become less determinedto maintain the peg once the prime minister, Mahathir Mohamad, has retired inOctober 2003.

A new policy direction in the 2003 budget

In September 2002, Mahathir Mohamad, who is finance minister as well as primeminister, announced a change in policy in his speech accompanying the 2003budget. Dr Mahathir said that the government had redrafted Malaysia’s growthstrategy to promote domestic sources of economic growth. Malaysia had beenheavily dependent on foreign investment and trade for too long: in particular,Malaysia had become vulnerable to changes in import demand and foreign directinvestment inflows from its two main trading partners, the US and Japan.Dr Mahathir stated that, although government investment had helped to offsetweakness in the external sector, the ensuing fiscal deficit could raise borrowingsbeyond prudent levels. The private sector needed to resume its role as the maindriver of economic growth.

Monetary policy reinforcesfiscal policy

24 Malaysia


Dr Mahathir argued that the private sector was capable of increasing investment tolevels achieved in 1988-97, when growth in investment averaged 21% per year. Thegovernment aimed to promote domestic investment, particularly in services suchas tourism, education, transport and health, with agriculture as a third engine ofeconomic growth together with manufacturing and science. The government’s rolewas to provide the infrastructure, incentives and administrative support for acompetitive business environment. The 2003 budget contained a tax cut for smalland medium-sized enterprises, from 28% to 20%, as well as a host of smallermeasures aimed at boosting domestic investment. In the 2004 budget, announcedin September 2003, as well as in the M$7.3bn fiscal package announced earlier inthe year, the government further reinforced the incentives to investment.

Given the lukewarm response of the Malaysian private sector to existing incentivesin recent years, the government’s new strategy is risky. In practice, however, it has noalternative. Without foreign investment or fiscal stimulus, only domestic investmentcan carry growth to a higher level. The government forecasts a 9.9% rise in privateinvestment in 2004, up from an estimated increase of 2% in 2003. There is a largechance of failure, either because the domestic private sector may remain risk averseor because foreign, especially regional, demand for domestic manufactured productsmay fail to pick up. In that case, fiscal policy is likely to remain stimulative beyond2005. This would lead to a build-up of foreign debt and probably also theabandonment of the fixed exchange rate with the US dollar, in order to raise thecompetitiveness of the corporate sector.

Official development strategies have been based on a series of five-year plans,backed by 10-year “masterplans.” The current plan is the Eighth Malaysia Plan(EMP), which aims for 7.5% annual growth in 2001-05, with the objective of thecountry becoming a fully developed nation by 2020. The structural shifttowards high-end manufacturing is expected to continue; manufacturing,agriculture and services are expected to contribute 35.8%, 7% and 55.1%,respectively, to GDP by 2005. The new growth target will be impossible toachieve, given that real GDP increased by only 0.3% in 2001 and 4.1% in 2002.The EMP is certain to disappoint, as did the Seventh Malaysia Plan (1996-2000),when annual average growth reached only 4.7%, well below the plan’s originaltarget of 8%.

The 2003 budget announcement of a new private-sector domestic investment-based growth strategy demonstrates the need for a revision of the EMP. A mid-term review of the EMP is due in 2003. Under the EMP, economic expansion isexpected to be driven by an upturn in private investment. The EMP aims for anaverage 19% annual rise in private investment, following an average annualcontraction of 11.6% under the Seventh Malaysia Plan. Public investment isforecast to grow by only 1.1% per year, contributing a declining share of GDP asit resumes its role as the facilitator of private-sector participation in theeconomy. Under the EMP, foreign investment will remain important, but itsshare of total investment is expected to decline, in part because of expectedglobal competition for foreign funds. The government’s new plans give agreater role to private domestic investment without abandoning the hope of arevival in total private-sector investment.

Five-year plans guidedevelopment

Malaysia 25


Malaysia’s five-year plansSeventh plan (1996-2000) Eighth plan (2001-05)

target Outturn targetAnnual average real GDP growth (%) 8.0 4.7 7.5

Inflation (av; %) 2.7 3.4 2.7GNP per head (M$; end-period) 14,788 13,359 17,779Unemployment (%) 2.8 3.1 2.7

General government balance (% of GNP) 1.5 1.5 1.5Current-account balance (% of GNP) 0.5 6.5 3.9

Source: Economic Planning Unit, Eighth Malaysia Five-Year Plan (2001-2005).

The EMP, together with the Second Industrial Masterplan (1996-2005),emphasises the importance of strengthening the links between industries andproviding them with appropriate support, in particular through thedevelopment of human resources, physical infrastructure and other services.The EMP aims to achieve its growth targets by boosting productivity: accordingto the plan, 2.8% of the targeted average 7.5% annual GDP growth will comefrom an increase in total factor productivity. A more efficient use of labour andcapital will hinge on improving the quality and skills of the workforce, whichthe government may find difficult to achieve within the plan period.

The imposition in September 1998 of capital and currency controls during theAsian financial crisis gained notoriety abroad because they trapped foreignportfolio capital in Malaysia. Dr Mahathir refused to accept the assistance of theIMF—which demanded higher interest rates and expenditure cuts as a means ofdealing with the financial crisis—and justified the controls with what he calleda “disastrous” failure of the free market. Together with the pegging of theexchange rate to the US dollar at M$3.80:US$1, capital controls allowed for aneasing of interest rates

Criticism of capital controls waned after Malaysia’s economic performanceproved at least as good as that of the regional economies that had sought theIMF’s help. The IMF grudgingly admitted that capital controls might, after all,have a role to play during a balance-of-payments crisis. The currency pegremains in place and offshore ringgit trade is still banned. The system of capitalcontrols could easily and quickly be restored during a crisis but this appearsless likely with the growing economic and financial integration in South-eastand East Asia.

Dr Mahathir has, for the past 25 years, been the main director of economicpolicy. His personal interests, such as privatisation, a preference for largeprojects and visionary schemes such as the Multimedia Super Corridor (MSC;see Economic sectors: manufacturing), have characterised Malaysia’s economiccourse. In conducting economic policy, the government is assisted by theEconomic Planning Unit (EPU), which is in the Prime Minister’s Department. Inaddition to the prime minister, the ministers of finance and trade and industrydetermine policy. Since the departure of the finance minister and economicadvisor, Daim Zainuddin, in June 2001, Dr Mahathir has also occupied thisposition. It is likely that policy will change after Dr Mahathir retires, but itremains unclear how or how soon. Policy may begin to drift but, equally, it

A crucial role for productivitygrowth

Reimposition of capitalcontrols is becoming unlikely

Economic policy will changeafter Dr Mahathir

26 Malaysia


may become more flexible, less involved with grand projects and more in linewith economic orthodoxy.

The government remains committed to a policy of privatisation, notwithstandingpast abuses of the privatisation process. A high-profile campaign of privatisinggovernment assets was launched in the 1980s with the explicit intention ofpromoting Malay interests by increasing the share of the nation’s corporate assetsin the hands of bumiputera (ethnic Malays and other indigenous peoples). Criticshave said that many lucrative projects went to political favourites with littleindustry knowledge or expertise. The 1997-98 economic downturn exposed theweaknesses and the lack of managerial skills in many well connected companies,many of which had to be bailed out. The resolution of the bad debt problem wasdifficult and slow. The commitment to privatisation cannot be separated frombumiputera advancement; although the bumiputera policy does not now appearto have top priority, the government will find it difficult wholly to abandon itwithout seriously damaging the political interests of the main government party,the United Malays National Organisation (UMNO).

An important taxation change in the 2003 budget was a tax cut for small andmedium-sized enterprises, from 28% to 20%, which was introduced as a meansof stimulating investment by domestic enterprises. The budget contained nobroad-based tax relief, but instead widened and refined a large number ofspecific tax and tariff exemptions and fiscal incentives. There was also no cut inthe corporate tax rate, despite corporate pressure for a reduction. The govern-ment claims that Malaysia’s corporate tax rate is competitive and lower thanthat of other countries in Asia and most developed countries, except for HongKong, Singapore, Taiwan, Ireland and Germany. Malaysia does not impose taxon dividend income and, in addition, it has a comprehensive system of taxincentives and therefore, the government calculates, the effective tax rate for themanufacturing sector is only 8%.

Economic performance

In line with other countries in South-east Asia, Malaysia has suffered tworecessions during the past six years. The country had enjoyed a decade ofconsistently fast growth, with economic expansion driven by manufacturinginvestment and exports, until the Asian financial crisis of 1997-98. Malaysiabenefited from the surge in global demand for information and communicationtechnology goods, which pulled the economy out of recession in 1999. But by2001 it was hit by a downturn in global demand, which resulted in a plunge inexports and a sharp fall in GDP growth to only 0.3%. Renewed weakness wasevident in the second half of 2002, but GDP still managed to expand by 4.1% forthe year as a whole, and growth is likely to exceed 4% in 2003. Malaysia’sdependence on exports, particularly electronics and electrical goods, which madeup 59% of exports in 2002, means that economic growth is vulnerable to globalfluctuations in the demand for these products. The dependence cannot bereduced quickly and a shift to other sources of economic growth, which thegovernment is now promoting, could take a long time.

