Effectiveness of GI in achieving ISI

Question 1

GI protectionism was effective in industrialising the economy (Sg, M)

Answer 1

[S] 1959 Pioneer Industries Ordinance
- Exempted pioneer product manufacturers from taxes for a stipulated period
- 1959 Industrial Expansion Ordinance
- Offered income tax relief

[M] 1958 Pioneer Industries Programme
- 1959-71: Number of firms granted pioneer status grew 14-fold to 246
- 1959-71: Consumer goods rose from 21.9% to 31.2% of industrial output

Question 2

GI SOE and increased state participation was effective in industrialising the economy (MY and Thai)

Answer 2

Malaysia:
- Interest free financing to Bumiputera firms through state infrastructural agencies
- Establishment of Heavy Industry Corporation Malaysia (HICOM) in 1981 = Invested in heavy industry and used subsidies and protections to protect domestic capital goods
= important industrial corporations like Proton and Perwaja Steel from the 1980s

→ Manufacturing accounted for 60% of exports compared to just 20% a decade prior, showing movement away from dependency on primary exports

Thailand:
- Board of Investment (1959): Promote investment
- Industrial Finance Corporation of Thailand (1959) provided loans for expansion of private industrial enterprises
→ 12.5% manufacturing to 18% from 1960s to 1970s
- Rapid industrial growth in the 1960s as part of ISI, with industry increasing from contributing 19% of GDP of Thailand in 1960 to 26% in 1971

Question 3

GI failure due to extreme economic nationalism (V and B)

Answer 3

Burma:
- U Nu’s regime, centralised planning & production control.
- Abolition of private enterprises and establishment of state agencies
- The government took over all private banks and trading enterprises.
- All private importers and exporters were banned → capital flight by Indian chettiars
End of international trade - pariah state

–> Private employment decreased by 60%
–> overseas trade in 1971 to fall to 37% of what it was in 1961, decreasing export earnings for economic growth and lack of import of capital goods for industrialisation

Vietnam:
- Private banks abolished and new regulations on the amount of money for private use.
- Foreign enterprises in manufacturing and industrial activity were nationalised and only retail was left in private hands

→ Mass exodus of refugees out of the country in 1978 due to all private enterprises being placed under state control
→ Southern farmers in Mekong Delta forced to undergo collectivisation. Fiercely resisted; rice production crashed until Vietnam became a rice importer

Question 4

GI failure due to lack of economic expertise (Vn and Indonesia)

Answer 4

Vietnam
Insufficient economic expertise as cadres could not the transition → could not adapt to the doubling in size of economy + change from US subsidised capitalistic economy to socialist economy → Failure of the second five year plan (Industrial capacity still below 50% in 1980)

Indonesia:
1959: initiated an 8 year ‘Guided Economy’ development plan under Sukarno which entailed a 12x increase in government expenditure
-provided state credit and import protection to help infant industries

Failed due to the inexperience of the Nasakom government
-Dutch managers replaced by Indonesian civil servants with little experience
-foreign expertise and investment rejected

Question 5

GI failure due to failure to address CA and lack of industrial base (V and B)

Answer 5

Burma (1.4% GDP growth in 1980s):
- 1952 Pyidawtha plan as State Agricultural Marketing Board bought rice at a fixed rate below global average from farmers, removing the profit motivation to raise productivity
- Land reform was poorly implemented with only 1.5 million out of targeted 10 million acres of land redistributed with most too small to be productive
- decreasing agriculture investment by 5% → BY 1960, rice production remained well below pre war levels despite increase in population

–> Stagnation in rice productivity by 1972 at 31 baskets per acre, and rice exports fell from 1.5m tons to 204k tons within a decade (1962-1973) despite government investment in technology
- 48% of GDP contributed by agricultural sector in 1980s, and rose to 57% in 1990s

Vietnam 2nd FYP (1976) :
- North Vietnam initially began by prioritising heavy industry
- failure of Collectivisation = Insufficient technological and managerial expertise

–>Failed to meet BOTH agricultural and industrial goals of increasing output, only achieved 20%/50% (Industrial capacity only 50% by 1980)
–> neglect of agriculture led to per capita food consumption to be below subsistence levels by 1978

Question 6

GI failure to increase the scope and base of the economy (Ph and Indo)

Answer 6

Philippines:
- High industrial protection since the 1950s = tariffs discouraged the growth of efficient domestic industries
- Recessionary international conditions in the 1970s affected commodities like Primary exports, which they were reliant on

–> manufacturing stayed at 22-23% of GDP from 1970s-1990s
–> Narrow export base = 3 main export commodities % increasing from 27% to 65% from 1985 to 2000 while Industry growth stagnated around 35% from 1980s - 1990s
–> Continued reliance on agriculture = agriculture continued to contribute an average of 25% of GDP from 1960 to 1990

Indonesia:
- 70-80% dependence on primary exports through 1980s
- cronyism led to a narrow industrial and manufacturing base due to tariff and protectionism barriers to the most lucrative markets
- Astra group dominated automobile industry with 300% import tariffs in the 1990s = never developed the capacity to produce engines competitively

→ Failed to achieve EOI
- Petroleum, veneer and plywood, and rubber as the top 3 main export commodities in 1985 = making up 70% of total exports

Question 7

GI failure due to overreliance on foreign debt (Thai and Indo)

Answer 7

[ T]
- removed all controls on foreign exchange in 1990, excessive financial liberalisation without supervision
- government had weak oversight over the loans market = Banks were allowed to carry bad debt for up to 12 months without reporting to the central bank= vast unhedged foreign debt and financial overexposure

• External debt of 38% of GDP in 1986, debt service ratio was 19.7% in the mid 1980s, close to IMF’s danger point of 20%
  → Bangkok International Banking Facility served as a conduit for short term foreign lending to Thai banks and finance houses → Led to 70% of 69 billion debt in 1997 being short term
  →Export growth rate dropped from 28% to 0% from 1980s -1990s, as it nursed a current account deficit of close to 8% of GDP in 1996

External debt of 38% of GDP in 1986, debt service ratio was 19.7% in the mid 1980s, close to IMF’s danger point of 20%

Indo
- Lending of money was name-driven and relationship-driven, with few checks and balances to ensure they were being put to good use and could be serviced.
-Massive fluctuation of the rupiah, sometimes as much as 10% a day
- By 1989, nursed Asia’s largest debt at US$58b