Economic Chang (New) Flashcards
Migrants in Malaysia
Malaysia’s 1957 independence saw Malaysian Chinese expand capital into new sectors previously dominated by colonial and foreign investment such as manufacturing and public works. This contributed to sector growth of 12% in 60s and 13% in 70s.
Robert Kuok and Co. dominance in sugar and palm oil exports boosted Malaysia’s economic growth given its dependence on primary sector
Meanwhile Malaysia performing the worst since they were in agriculture but manufacturing contributes more to GDP. Domestic share of capital was less than 3% Malay while non-Malays owned 34%. Economic disparity culminated to May 13 1969 racial riots
CA: NEP aiming to eliminate poverty and identification of race by economic functions provided special benefits for Malays with tax breaks and employment quotas. Also used Petronas to promote Malay participation in petroleum industry
Proton Project in 1988 94% of those employed were ethnic Malays. Increased Malay participation from 20% in 1957 (independence) to 54% in 1980
But did not meet target of 30% capital ownership by Malays and average household income still at 1/2 of Chinese and 2/3 of Indians
Chinese retained ownership of property (Genting and Shangri-La hotels) but funds accumulated over the years helped to bail Malaysian banks out of AFC
Migrants in Thailand
Thai Chinese were dominant in driving growth especially from 1950s onwards. This is because the Ministry of Commerce injected huge amounts of cash into ethnic Chinese-owned Bangkok Bank which became Thailand’s biggest bank. The Thai Chinese used it to finance new businesses to spur growth. In 1960s, they focused on ISI and encouraged foreign partners to invest in local factories to overcome import barriers. Thus used skills and networks to stimulate growth enjoying 7% growth in 70s and 10% in the 90s
However cronyistic ties ultimately resulted in the AFC in 1997 but undeniable contribution
Thailand Investment Promotion Act 1977 → to encourage both Thai and foreign investors to locate their projects to provincial Thai areas → Chinese continue to dominate → significant proportion of government’s economic activities wound up being joint ventures with Chinese conglomerates → Perpetuated Chinese dominance
But eventually peaceful assimilation and easing of anti-Chinese policies allowed economic nationalism to prevail. Thai-Chinese products like Red Bull and CP food became icons. Bangkok Bank also helped the withdrawal of European firms in finance sector
Migrants in Indonesia
Ethnic tensions due to Chinese dominance in the economy led to 1974 Malari Riots. Suharto enacted new laws that stipulated a certain percentage of pribuni investment needed for government contracts. Facade of improving equity. But this was quickly circumvented due to Ali Baba agreements concentrating money into hands of Chinese conglomerates.
Hence Chinese still controlled 70% of the economy despite making up 3.8% of the population
Good for nationalism though: in the long run migrant Chinese became perceived as citizens of their own right. Liem Siew Liong and Salim corporation held monopoly over instant noodles (Indomie). Another example is Wonowidjojo and Gulang Garam cigarettes
Why migrants have little impact in SEA
In Burma, the Burmese Indians were expelled in 1962, leaving the ethnic Indians to be left with greatly reduced numbers in the economy despite dominance before. Hence they had little significance in driving economic growth. Perpetuating inequity was only 2% and nationalisation was also not threatened.
Singapore also had a lack of migrant community due to the relatively proportionate population. Everyone had an equal role to play in growth due to the meritocratic society. Government however was significant in driving growth
Singapore and Malaysia’s plans to attract FDI
In Singapore, Economic Development board granted businesses pioneer status which gave investors incentives like reduced tax rates. Also had Jurong Industrial Town that had ready-to-move-in factories. As a result investors saw their cost of production reduce by 20% and SG saw success as FDI came flooding in. Transformed from a 3rd world to a 1st world in 2 decades and is considered an Asian Tiger economy
In Malaysia, had the 1968 Investment Incentives Act to encourage foreign investment. Used regulations to grant pioneer industries incentives when they invested in less developed areas and labour-intensive industries. Enjoyed investments rising 11% per annum and export values of over 50% of GDP.
Socialist economies (Vietnam and Burma) agriculture and later FDI
Vietnam originally a central economy.
1960s formation of agricultural cooperations added concessions to peasantry by permitting each household to cultivate private crops “5% plots” and crops could be sold for market prices. Such plots produced 2-3 times yield of state-run farms and accounted for up to 75% of their incomes However by 1965 90% of peasant households were organised into collective state-farms.
The 1978 agricultural collectivisation planned to combine labour and have farmers sell their grain to the government at fixed prices, receiving essential capital goods in return, and consumer goods at rates lower than market prices. This was a failure as only 0.6% of the Mekong Delta, one of Vietnam’s most fertile areas, participated, and Vietnam’s income fell by 2% annually.