The commitment toprivatisation is unchanged

Changes to taxation policy

Signs of an upturn afterseveral lean years

Malaysia 27


Gross domestic product(1987 prices; % real change, year on year)

Annual average2002 1998-2002

Private consumption 4.4 2.2

Government consumption 12.2 7.3Gross fixed investment 0.3 -8.2

GDP 4.1 2.2

Sources: Bank Negara Malaysia; Ministry of Finance; Economist Intelligence Unit; official estimates.

Malaysia’s rapid growth over the last 20 years has been financed and sustainedby high domestic savings and by large inflows of FDI, attracted by Malaysia’swell developed infrastructure, capable administration and well educatedworkforce. These inflows reached a peak of 8.7% of GDP in 1992-93. However,they never fully recovered after the Asian financial crisis: the inflows stood at4.2% of GDP in 2000, were barely positive in 2001 but recovered to ahistorically low level of 3.4% of GDP in 2002. Most of the inflows are not reallyinflows but earnings reinvested by existing multinationals. Nevertheless,Malaysia continues to benefit from the trend among companies in developedcountries to relocate some of their operations to lower-cost centres. A large partof FDI inflows is channelled into manufacturing but a growing share is goinginto the services sector. Malaysia is having to do battle with its regionalneighbours, most notably China, vying for foreign investment. It has, in effect,abandoned the official policy of reserving part of corporate equity for thebumiputera, which scared off some foreign investment in the past. Malaysia ishoping to attract investment in higher-knowledge-content industries, in linewith its ambition to become a knowledge-based economy, and in higher value-added manufacturing.

Ever since the Asian financial crisis, the Malaysian economy has been unable toclose the gap between actual production and the production that can beachieved with full utilisation of capital and labour. The “output gap” hardlyexisted during the helter-skelter growth during the early part of the 1990s, whenoutput followed potential closely. When the crisis hit, an output gap equivalentto 11.3% of GDP opened up in 1998. Although the gap narrowed to 3.3% in 2000,it widened again to 6.2% in 2001 and 5.1% in 2002, according to the centralbank, the Bank Negara Malaysia (BNM). As capital investment remains verylow, the potential rate of output growth continues to slow; Malaysia’s best hopeof raising the economic growth rate is to boost capital and labour productivity.The BNM found evidence that capital is being used more efficiently, which itattributed in part to past infrastructure investments (which have a longgestation period). The evidence on labour productivity is mixed: there areregular complaints about the low quality of the (largely unskilled) foreignlabour force and Malay graduates. But the authorities have high hopes that theimplementation of the Knowledge-based Economy Master Plan, which includeslarge investments in education and training, will raise potential output growth.

The approach to foreigninvestment is changing

Malaysia’s growth potential

28 Malaysia


Inflation(% change)


Consumer price index (2000=100) 1.8 2.5

Source: Bank Negara Malaysia.

The government seeks to control inflation by means of fiscal, monetary andindustrial policies, and also intervenes directly to monitor and control prices.For most of the 1980s and 1990s it succeeded in keeping consumer priceinflation at low levels, certainly compared with other developing countries.When inflationary pressures built up, during periods when the governmentwas driving the economy too hard or foreign demand for Malaysia’s exportsgrew strongly, monetary tightening, direct price controls and mediation in wagebargaining kept price rises in check. A low inflation climate was also aided by afairly tight fiscal position.

The inflationary environment changed following the financial crisis in 1997-98.After a brief price surge caused by the plunging Malaysian ringgit, the economyhas operated well below its full potential and with relatively highunemployment, notwithstanding sustained fiscal expansion. A low-interest-ratepolicy has also helped to moderate price increases. Inflationary risks willremain low as long as spare capacity and excess labour in the economycontinue. Some upward pressure on consumer prices will result fromgovernment efforts to reduce subsidies, in particular on fuel, and raise officiallyadministered prices, but this will be insufficient to alter the low inflationclimate. Producer prices will remain far more volatile, reflecting globalcommodity prices and cyclical conditions, with a limited impact on consumerprices. In 2002 annual inflation stood at only 1.8% and average inflationseemed unlikely to rise above 3% until 2004 or even 2005.

Manufacturing sector real wages(% change)


Wages 2.9 2.1

Source: Bank Negara Malaysia.

Malaysia’s traditionally tight labour market has not eased much as a result ofslower economic growth. The unemployment rate averaged 3.5% in 2002,down from 3.7% in 2001, close to the rate of 4% or less which the Malaysianauthorities consider a full employment level. Malaysia attracts large numbersof foreign workers whom the government repatriates from time to time foreconomic or, as was the case with Indonesian illegal workers in 2002, forsecurity reasons. Construction, the plantation sector and parts of the servicesector would grind to a halt without the—mainly unskilled—foreign workers, ofwhom there were 1.1m legally in the country in mid-2003. Over the pastdecade Malaysia has also experienced persistent shortages of skilled labour. Asthe country moves to become a knowledge-based economy, one of the greatestchallenges is the need to equip workers with new skills. Many government

Policy on inflation ismultifaceted

Skill shortages continue in aneasier labour market

Inflation will remain low

Malaysia 29


schemes and incentives set up to train or retrain workers and upgrade skillsare in place.

Wage growth has moderated in recent years. The manufacturing sector hastended to pay the highest wages in the past, a reflection of strong growth inlabour productivity. Two manufacturing downturns in the past six years havedepressed annual real wage growth to only 2.1% on average, according to datapublished by BNM. During the economic downturn in 1998, real wagesdeclined by 2.4% in the manufacturing sector; they bounced back by 5% in2000, when the electronics industry boomed. Unusually, in 2001 wage growthin the private non-manufacturing sector exceeded wage growth in themanufacturing sector. Smaller differences in wage growth are likely in thefuture between manufacturing and the rest of the economy.

Regional trends

Economic development is concentrated in the western states of the peninsula.Tin mining and plantation development began in the nineteenth century inSelangor, Perak and Johor—areas that, together with Penang, still have thelargest concentrations of manufacturing industry. Penang and the Klang Valley(in central Selangor, between Kuala Lumpur and the coast) are the mainlocations of export-oriented manufacturing. Penang’s customs-free industrialzones have been the focus of investment by international electronicscompanies, whereas the Klang Valley has the largest and longest-establishedconcentration of general manufacturing operations.

Successive five-year plans have fostered the location of industrial projects innew areas, still mainly in states on the west of the peninsula (Kedah, NegeriSembilan and Malacca). In the predominantly rural states on the east coast ofthe peninsula (Kelantan, Terengganu and Pahang) and the two Borneo states(Sabah and Sarawak) industrial activity is mainly related to the processing oflocal raw materials. Timber processing has developed in all of these states.

Primary oil and gas installations are necessarily located close to offshoresources. Terengganu and Sabah have reception units. Manufacturing operationsusing oil and gas have grown up around these primary industries, includingpetrochemical facilities in Terengganu and Pahang. Other primary industrieshave generated similarly related manufacturing units: for instance, a tinplateproduction line in the southern state of Johor serves Malaysia’s main fruit-canning industry. Production of plantation crops is widely dispersed among allstates of the federation.

Kelantan is still dominated by agriculture. Rice and natural rubber account fortwo-thirds of the cultivated area. The state also produces 90% of domesticallygrown tobacco. There is substantial logging activity, but little local sawing andprocessing capacity. Income per head in Kelantan is the lowest and slowestgrowing in Malaysia.

Imbalances in development

30 Malaysia


Economic sectors

Agriculture

In recent years the output of agriculture, forestry and fisheries taken togetherhas stagnated, and the relative importance of these rural-based sectors withinthe economy has declined because of the faster growth of the industrial andservices sectors, shortages of labour and suitable land, and trade liberalisation.The most important agricultural activities are production of food commodities(fisheries and the cultivation of rice being the most important subsectors) andplantation crops for international markets, led by palm oil, rubber, cocoa, andtimber. To boost agricultural and producers’ incomes, the government ispromoting labour-saving techniques, innovation, and more efficient farmmanagement.

Agriculture and forestry production, 2002(’000 tonnes unless otherwise indicated)

Crude palm oil 11,909Rubber 589Saw logs (’000 cu metres) 21,041

Cocoa 48

Source: Bank Negara Malaysia, Annual Report.

Production of rice, once the dominant subsistence crop of Malay farmers, hasbeen threatened by the general population drift to the towns, competing moreprofitable uses for land, such as the cultivation of fruit and vegetables, andcompetition for labour from manufacturing industries. As a potent symbol oftraditional Malay life, rice growing continues to attract special government help,such as schemes for raising yields and productivity. Malaysia is a net importerof rice but is aiming for a minimum self-sufficiency level of 65 percent.

Natural rubber, Malaysia’s longest-established large-scale agricultural product, isa declining sector. Although refinements in plant breeding and biologicalcontrols have raised yields and enabled growers to manipulate output, theavailability of cheap or family labour is crucial to productivity levels. Plantationcompanies rely heavily on immigrant labour, and have steadily convertedplantings to the more profitable oil palm. The main source of output is now thesmallholder sector. Rubber output, in decline since the late 1980s, stood at589,000 tonnes in 2002, around 60% of the level five years earlier. Thegovernment is trying to sustain production of rubber as an alternative to oilpalm and as a supplier of timber to the furniture industry.

Malaysia is the largest global producer of palm oil. Output of palm oil andassociated products has continued to expand, reaching a record 11.9m tonnes in2002 and accounting for 35% of the total value added in the agricultural sector.Malaysia continually tries to find new uses for palm oil, develop new varieties,and boost productivity through labour-saving techniques. The commodity hasbenefited from the view of dieticians that it is a healthy alternative to animalfats and oilseed products, and it is also favoured because it is not proscribed by

Agriculture is of decliningimportance

Rice

Natural rubber

Palm oil

Malaysia 31


any religious dietary rules (an important selling point in Pakistan, India and theCentral Asian republics). Malaysia is continually trying to find new markets—ithas offered palm oil in part-payment for its weapons purchases abroad.

Malaysia is still a major supplier of tropical timber, but supplies are diminishingand logging has gone well beyond the levels of sustainability, notwithstandingofficial policy to prevent this. Malaysia is also a source for illegally harvestedtimber from Indonesia. The country has set up a timber certification schemeand promotes good forest management and reafforestation but, in practice,controls are ineffective. Logging permits are often a source of income forpoliticians. In the interests of maximising income from forest products, thegovernment has gradually extended the ban on direct exports of saw logs andpromoted higher value-added production of wood products and furniture. Logproduction has fallen, affecting both exports of logs and the production ofsawn timber. Demand fluctuates with construction activity in Japan and SouthKorea, the two major export markets. The production of saw logs grew by 11.2%in 2002, but stood at less than half the level achieved in the early 1990s.

Mining and semi-processingMinerals production, 2002Crude oil (’000 barrels/day) 698Natural gas (m standard cu ft) 4,674Tin (’000 tonnes) 4.2

Source: Bank Negara Malaysia, Monthly Statistical Bulletin.

Some 22% of Malaysia’s industrial output is accounted for by the production ofminerals, mostly petroleum and natural gas (marketed as liquefied natural gas,or LNG). In recent years 63% of crude oil output has come from offshore fieldsin peninsular Malaysia, 23% from Sarawak and 14% from Sabah. Malaysia hassix refineries with a total capacity of 520,000 barrels/day (b/d) for bothdomestic consumption and export, supplying more than 80% of total domesticdemand for petroleum products. A new oilfield was discovered in Sabah in2000. A total of 18 oil production wells and 38 development wells were drilledin 2000. Malaysia is a net oil exporter. Malaysia’s proven oil reserves, whichstood at 3bn barrels in 2002, are gradually declining. Production, at 698,000b/d, has fluctuated within a narrow range over the past seven years.

In contrast to the slowly declining trend of crude oil output, production ofnatural gas has continued to grow. Between 1992 and 2002 productionincreased by 166%. Malaysia’s power-generation sector accounts for 72% of thedomestic utilisation of natural gas but this dependence is being reduced. Themain customers for LNG exports are Japan, South Korea and Taiwan. InDecember 2001 a new offshore gasfield in Terengganu started operations, tocater for future increases in demand. Three new gasfields are expected to beginproduction in 2002, and a further five in 2003. When the Bintulu LNG complexon Sarawak is finished, Malaysia will become the world’s second-largestexporter of LNG.

Timber

Crude oil output and refining

Gas

32 Malaysia


The output of tin—which played a crucial role in Malaysia’s industrial history—went into precipitous decline in the mid-1980s. In 2002, only 4,215 tonnes of tinconcentrate were produced, a new post-war low and 15.2% down from thepreceding year. Most of the tin is mined in Perak and Selangor. In addition totin, Malaysia produces copper, iron ore, coal, gold, bauxite, kaolin, silver,limestone and silica, usually in relatively small volumes.

Manufacturing

Since the 1970s Malaysia has built up its export-oriented manufacturingcapacity based on inward direct investment. Previously, the country haddeveloped import-substitution industries and industries based on processing ofoutput from the domestic primary sector. Malaysia’s development of export-related production has been highly successful: exports of goods and services asa percentage of current-price GDP, which in 1980 stood at 14%, peaked in 2000at 124.6%, declining to 114.1% in 2002. Manufacturing accounted in 2002 for30.6% of GDP, down from 32.7% in 2000.

The export-oriented industries are the biggest component of manufacturing,accounting for around three-quarters of the total. Manufacturing has a 70%share of the industrial production index (1993 base). The domestic-orientedsector accounts for around one-quarter of manufacturing, its main componentsbeing the fabrication of metal products, non-metallic mineral products, foodproducts and transport equipment.

Manufacturing, 2002(%)

Output growth 4.5 Export-oriented 5.0 Domestic-oriented 3.4

Share of labour force 26.3Share of total outstanding loans 16.2

Capacity utilisation 83.0


The main location of export-oriented manufacturing was until not long ago theisland of Penang and the central industrial belt to the west of Kuala Lumpur,the Klang Valley. Government policy to disperse manufacturing has resulted inover 200 industrial estates and 14 free industrial zones (FIZ) throughout thecountry. The FIZs are export-processing zones, where companies are allowedduty-free imports of raw materials, components, parts and equipment. Thereare also a number of special industrial parks for high-tech industries. Thedevelopment of a centre of high-technology industry in the so—calledMultimedia Super Corridor (MSC), a 750-sq km information-technology zonenear Kuala Lumpur, has been slow. The MSC is one of the pet projects of theprime minister, Mahathir Mohamad, and has been hit by two economicdownturns. In mid-2003, after seven years of development, there were 892companies with MSC status, employing 21,000 workers, of which 82% wereknowledge workers.

Tin and other minerals

An emphasis on export-oriented industries

Malaysia 33


Although the government aims to stimulate inward investment, all industrialprojects are subject to an approval system, operated through the MalaysianIndustrial Development Agency (MIDA). This involves vetting equity stakes,financing, technology transfer, local content and, increasingly, the products andprocesses concerned. In the past the government seemed ready to welcome anyinvestment promising industrial employment. As skilled and semi-skilledworkers became increasingly scarce, MIDA stopped granting approvals to low-productivity industries, and the government encouraged existing low-productivity industries to relocate elsewhere. In recent years, competition fromChina has made it difficult to attract foreign manufacturing investment toMalaysia, notwithstanding stronger incentives and reduced restrictions.

A long period of strong growth ended in 1998, when manufacturing productionfell by 10.2%, undermined by the regional downturn. Fluctuations in overseasdemand for products from the electronics sector continue to be the majordetermining influence on manufacturing production. The swift turnaround inmanufacturing output in 1999, with an increase of 12.9% followed by a surge of25% in 2000, was driven by the electronics sector, which boosted its output by21.2% and 44.8%, respectively. The renewed downturn in 2001 was againfocused on electronics production, which plunged by 20.2%, and overallmanufacturing output declined by 6.6%. The limited 8.1% recovery in electronicsoutput in 2002 also restricted the rise in manufacturing to only 4.5%. Futuregrowth in manufacturing will be more moderate than before the Asianeconomic crisis, more focused on domestic and regional demand than in recentdecades, and less heavily dependent on electronics production.

Construction

The 1997-98 financial crisis was a turning point for the construction industry.Construction had been an important contributor to GDP growth, expandingrapidly in the years preceding the 1997-98 recession, driven by strong private-and public-sector demand, the expectation of continuing high economic growthand attractive capital gains from property, and the easy availability of fundsfrom the local banking system and stockmarket. The good times are unlikely toreturn soon. Activity in the construction sector, which had regularly expandedat a double-digit rate, plunged by 24% year on year when the crisis hit in 1998,major projects were cancelled or abandoned and planned infrastructuredevelopments abandoned. Another decline, by 4.4%, in 1999 was followed bythree years of very low growth, as government spending and special incentivesbrought a measure of stability. In 2003 residential housing, especially affordablehouses, was the most active market segment. The commercial sector continuedto suffer from oversupply of office and shopping space. The government wasincreasing expenditure on infrastructure projects. The May 2003 fiscal stimuluspackage included incentives for first-time buyers and construction of affordablehouses, introduced mortgage interest tax deductibility, and exemption fromstamp duty and property gains tax. Without government projects or asignificant improvement in the economic outlook, the construction sector islikely to remain in the doldrums.

An approval system for foreigninvestment

More subdued growth inmanufacturing

The construction sectorcontinues to stagnate

34 Malaysia


Financial services

Malaysia has a well developed financial sector. Banks (Bank Negara Malaysia,the central bank; commercial banks; finance companies; merchant banks anddiscount houses) account for two-thirds of the sector—in terms of assets—andnon-bank financial intermediaries (provident, pension and insurance funds;development finance institutions; savings institutions; and other financialintermediaries such as unit trusts, building societies, leasing, factoring, andventure capital companies) for one-third. Since the 1997-98 financial crisis theauthorities have reorganised the financial system, tightened supervision and setlong-term targets for the development of financial institutions and capitalmarkets. Before the crisis, commercial banks generally enjoyed profitableexpansion during the period of rapid economic growth, but profit margins haveremained under pressure since then.