Later under Doi Moi in 1986 Vietnam embraced economic liberalisation and regained position as major rice exporter, 3rd largest in the world exporting 3 million tonnes annually by the 2000s. (Nationalism) Also established export-processing zones for foreign companies to import materials. Growth rates of 9.5% in 1995-1996 were highest in the world.
Burma 1952 4-year plan under U Nu to transform into “land of happiness” saw 9 million acres of land reallocated under new tenants. Resulted in a reduction of production surplus as the population grew. Once controlling 28% of world rice trade, the number declined to 2% by the 70s.
Later had 1965 Tenancy Law that forced collectivisation and land redistribution based on needs and not efficiency causing paddy yields to stagnant to around 31 baskets per acre.
However later beyond 1988 had reforms that embraced new foreign investment laws that saw increase in US investment from $10 million to $150 million
Thailand and Indonesia agriculture
In order to facilitate ISI expansion in Thailand, the government implemented agricultural policies that diversified crops, producing not just rice but maize and casava as well. They also increased the availability and accessibility of land for ISI to be used in, thus encouraging participation in agricultural activities in Thailand. Thailand had CA in land and labour which allowed majority of population to stay in agriculture. Allowed for slow but sustained growth and export earnings.
Indonesia BIMAS 1965 and Repelita in 1969-74 which provided farmers with package of Agri-inputs of fertiliser saw a heavy emphasis on the agricultural sector as 23% of Repelita budget was allocated to irrigation. Saw great success as agriculture account for 1/3 of GDP and 2/3 of employment
Malaysia also emphasised agricultural production with more land allocation to the sector to encourage production. Malaysia is the largest producer and exporter of rubber, palm oil and tropical timber
Oil crisis on Indo and MY
Indonesia nationalised Royal Dutch Shell oil company, handing over assets to state-owned Pertamina. Attempted to export oil to buy raw materials. Result was that agriculture was sacrificed and turned Indonesia into a net rice importer incurring 300% budget deficit and 500% inflation
However due to the oil crisis Pertamina managed to increase export of oil from 18% to 80%, contributing to 70% of the country’s income
Similarly Malaysia Petronas managed to export 80% of their crude oil production which helped the 12-13% growth in the 70s
Cold War impact on economic nationalism in TH and IND
Hindering nationalism for Thailand and Indonesia
In Thailand, inequity was exacerbated by Cold War tensions. Thai Chinese already controlled majority of the economy and their actions were perceived to be covert in nature.
By the 1970s there were 65 Chinese families holding US$6 billion worth of assets
In Indonesia, in spite of efforts to redistribute wealth, Chinese still 3.8/70. This was worsened by Cold War tensions in the 70s which were focused on Vietnam War where Chinese were involved in, increasing suspicion and mistrust. Chinese domination of economy led to tensions which exploded in 73 Bandung and 74 Malari riots
Green Revolution 50s to 60s impact
In Thailand, the increase of use of machinery in tractors and fertilisers helped agricultural sector grow from 3% to 5% in the 60s. Agriculture then contributed to the sustained growth of the economy allowing ISI to continue well and facilitated smooth transition into EOI, helping Thailand maintain growth rates of 7%
In Malaysia, the Green Revolution helped the country become self-sufficient. It also facilitated development of high-yielding varies of crops to boost production. This helped ISI to grow and a 3-4% growth per capita in GNP in 1960s was observed
In Indonesia, by 1975, 41% of rice-planting areas used high-yielding varieties of rice. Involvement of mechanical farming and chemical fertilisers also improved irrigation
Finance and banking sector
70s to 80s saw SEA economies looking outward for partnerships
Malaysian banks were privatised and relaxed regulations to allow businesses to obtain loans. Banks like HSBC and OCBC provided 2/3 of domestic funds for private investments. As the financial sector opened up, private investment increased greatly.
Singapore’s international banking and financial services sector accounted for nearly 25% of GDP in the late 1980s, and Govt provided incentives for the continuing diversification and automation of financial sectors, allowing SG to become 2nd most important financial centre after Tokyo.
1990s overconfidence and excessive liberalisation led to downfall due to inadequate banking regulations exacerbated by false optimism and calls from international communities to liberalise the financial sector.
In Indonesia the 1988 October Reform Package loosened requirements for bank licenses. Thus 40 banks were granted licenses in 2 years, meaning corrupt companies acquired cheap credit. As the rupiah appreciated, their debt shrunk and they borrowed USD without considering its appreciation. As the rupiah slid and was exacerbated by speculation, debt was at 10 trillion rupees by 1996.
In Thailand, the Bank of Thailand introduced policies that increased foreign borrowing without supervision capacities. It led to banks borrowing abroad with lower interest rates to finance their own lending at higher interest rates. These were mostly short term loans with little monitoring. Financial sectors evolved but laws did not grow accordingly. Led to environment for attack on the Thai baht culminating in the AFC
Vietnam’s primitive banking and finance sector meant that it was shielded from the worst of the AFC