Assets of the financial system, end-2002Assets (M$ bn) % share

Banking system 924.6 65.9 Bank Negara Malaysia 162.2 11.6 Commercial banks 563.0 40.2 Finance companies 130.7 9.3 Merchant banks 41.3 2.9 Discount houses 27.4 2.0

Non-bank financial intermediaries 477.2 34.1 Provident, pension & insurance funds 322.6 23.0 Employees’ Provident Fund 207.5 14.8 Development finance, savings & other institutions 154.6 11.1Total 1,401.8 100.0


An unusual feature of the Malaysian financial sector is that financialinstitutions are required to provide loans “at reasonable cost” to prioritysectors—all bumiputera groups (groups owned by ethnic Malays or otherindigenous peoples), low-cost housing and small-scale enterprises. Thegovernment also sets lending targets for the banking sector within an overallmacroeconomic framework and threatens sanctions when targets are missed, ashas happened in recent years. Priority areas in 2002 and 2003 have beenlending to small and medium-sized enterprises (SMEs) and lending to microenterprises, in order to stimulate domestic investment.

The 1997-98 financial crisis was a watershed for the financial sector, which wasoverextended and undermined by imprudent lending. During the decadebefore the crisis, credit had expanded by an annual average of almost 30%,largely for property development and stockmarket investments. When the crisishit and the economy turned down, non-performing loans (NPLs) soared,precipitating a serious banking crisis. The government played a more active rolethan in most other crisis-hit Asian countries to solve the bad-debt problem andrestructure the financial sector. It established two agencies to help the banks tocope with the consequences of the crisis—one to manage faulty assets andanother to aid bank recapitalisation—and another agency to help restructure

The financial sector is welldeveloped

The government sets lendingtargets

Effects of the 1997-98 crisis havelargely been overcome

Malaysia 35


corporate debt. By mid-2003, the two agencies for the banking system werewinding down their operations and the corporate restructuring debt agencywas closed. The banking system’s capital base was strengthened and NPLs as apercentage of bank loans substantially reduced.

The government also used the financial crisis as an opportunity to pushthrough the restructuring of the financial sector, the first stage of which wascompleted in June 2002. A major consolidation of the financial sector wasconsidered necessary to ensure the emergence of strong, well capitalisedinstitutions capable of competing effectively in a globalised, deregulatedenvironment. From 71 institutions before the Asian crisis, the mergerprogramme resulted in ten domestic banking groups with 30 bankinginstitutions. Under a ten-year financial sector masterplan (FSMP), published inMarch 2001, the first phase of development focuses on the building of domesticbanking capacity, which is closely monitored by the central bank. Furtherbanking consolidation, to eight or fewer groups from the current 10, is expected.The aim is that, at the end of phase one, there will be a core of strong domesticplayers, able to compete with foreign banks.

Malaysia has a sizeable, fast-growing Islamic banking sector, which at end-2002accounted for 8.9% of banking system assets and 10.2% of deposits. Rapidexpansion has been fostered by the introduction of new Islamic financialinstruments, as well as official promotion of Islamic banking and of KualaLumpur as a regional Islamic financial centre. The FSMP has set a target forIslamic banking to hold 20% of banking assets by 2010.

The capital market, comprising the equity and bond markets, has retained itsimportance as a source of financing, especially for the private sector. After1998, private finance began to depend more heavily on bond finance. Theequity market was badly hurt by the government’s imposition of currency andcapital controls in 1998 and the bail-outs of politically well connectedentrepreneurs to the detriment of minority shareholders. Undaunted, inFebruary 2001 the government published a ten-year capital market masterplan(CMP), setting out the strategic position and future direction for the capitalmarket. The major objectives of the CMP are to make Malaysia the preferredfund-raising centre for Malaysian companies; to promote an effective fundmanagement industry and a conducive environment for investors; to createefficient institutions in a competitive market environment; to ensure stricterregulation; and establish Malaysia as an international centre for Islamicfinance. By end-2002, 24 of the 154 CMP recommendations had been fullyimplemented and 74 were being implemented. Many of the recent measurefocused on strengthening of the regulatory framework and supervision, andimproving corporate governance; the lack or abuse of rules attracted severecriticism from foreign investment managers during the Asian financial crisis.To increase efficiency, a single Malaysian exchange was established in March2002 for all traded financial products.

A master plan for the financialsector

Islamic banking continues togrow strongly

A capital market master plan

36 Malaysia


Other services

Services (including financial services) are the largest part of national output,accounting for 57% of constant-price GDP in 2002. The share of services in GDPhas continued to increase steadily, although it tends to decline whenmanufacturing grows strongly, usually during export-led recoveries. The sectoris usually divided into intermediate services (22.8%) and final services (34.2%).Intermediate services include transport, storage and communications, andfinance, insurance, property and business services. Final services consist ofutilities; wholesale and retail trade, hotels and restaurants; government services;and other services.

The growth in intermediate services has fluctuated strongly in recent years,largely because of the finance and property sectors. During the last three years,intermediate services have expanded rapidly, increasing by 9.8% in constantprices in 2001 but slowing to 4.3% in 2002. The sector has benefited from thefast growth of mobile phone and Internet services, as well as increasingtransshipment activities in local ports, which have been promoted to takebusiness away from the Port of Singapore; all three factors are likely to persist inthe near future.

The growth of final services has generally been fairly stable in recent years, in partbecause of the government’s expansionary economic policies. In 2001 finalservices increased by a real 3.2% and growth accelerated to 4.1% in 2002. Thestrong expansion of production by the utilities (gas, water and electricity) iscontinuing as consumer demand grows. The wholesale and retail trade, hotel andrestaurants category is benefiting from the government’s stimulation of domesticdemand, as well as from the growing popularity of Malaysia with foreign tourists.

The Eighth Malaysia Plan (EMP) set a target of 9.5% annual average growth intourism receipts. This is likely to be exceeded: in 2001 alone tourism receiptssurged by 39.7% as a result of strong growth in tourist arrivals and day trippers,as well as higher spending per head; this was followed by a rise of 6.4% in2002. The tourism sector continues to benefit from strong government supportto promote Malaysia as a tourist destination and increase business travel, withthe aim of diversifying and broadening the economic structure. These effortshave been affected by the perceived rise in terrorist activity in South-east Asia,and also by the outbreak of Severe Acute Respiratory Syndrome (SARS) in theregion in early 2003. Nevertheless, the importance of tourism as a source ofeconomic growth is likely to increase. Malaysia is aiming to diversify its touristmarket, boosting both foreign and domestic tourism, opening niche areas suchas eco-tourism and agro-tourism, as well as new markets, such as easternEurope, West Asia, India and China. The supply of hotel rooms continues togrow rapidly. In addition, the government is increasingly promoting tourism byhosting international conventions and major sporting events.

A large services sector

A highly successful expansionof tourism

Malaysia 37


The external sector

Trade in goods

International trade has played a crucial role in Malaysia’s economicdevelopment, starting with the early export of raw materials. During the 1970sindustrial development was mainly based on export-oriented manufacturingand on imported inputs. Many of the fastest-growing production lines,particularly in the electronics sector, were set up on the basis of low localcontent, with the result that the bill for imported manufactures rose in line withrevenue from exports. Malaysia’s merchandise trade account has usually beenin surplus: the surplus soared during the 1997-98 recession and has remainedhigh in its aftermath.

In 2002 the trade surplus (customs basis) fell to M$51bn from M$54.1bn in 2001,as import growth, responding to the government’s fiscal stimulus, outstrippedexport growth. Growing international uncertainty over the approaching Iraqwar depressed demand for manufactured goods, although commodity exportearnings were boosted by high commodity prices. Intraregional trade was hitearly in 2003 by an outbreak of Severe Acute Respiratory Syndrome (SARS). Thecontinued high merchandise and current-account surpluses reflect the fact thatMalaysia’s economy has failed to recover fully after the Asian financial crisis: inparticular, demand for imported capital goods has not returned to its pre-crisislevel, as private investment remains depressed.

The primary commodity sector accounted for 12.2% of total exports in 2002—agricultural commodities accounted for 6% and minerals 6.2%. With theexception of palm oil, Malaysia’s economy continues to move away fromplantation and forestry products, which form the bulk of agricultural exports.Exports of minerals consist almost entirely of crude oil and liquefied naturalgas (LNG). The main determinant of primary export earnings is global oilprices; fluctuations in export volumes are of less importance.

Exports of manufactured goods accounted for 84.3% of Malaysia’s total exportsin 2002. The share of manufactured goods in total exports soared during the1980s and 1990s from a level of 20% in the late 1970s. Exports of electronic andelectrical goods accounted for 70% of manufactured exports in 2002, a sharethat stood at around 30% in the late 1970s. The heavy dependence on electronicand electrical goods means that total exports rise and fall as global demand forthe products of those two sectors fluctuates. The Malaysian government isencouraging manufacturers and exporters to move up the value chain andimprove product quality, in order to improve international competitiveness,especially in relation to China. The government promotes export trade throughthe Malaysian External Trade Development Corporation (Matrade).

Malaysia’s international trade has generally benefited from the relativeexchange-rate stability created by the ringgit:US dollar exchange-rate peg sinceSeptember 1998. Before this Malaysia was vulnerable to fluctuations in the

Export growth is matched byrising imports

A persistent trade surplus

The global market determinesprimary export earnings

Manufactured goods form thebulk of exports

The importance of the peggedexchange rate

38 Malaysia


currencies of its main trading partners, particularly Japan, which was its mainsupplier, especially of parts and components. Although this dependence hasbeen reduced, it has not disappeared altogether. The vulnerability to movementsin the US dollar and the yen may increase as trade is increasingly liberalised,particularly with the implementation of regional free-trade agreements.

The US remains Malaysia’s largest export market and its most important tradingpartner in aggregate, with a trade value of M$121.2bn and a share of 18.4% oftotal trade in 2002. Japan remains Malaysia’s principal source of imports and isalso the country’s second-largest trading partner, with a trade value ofM$93.7bn and a 14.2% share of total trade. The importance of Japan is graduallydeclining, as Malaysia diversifies its trade, regional trading links intensify andthe Japanese economy remains depressed. In 2001 the EU became a moreimportant export market than Japan; total trade with the EU reached M$78.3bn,a 11.9% share of the total.

Main trading partners, 2002Exports to: % of total Imports from: % of totalUS 20.2 Japan 17.8Singapore 17.1 US 16.4Japan 11.2 Singapore 12.0Hong Kong 5.7 China 7.7

China 5.6 South Korea 5.3Netherlands 3.7 Thailand 4.0


The Association of South-East Asian Nations (ASEAN) economies are much lessintegrated than EU economies, but internal trade continues to grow rapidly. In2002 Malaysia’s trade with other ASEAN countries was worth M$160.3bn, or24.4% of total trade. Intraregional trade tends to reflect fluctuations in globaldemand for manufactured products but the region is gradually becoming asource of trade growth in its own right. Malaysian trade figures are also affectedby the expansion of port facilities in Malaysia, which has taken away entrepôttrade from Singapore.

The biggest change in trade patterns continues to come from the rapid rise ofChina, which was Malaysia’s fourth-largest single trading partner in 2002, witha 5.6% share of total trade. Exports to China grew by 26% in 2001, when exportsto most destinations fell. After the opening up of China, following its entry intothe World Trade Organisation (WTO) in December 2001, exports to Chinasurged another 36% in 2002. Trade liberalisation and regional economicintegration will be highly significant for economic growth in next decade.

Malaysia’s main tradingpartners

Malaysia 39


Invisibles and the current account

Current account, 2002(M$ bn)

Goods: exports of goods 354.9

Goods: imports of goods -285.9Trade balance 69.0Invisibles: credits 64.7Invisibles: debits -95.7Invisibles balance -31.0Net transfers -10.6Current-account balance 27.3

Source: Ministry of Finance.

Malaysia has a persistently large deficit on invisibles trade. The two largestcategories of net payments are both by-products of the country’s successfulindustrialisation drive: a deficit on investment income, mainly as a result ofpast foreign direct investment (FDI), and a shortfall on services associated withmerchandise trade, such as insurance and freight.

The deficit on the income account, which consists mainly of investment incomeflows, declined by 2.2% to M$25.1bn in 2002 from M$25.6bn in 2001. The smallchange in the deficit mainly reflected the relative stability of profits anddividends accruing to foreign direct investors, particularly in the export-orientedelectronics and electrical industries. Bank Negara Malaysia (BNM, the centralbank) treats all profits on the overseas equity of FDI ventures as if they arepayments across the exchanges, even if they are retained and reinvested. Whenthey are reinvested, such payments are then treated as capital inflows.

A continued large outflow of profits to overseas equity holders is aconsequence of past FDI-financed industrialisation. Rising remittances fromoverseas investment by Malaysian companies are beginning to reduce the netsize of the deficit, but they are still relatively small, only around one-fifth ofgross profits due to non-residents.

The weakness in Malaysia’s trade-related services is of long standing, and ishighlighted whenever exports rise quickly during export-led economicrecoveries. Exports grew at a modest pace in 2002, and the services deficitnarrowed from M$8.4bn in 2001 to M$6bn. The government is beginning to besuccessful in reducing the trade-related services deficit, which forms part of itslong-term economic plans. It has succeeded spectacularly in boosting thesurplus on the travel account as Malaysia develops its tourism business. In2002 the travel account surplus grew to M$17.1bn, after soaring to M$16.1bn inthe preceding year from M$10bn in 2000.

Capital flows and foreign debt

Malaysia has long had a low rate of international indebtedness on both theofficial and private accounts, although external indebtedness rose sharplyduring the Asian financial crisis. At its peak in 1997, the ratio of external debt to

The invisibles balance is in thered

The investment income deficitis substantial

Travel income compensates fortrade costs

International indebtedness isrelatively low

40 Malaysia


GDP stood at 60.6%; it declined in the three following years, reaching 46.4% ofGDP in 2000 but rose again in the following years, largely because of higherfederal government debt, to stand at 51.5% at the end of 2002.

Malaysia has been careful to avoid becoming dependent on external debt andthis determination has intensified since the Asian financial crisis. Thegovernment’s external debt management strategy requires that corporationsseeking external funds for operations in Malaysia must assure the authoritiesthat they will have the foreign-exchange income to repay the debt. Thegovernment encourages companies to raise medium- and long-term loans andavoid short-term debt. In 2002 about two-thirds of outstanding medium- andlong-term debt had remaining maturities of more than three years. Short-termdebt is matched against international reserves. National sources indicate that atend-2002 short-term debt was equivalent to 24.3% of international reserves andrepresented only 17.3% of total external debt. The bulk of Malaysia’s medium-and long-term external debt—77%—is denominated in US dollars; 15% wasdenominated in yen at end-2002.

The share of government external borrowing has increased rapidly in recentyears to finance the expansionary fiscal programme; at end-2002, it had risen to19.6% of total external debt, up from 14% at end-2001. Federal governmentexternal debt outstanding reached M$36.3bn at end-2002, up from M$24.3bn atend-2001 or 48% year on year, according to government sources. The mainfunding source for the government’s financing requirement has been thedomestic capital market. In the 2003 budget the government stated its intentionof funding a larger share of its financing requirement through the internationalcapital markets to prevent crowding out private-sector investment in thedomestic market.

Foreign perception of Malaysian government policy is coloured by theauthorities’ reaction to the balance-of-payments crisis in 1997-98, the mostserious economic crisis Malaysia has experienced in recent history. As the Asianfinancial crisis deepened, a sell-off in the currency and equities marketsresulted in huge short-term capital outflows, officially estimated at M$12.9bn in1997 and M$20.6bn in 1998. The prime minister, Mahathir Mohamad, resistedfollowing the widely accepted response of raising interest rates and cuttingpublic expenditure. Instead, Dr Mahathir imposed a range of capital controls inSeptember 1998 and fixed the exchange rate to the US dollar at M$3.80:US$1.This deviation from economic orthodoxy earned Malaysia widespreadinternational condemnation, not least from portfolio managers whoseMalaysian investments were frozen. The government lowered interest rates andboosted public expenditure, protected by its tightly monitored controls, whichwere largely abolished during the following two years. Although thegovernment made clear that the repatriation of principal and profits from directinvestments was unaffected by the curbs, many investors felt that any regimethat restricted portfolio capital flows was equally capable of interfering withprofits transfers. Since then, yearlyin every year between 1999 and 2002,portfolio investments and private-sector short-term investments have shownlarge net outflows. This may have been the price Malaysia had to pay for its

Most external debt is longer-term

The 1997-98 crisis still coloursforeign perceptions

Malaysia 41


unorthodox policies, although it is more likely to have been the result of lowcorporate earnings growth

Foreign reserves and the exchange rate

Malaysia has carefully preserved its foreign reserves during the past five years.During the 1997-98 balance-of-payments crisis, large outflows of non-residentshort-term capital and intervention to support the exchange rate of the ringgitreduced foreign-exchange reserves from M$70bn at end-1996 to M$59.1bn atend-1997, but capital controls quickly led to the rebuilding of reserves toM$99.4bn at the end of 1998. A second, minor fall occurred early in 2001, whendoubts about the sustainability of the ringgit peg and speculation about achange in the political leadership both intensified. Since June 2001 reserveshave continued to grow steadily, to stand at M$141.9bn by August 2003. Theincrease in reserves during the preceding twelve months reflected thecontinued large trade surplus, and foreign direct investment as well as thereturn of portfolio funds; together, the inflows more than offset payments forservices and external loan repayments.

Before September 1998 the international value of the ringgit was managed byBNM in relation to an international basket of currencies with, until mid-1997,allowance made for some appreciation to reflect the underlying strength of thecurrency owing to Malaysia’s buoyant export performance and high rate ofcapital inflows. The ringgit tumbled heavily from mid-1997 as investorconfidence in the region’s economies was undermined, triggered by the floatingof the Thai baht. Since September 1998 the ringgit has been pegged atM$3.80:US$1. Initially, large capital inflows resulting from huge current-accountsurpluses and FDI inflows meant that the ringgit was undervalued at this rate.Later on, ringgit undervaluation turned into overvaluation as the US dollarremained strong against most global currencies, causing many regionalcurrencies to fall against the ringgit in line with South-east Asia’s worseningeconomic and political outlook. The situation changed again in early 2002,when the US dollar began to weaken, easing pressure for a change in the rateor the abandonment of the ringgit peg altogether. The retirement ofDr Mahathir, who is a firm advocate of the pegged ringgit, will eventually makeit easier to change the exchange-rate regime, but Mr Badawi is unlikely to riskintroducing a sharp change in policy in his first months in office.

Foreign reserves aresubstantial

42 Malaysia


Appendices

Sources of information

Borneo Bulletin (daily), Kuala Belait

Brunei Yearbook (annual), Kuala Belait

Department of Information, Brunei Darussalam Newsletter (fortnightly), BandarSeri Begawan

International Monetary Fund, Brunei Darussalam: Recent EconomicDevelopments, IMF Staff Country Report No. 99/19, April 1999, Washington, DC

International Monetary Fund, International Financial Statistics, Washington, DC

Statistics Division, Economic Planning Unit, Ministry of Finance, BruneiDarussalam Statistical Yearbook (annual), Bandar Seri Begawan

Statistics Division, Economic Planning Unit, Ministry of Finance, Census ofPopulation, 1991, 1992

Statistics Division, Economic Planning Unit, Ministry of Finance, DemographicSituation and Population Projections, 1991-2011, 1994

World Bank, Global Development Finance

G Braighlinn, Ideological Innovation under Monarchy: Aspects of LegitimationActivity in Contemporary Brunei, VU University Press, Amsterdam, 1992

R Heeks, Small Enterprise Development and the “Dutch Disease” in a SmallEconomy: The Case of Brunei, IDPM Discussion Paper No. 56, April 1998, Instituteof Development Policy & Management, University of Manchester

R Kershaw, Monarchy in South-East Asia: The Faces of Tradition in Transition,Routledge, London, 2000

D S Ranjit Singh, Brunei, 1839-1983: The Problem of Political Survival, OxfordUniversity Press, Singapore, 1994

G Saunders, A History of Brunei, Oxford University Press, Kuala Lumpur, 1994

Tourism Development Division, Ministry of Industry and Primary Resources,Explore Brunei: A Visitor’s Guide, Bandar Seri Begawan, 1998

Borneo Bulletin online: www.brunet.bn/news/bb/

Brudirect: www.brudirect.com/

Government of Brunei Darussalam: www.brunei.gov.bn/government

National Chamber of Commerce of Brunei Darussalam: www.nccibd.com

National and internationalstatistical sources

Select bibliography andwebsites

Malaysia 43


Reference tables

These reference tables provide the most up-to-date statistics available at the date ofpublication.

Population1998 1999 2000 2001 2002

Population (m) 22.2 22.7 23.5 24.0 24.5 Male 11.4 11.6 12.0 12.2 n/a Female 10.8 11.1 11.5 11.8 n/aPopulation density (per sq km) 67 69 71 73 n/a% distribution by age: 0-14 34 33 n/a n/a n/a 15-64 62 63 n/a n/a n/a 65+ 4 4 n/a n/a n/aCrude birth rate (per 1,000) 24.4 24.5 23.5 22.2 21.8Crude death rate (per 1,000) 4.4 4.4 4.4 4.4 4.4

Infant mortality (per 1,000 live births) 7.9 7.9 7.9 6.3 5.6Life expectancy Males 69.7 79.8 70.2 70.3 70.4 Females 74.7 74.8 75.0 75.2 75.3

Sources: Ministry of Finance, Economic Reports; Department of Statistics, Monthly Statistical Bulletin.

Labour force(’000)

1998 1999 2000 2001 2002Total employed 8,572 8,870 9,271 9,535 9,543 Agriculture, forestry & fishing 1,430 1,427 1,408 1,406 n/a Mining 42 41 41 42 n/a Manufacturing 2,196 2,343 2,558 2,547 n/a Finance, insurance & business services 421 474 509 575 n/a Transport & communications 435 442 462 493 n/a Government services 942 961 981 1,002 n/a Other servicesa 2,341 2,433 2,558 2,699 n/a Construction 765 749 755 772 n/a

Unemployed 277 308 301 357 344Total labour force 8,849 9,178 9,573 9,892 9,886

a Includes wholesale and retail trade, catering industry and utilities.

Sources: Bank Negara Malaysia, Annual Reports; Ministry of Finance, Economic Reports.

44 Malaysia


Transport statistics1996 1997 1998 1999 2000

RailPassenger journeys (’000) 6,375 5,825 5,340 4,880 4,340Passenger train-km (bn) 1.39 1.51 1.41 1.33 1.24Goods traffic (’000 tonnes) 5,425 5,122 3,715 3,864 5,505Goods train-km (bn) 1.39 1.34 0.99 0.91 0.92Length of track (km) 1,791 1,791 1,791 1,791 n/aRoadNew vehicle registrations (’000) 750.5 840.2 420.5 565.7 625.9 Passenger cars 318.8 372.3 159.6 296.7 344.8 Motorcycles 322.1 364.2 237.8 236.8 238.7 Goods vehicles 69.2 65.2 11.8 19.9 24.3 Other vehicles 40.3 38.4 11.2 12.2 18.0SeaCargo loaded & discharged (’000 tonnes)a 82,124 96,071 83,611 94,674 101,790 Loaded 28,090 33,724 33,655 39,920 43,480 Discharged 54,034 62,347 49,956 54,754 58,310

a Peninsular Malaysia only.

Source: Department of Statistics, Yearbook of Statistics.

Energy production1998 1999 2000 2001 2002

Crude oil (’000 barrels/day)a 725 691 681 666 698Natural gas (m standard cu ft) 3,722 3,952 4,367 4,542 4,674

Coal (’000 tonnes) 350 309 383 n/a n/aElectricity (m kwh) 60,487 62,546 n/a n/a n/a

a Including condensates.

Sources: Department of Statistics, Yearbook of Statistics; Bank Negara Malaysia, Statistical Bulletin.

Federal government finances(M$ bn unless otherwise indicated)

1998 1999 2000 2001 2002Total revenue 56.7 58.7 61.9 79.6 83.5 Tax revenue 45.3 45.3 47.2 61.5 66.9 Direct taxes 30.0 27.2 29.2 42.1 44.4 Indirect taxes 15.3 18.1 18.0 19.4 22.5 Non-tax revenue 11.4 13.3 14.7 18.1 16.6Total expenditure 61.7 68.2 81.6 98.0 103.8 Operating expenditure 44.6 46.7 56.5 63.8 68.7 Development expenditure (net) 17.1 21.5 25.0 34.2 35.1Balance -5.0 -9.5 -19.7 -18.4 -20.3 % of GDP -1.8 -3.2 -5.8 -5.5 -5.6Memorandum itemGDP at current market prices 283.2 300.8 342.6 334.3 361.7


Malaysia 45


Consolidated public-sector finances(M$ bn unless otherwise indicated)

1998 1999 2000 2001 2002General governmentRevenuea 69.4 70.9 76.0 91.6 98.8Operating expenditure -50.3 -54.3 -64.4 -72.3 -77.8Current surplus 19.1 16.6 11.6 19.3 21.0Non-financial public enterprisesRevenue 73.4 98.2 112.9 104.9 110.4Current expenditure -49.5 -61.6 -71.7 -65.7 -72.8Retained income 23.9 36.6 41.2 39.2 37.6Public-sector current surplus 43.0 53.3 52.8 58.8 58.6Development expenditure 46.8 46.4 50.4 59.7 68.7 General government 17.1 21.0 27.1 35.7 41.2 Non-financial public enterprises 29.7 25.4 23.4 24.0 27.5Overall balance -3.8 6.8 2.3 -0.9 -10.1 % of GDP -1.3 2.3 0.7 -0.3 -2.8Memorandum itemGDP at current market prices 283.2 300.8 342.6 334.3 360.7

a General government comprises federal government, state governments, statutory authorities and local governments. Excludes transfers withingovernment.


Money supply(M$ m unless otherwise indicated; end-period)

1998 1999 2000 2001 2002M1 54,135 72,447 78,216 80,728 89,072 % change -14.6 33.8 8.0 3.2 10.3M2 296,472 337,138 354,702 362,512 383,542 % change 1.5 13.7 5.2 2.2 5.8M3 401,459 434,590 456,496 469,519 501,125 % change 2.7 8.3 5.0 2.9 6.7


Interest rates(%; average rates at year-end)

1998 1999 2000 2001 20023-month interbank 6.3 3.0 3.0 2.8 3.03-month government securities 5.3 2.7 3.0 2.7 2.8

Retail banking base lending 8.0 6.8 6.8 6.4 6.4Retail banking savings deposits 3.9 2.8 2.7 2.3 2.3

Sources: Bank Negara Malaysia, Annual Reports; Monthly Statistical Bulletin; IMF, International Financial Statistics.

46 Malaysia


Gross domestic product(M$ unless otherwise indicated)

1998 1999 2000 2001 2002Total (bn)At current prices 283.2 300.8 342.6 334.3 360.7 US$ bn 72.3 78.9 89.3 88.1 94.9At constant 1987 prices 182.2 193.4 210.0 210.6 219.3 % change, year on year -7.4 6.1 8.6 0.3 4.1

Per headAt current prices (US$) 3,257 3,608 3,848 3,788 3,873At constant 1987 prices 8,212 8,515 8,936 8,775 8,951 % change, year on year -9.6 3.7 4.9 -1.9 2.0

Sources: Bank Negara Malaysia, Annual Reports; Ministry of Finance, Economic Reports; Economist Intelligence Unit.

Gross domestic product by expenditure(M$ bn unless otherwise indicated; constant 1987 prices)

1998 1999 2000 2001 2002Private consumption 82.0 84.4 95.4 97.6 101.9 % change -10.2 2.9 13.3 2.3 4.4 % of GDP 45.0 43.6 45.4 46.3 46.5

Government consumption 20.1 23.5 23.9 27.9 31.3 % change -8.9 17.1 1.7 16.7 12.2 % of GDP 11.0 12.1 11.4 13.2 14.3

Gross fixed investment 55.2 51.6 64.8 63.1 63.2 % change -43.0 -6.5 25.7 -2.8 0.3 % of GDP 30.3 26.7 31.0 30.0 28.9

Stockbuilding -0.2 1.2 2.8 -1.8 3.5 % of GDP -0.1 0.6 1.3 -0.8 1.6Exports of goods & services 187.4 212.1 246.2 227.7 235.8 % change 0.5 13.2 16.1 -7.5 3.6 % of GDP 102.8 109.6 117.5 108.2 107.5

Imports of goods & services 162.2 179.3 223.1 203.9 216.5 % change -18.8 10.6 24.4 -8.6 6.2 % of GDP 89.0 92.7 106.5 96.9 98.7

GDP 182.2 193.4 210.0 210.6 219.3 % change -7.4 6.1 8.6 0.3 4.1

Sources: Bank Negara Malaysia, Annual Reports; Ministry of Finance, Economic Reports; Economist Intelligence Unit.

Malaysia 47


Gross domestic product by sector(M$ bn unless otherwise indicated; current prices)

1998 1999 2000 2001 2002Agriculture 37.7 32.6 29.6 27.0 32.6 % of total 13.3 10.8 8.6 8.1 9.0

Mining 19.1 23.1 37.5 34.0 34.0 % of total 6.7 7.7 11.0 10.2 9.4

Manufacturing 81.5 93.0 111.9 101.9 110.5 % of total 28.8 30.9 32.7 30.5 30.6Construction 14.5 14.0 13.9 14.2 14.6 % of total 5.1 4.7 4.1 4.2 4.0Services 147.9 153.6 165.8 173.3 183.0 % of total 52.2 51.1 48.4 51.8 50.7

GDPa 283.2 300.8 342.6 334.3 360.7

a At purchasers’ value, less imputed bank service charges plus import duties.


Consumer price index(% change, unless otherwise indicated)

% weight 1998 1999 2000 2001 2002Overall index 100.0 5.3 2.8 1.5 1.4 1.8Food 33.8 8.9 4.6 1.9 0.7 0.7

Beverages & tobacco 3.1 4.3 7.9 2.8 4.8 1.1Clothing & footwear 3.4 0.4 -2.0 -1.8 -2.6 -2.2

Rent, fuel & power 22.4 4.4 1.6 1.4 1.4 0.7Furniture & household items 5.3 3.9 1.3 0.0 0.1 -0.5Medical care 1.8 6.2 3.0 2.0 2.9 2.4

Transport & communication 18.3 -0.1 0.5 2.0 3.6 6.5Recreation & education 5.9 3.3 2.6 0.5 -0.1 0.2

Misc goods & services 5.5 7.1 1.5 0.9 0.7 1.1IMF consumer price index (1995=100) 111.8 114.9 116.7 118.3 120.5 % change 5.3 2.8 1.6 1.4 1.9

Sources: Bank Negara Malaysia, Annual Report; IMF, International Financial Statistics.

Agricultural and forestry production1998 1999 2000 2001 2002

Palm oil (m tonnes) 8.3 10.6 10.8 11.8 11.9Rubber (m tonnes) 0.9 0.8 0.6 0.5 0.6

Saw logs (’000 cu metres) 21,672 21,776 23,074 18,923 21,041Cocoa (’000 tonnes) 90 84 70 58 48


48 Malaysia


Minerals production1998 1999 2000 2001 2002

Crude oil (’000 barrels/day) 725 691 681 666 698Natural gas (m standard cu ft) 3,722 3,952 4,367 4,542 4,674Bauxite (’000 tonnes) 160 223 n/a n/a n/a

Copper (’000 tonnes) 62 21 n/a n/a n/aTin (’000 tonnes) 6 7 6 5 4

Iron ore (’000 tonnes) 376 337 n/a n/a n/a

Sources: Bank Negara Malaysia, Annual Reports; Monthly Statistical Bulletin; Ministry of Finance, Economic Reports; Department of

Statistics, Yearbook of Statistics.

Manufacturing production(% change, year on year)

1998 1999 2000 2001 2002Chemicals -1.8 17.1 15.1 -7.7 2.7

Electrical products -14.8 2.7 28.7 -2.8 -5.1Electronic products -4.2 21.2 44.8 -20.2 13.4Off-estate processing -2.7 24.7 11.7 7.7 7.1

Food -2.1 5.7 16.2 4.3 8.7Non-metallic mineral products -26.5 2.6 20.5 9.6 5.1

Wood products -11.3 -7.3 4.0 1.2 -6.0Textiles -5.3 4.0 8.7 -8.3 -6.2Tobacco products -9.1 -15.5 75.3 -6.0 -10.0

Transport equipment -52.2 53.5 19.1 19.0 6.2Basic metals -29.1 29.5 16.6 -0.7 2.4

Rubber products 7.8 3.6 4.0 3.3 2.0Metal products -17.2 -1.1 33.8 3.9 0.8

Petroleum products -11.5 -0.3 19.9 19.3 -4.1Beverages -11.9 -2.6 6.0 3.2 -11.9All manufacturing industries -10.2 12.9 25.0 -6.6 4.5


Construction statistics(supply of new property in Kuala Lumpur & Selangor state)

Office Retail Apartments(sq metres) % occupancy (sq metres) % occupancy (no. of units)

1998 1,158,776 79.9 364,027 61.7 14,151

1999 265,645 76.2 89,787 76.6 9,5472000 1,374,452 76.9 218,562 78.5 5,466

2001 138,826 74.7 24,096 79.7 17,0672002 (Jan-Sep) 234,862 75.4 119,138 81.6 11,473


Malaysia 49


Banking statistics(M$ m; end-period)

1998 1999 2000 2001 2002Domestic commercial banksAssets 352,764 365,583 388,727 398,156 426,224Deposits 241,428 257,446 279,438 283,167 299,484Loans & advances 218,290 215,223 231,242 244,321 252,263Foreign commercial banksAssets 100,727 109,099 123,988 131,580 137,030Deposits 66,011 75,153 83,554 85,625 88,922Loans & advances 67,385 68,007 72,125 80,654 85,731


Stockmarket indicators(Kuala Lumpur Stock Exchange)

1998 1999 2000 2001 2002KLSE composite market index

(Apr 4th 1986=100) 586 812 680 696 646Value of shares traded (M$ bn) 115.2 185.3 244.1 85.0 117.0

Volume of shares traded (bn) 58.3 85.2 75.4 49.7 55.6Market capitalisation (M$ bn) 375.0 553.0 444.0 465.0 481.6

No. of companies listed 736 757 795 812 865

Sources: Bank Negara Malaysia, Annual Report; Monthly Statistical Bulletin.

Exports(M$ m; fob)

1998 1999 2000 2001 2002Electronic equipment & parts 59,692 79,400 95,680 79,102 81,839

Electrical machinery & appliances 47,558 50,162 63,618 60,675 54,751Semiconductors 54,483 65,485 71,111 60,530 72,546

Chemicals & chemical products 10,627 11,105 15,011 14,879 17,285Liquefied natural gas 5,981 6,349 11,423 11,342 9,932Crude petroleum 7,509 9,306 14,241 11,118 11,597

Crude palm oil 17,779 14,475 9,948 9,876 14,838Textiles, clothing & footwear 9,442 9,467 10,433 9,054 8,587

Manufactured metals 8,255 7,862 8,618 8,692 8,827Petroleum products 3,129 4,513 8,131 8,408 7,650Scientific equipment 4,760 4,834 6,825 7,802 8,157

Wood products 5,982 6,984 6,801 6,017 6,314Food, beverages & tobacco 5,495 5,554 5,717 5,948 6,679

Rubber products 5,739 5,061 4,695 4,466 4,512Toys & sports goods 2,888 3,005 3,447 3,411 3,604

Transport equipment 8,064 5,114 2,903 2,427 2,931Sawn timber 2,526 2,807 3,020 2,273 2,228Rubber 2,829 2,344 2,571 1,886 2,492

Sawn logs 1,866 2,663 2,489 1,523 1,790Total exports incl others 286,563 321,560 373,270 334,420 354,475


50 Malaysia


Imports(M$ m; cif)

1997 1998 1999 2000 2001Semiconductors & electronic

equipment 92,572 95,630 107,573 139,313 117,034Machinery & manufactured goods 56,781 58,655 63,208 79,758 76,587

Chemicals 15,379 16,275 18,790 22,371 20,725Miscellaneous manufactures 11,616 11,885 12,873 17,659 16,025

Mineral fuels 6,413 6,992 7,489 14,973 14,697Food, beverages & tobacco 10,745 11,110 11,555 12,102 13,234Transport equipment 14,140 14,599 11,658 9,253 8,984

Inedible crude materials 5,497 5,724 6,225 7,096 6,911Animal & vegetable fats & oils 494 1,041 1,056 604 794

Total imports incl others 220,936 228,124 248,478 311,459 280,691

Sources: Ministry of Finance, Economic Report; Department of Statistics, Monthly Statistical Bulletin.

Main traditional exports(’000 tonnes unless otherwise indicated)

1998 1999 2000 2001 2002Palm oil 7,513 8,964 8,863 10,467 10,866

Crude petroleum 18,013 17,725 16,672 15,077 16,192Rubber 989 984 978 822 887

Sawn logs (’000 cu metres) 5,418 6,738 6,484 4,834 4,873Sawn timber (’000 cu metres) 2,683 2,818 2,876 2,411 2,335Tin 22 24 21 27 27


Imports by end use(M$ m)

1998 1999 2000 2001 2002Capital goods 35,392 31,874 44,171 41,285 45,672 Industrial transport equipment 6,566 3,490 2,272 2,669 5,061 Other capital goods 28,826 28,385 41,899 38,615 40,611Intermediate goods 161,066 183,619 232,687 203,808 216,493 Primary industrial supplies 4,958 5,472 6,269 6,140 6,379 Processed industrial supplies 45,493 53,364 62,134 55,813 58,317 Parts & accessories of capital goods (excl transport equipment) 99,856 112,320 144,232 120,014 128,431

Consumption goods 12,683 14,828 17,040 16,620 19,263 Food & beverages 5,675 6,057 6,460 7,140 7,173Dual-use goods 3,828 4,934 6,393 5,844 6,105 Transport equipment 1,540 3,304 3,924 3,378 3,561Re-exports 10,909 8,806 6,518 6,891 9,101Gross imports incl others 228,124 248,476 311,459 280,229 303,508


Malaysia 51


Main trading partners(M$ m)

1998 1999 2000 2001 2002Exports to:US 62,130 70,391 76,579 67,618 71,502Singapore 48,689 53,106 68,574 56,643 60,660Japan 30,237 37,289 48,770 44,393 39,778Hong Kong 13,300 13,344 16,854 15,437 20,128China 7,764 8,808 11,507 14,683 19,966Thailand 9,059 10,481 13,485 12,756 15,096Taiwan 11,798 14,600 14,189 12,167 13,224Netherlands 13,437 16,233 15,616 15,438 12,969South Korea 6,517 9,498 12,464 11,108 11,823UK 10,328 12,067 11,566 8,759 8,353Total incl others 286,563 321,560 373,270 334,284 354,475Imports from:Japan 44,855 51,803 65,513 53,750 53,912US 44,762 43,318 51,744 44,881 49,692Singapore 30,944 34,817 44,696 35,352 36,317China 7,250 8,125 12,321 14,473 23,472South Korea 13,126 12,974 13,926 11,249 16,079Taiwan 11,647 13,259 17,511 15,930 13,224Thailand 8,832 9,377 11,987 11,120 12,017Germany 9,019 7,703 9,282 10,452 11,163Indonesia 5,778 6,677 8,623 8,536 9,689Hong Kong 5,943 6,250 8,557 7,064 8,837Total incl others 228,124 248,477 311,459 280,229 303,508


52 Malaysia


Balance of payments, IMF series(US$ m)

1997 1998 1999 2000 2001Goods: exports fob 77,538 71,883 84,098 98,429 87,981Goods: imports fob -74,029 -54,378 -61,453 -77,602 -69,597

Trade balance 3,510 17,505 22,644 20,827 18,383Services: credit 15,727 11,517 11,919 13,941 14,455

Services: debit -18,297 -13,127 -14,736 -16,747 -16,657Income: credit 2,485 1,542 2,003 1,986 1,847

Income: debit -7,851 -5,446 -7,499 -9,594 -8,590Current transfers: credit 944 728 801 756 537Current transfers: debit -2,453 -3,190 -2,529 -2,680 -2,689

Current-account balance -5,935 9,529 12,603 8,488 7,287Direct investment overseas - - -1,422 -2,026 -267

Direct investment in Malaysia 5,137 2,163 3,895 3,788 554Inward portfolio investment -248 283 -1,156 -2,145 -666Other investment assets -4,604 -5,269 -7,936 -5,565 -2,702

Other investment liabilities 1,912 272 - - -830Financial balance 2,198 -2,550 -6,619 -6,276 -3,894Net errors & omissions -137 3,039 -1,273 -3,221 -2,394Overall balance -3,875 10,018 4,711 -1,009 999Financing (- indicates inflow)Movement of reserves 3,875 -10,018 -4,712 1,009 -1,000Use of IMF credit & loans 0 0 0 0 0

Source: IMF, International Financial Statistics.

Balance of payments, national seriesa

(M$ bn)

1998 1999 2000 2001 2002Merchandise exports fob 281.7 319.6 374.0 334.3 354.9Merchandise imports fob -212.5 -233.5 -294.8 -264.5 -285.9

Trade balance 69.2 86.0 79.2 69.9 69.0Services balance n/a -10.7 -11.2 -8.4 -6.0

Income balance n/a -20.9 -28.6 -25.6 -25.1Net current transfers -9.6 -6.6 -7.5 -8.2 -10.6Current-account balance 37.4 47.9 32.0 27.7 27.3Capital account (net) 0.0 0.0 0.0 0.0 0.0Financial account (net) n/a -25.2 -23.8 -14.8 -11.9 Direct investment (net) n/a 9.4 6.7 1.1 4.9 Portfolio investment n/a -4.4 -9.4 -2.5 -6.5 Other investment (net) n/a -30.2 -21.1 -13.4 -10.4

Net errors & omissions 12.9 -4.9 -11.8 -9.2 -1.2Overall balance 40.3 17.8 -3.7 3.7 14.2

a Starting from 1999, the balance of payments is compiled in accordance with IMF guidelines.


Malaysia 53


External debt, World Bank series(US$ m unless otherwise indicated; debt stocks at year-end)

1997 1998 1999 2000 2001Public medium- & long-term 16,808 18,155 18,929 19,090 24,068Private medium- & long-term 15,482 15,786 16,961 18,067 14,181

Total medium- & long-term debt 32,289 33,940 35,892 37,156 38,249 Official creditors 3,983 4,508 4,825 4,950 5,925 Bilateral 2,755 3,021 3,387 3,636 4,706 Multilateral 1,228 1,487 1,438 1,314 1,219 Private creditors 28,306 29,432 31,067 32,206 32,324

Short-term debt 14,939 8,469 6,012 4,640 5,102 Interest arrears 0 0 0 0 0Use of IMF credit 0 0 0 0 0

Total external debt 47,228 42,409 41,902 41,797 43,351Principal repayments 4,276 3,806 2,853 4,146 4,088

Interest payments 2,833 2,268 1,922 2,299 2,140 Short-term debt 1,245 656 319 266 195Total debt service 7,109 6,074 4,775 6,445 6,229Ratios (%)Total external debt/GDP 47.1 58.8 52.9 46.4 49.3Debt-service ratio, paida 7.4 7.1 4.9 5.6 6.0

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Official development assistance(US$ m)

1997 1998 1999 2000 2001Bilateral 2,236.3 -1,071.5 1,482.2 -351.5 1,731.2 Japan 1,046.5 164.1 264.5 -247.4 1,278.5 UK 236.0 -546.0 693.4 -1,127.0 106.6 US 1,123.0 -345.0 654.0 88.5 -332.9Multilateral -41.6 219.2 -78.5 -70.6 -39.4Total (incl others) 2,188.6 -831.7 1,378.8 -440.8 1,700.8 Grants 98.9 100.9 101.7 90.7 75.7

Source: OECD, Geographical Distribution of Financial Flows to Aid Recipients.

Foreign reserves(US$ m; end-period unless otherwise indicated)

1998 1999 2000 2001 2002Foreign exchange 24,728 29,670 28,625 29,585 33,280

SDRs 205 83 105 125 151Reserve position at the IMF 626 835 792 764 790

Total reserves excl gold 25,559 30,588 29,523 30,474 34,222Gold (national valuation) 116 57 53 51 56Total reserves incl gold 25,675 30,645 29,576 30,525 34,278Memorandum itemGold (m troy oz) 2.35 1.18 1.17 1.17 1.17

Source: IMF, International Financial Statistics.

54 Malaysia


Exchange rates(M$ per unit of currency unless otherwise indicated; period averages)

1998 1999 2000 2001 2002US$ 3.9244 3.8000 3.8000 3.8000 3.8000¥100 3.0040 3.3513 3.5272 3.1296 3.0386

S$ 2.3434 2.2424 2.2046 2.1217 2.1228£ 6.4955 6.1498 5.7637 5.4741 5.7097

DM 2.2307 2.0743 1.7959 1.7410 1.8364Swfr 2.7082 2.5348 2.2538 2.2547 2.4488

SDR 5.3188 5.1967 5.0125 4.8375 4.9249Nominal effective exchange-rate

index (1995=100) 77.1 78.0 80.0 84.7 84.0

Sources: Bank Negara Malaysia, Monthly Statistical Bulletin; IMF, International Financial Statistics.

Editors: Graham Richardson (editor); David Webb (consulting editor)Editorial closing date: October 1st 2003

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

Documents

Malaysia - International University of Japan · consisted of the Straits Settlements (Malacca, Penang and Singapore), the Federated Malay States (Selangor, Perak, Negeri Sembilan