Malaysia Economic Development Flashcards
What was the context behind Malaysia’s economic development in 1958-70 (2)
- Newly independent
- Racial clash 1969
What were the government strategies from 1958-1970
Laissez faire ISI:
- pioneer industry protection
- non-discretionary intervention
- lack of expertise and long term development plan
What was the global context behind economic development from 1971-80 (2)
- Surge in oil prices
- International recession, Prices fall for primary products
What were the strategies of the Malaysian government from 1971 to 1980 (3)
NEP, restructuring, EOI
- state investment in agriculture
- state agencies, trust and policies to restructure bumiputera ownership of corporate sector and employment
- foreign investment and manufacturing
What was the global and local economic (and political) context behind economic development from 1980 to 1986 (2)
- International recession
- Mahathir takes over
What were the government strategies adopted by Malaysia from 1980 to 1986 (2 broad focuses, 3 specific policies and events)
Heavy industry and privatisation:
1. Central role for state agency (HICOM)
2. Foreign investment
3. Privatisation (1983)
Government led deregulation and depre to support EOI
What was the domestic context behind economic developments from 1986 to pre AFC
Industrial deepening and widening
What were the strategies adopted by the Malaysia government from 1986 to pre AFC (2)
- state agencies (infrastructural role), trust, policies to develop IT and human resource
- foreign investment and export orientation
What were teh 2 contexts of Malaysia’s colonial economy
- Ethnic division of labour
- Light commodities processing
What main ideology led to the ethic division of labour from the late 1800s
Penetration of capitalism
- influx of immigrants
- division of labour along racial lines
What role did the Chinese and Indian immigrants play in colonial Malaysia
Chinese:
Tin miners, middlemen
Indians:
Rubber tappers and chettiars
When was the societies ordinance passed, and what did it entail
1889
- different administrative frameworks placed upon different ethnic groups
- Chinese to control over Chinese
- rice cultivation area of Malays protected
What time period was the NEP implemented
1971 - 90
What was the split of wealth between foreigners, Chinese and Malays in the 1960s
63% foreign
35% other malaysians (predominantly Chinese)
2% Malays
By ___, ___% of all households below the poverty line were ____
1970, 75%, Malay
What were the rationales behind the implementation of the NEP (3)
- reducing poverty regardless of race
- eliminate identification of race with economic function
- increase local share of economy (boosting bumiputera corporate share)
What was the target Malay share of the economy from NEP
What was the target foreign share of the NEP
30%
What 2 policy of the NEP was targetted at poverty eradication by supporting agriculture and rural development, what year were they implemented?
- FELDA (federal land development authority)
- 1956
- land clearing and allocation schemes for rural areas - RISDA (rubber industry smallholders development authority)
- finance Malay rubber smallholders for better yielding crops
What policy was aimed at boosting the bumiputera corporate share in the early years of the NEP, when was it implemented
ICA (industrial coordination act) - 1975
- screened firms for NEP characteristics before giving license
During the oil crisis of 1970s, how did the government continue to boost bumiputera share (and examples)
- state infrastructural agencies set up in 1980s to provide unlimited supplies of interest free finance
- encouraged bumiputera participation in commerce through joint ventures with foreign countries
- national trading corporation (PERNAS)
How did the government boost foreign investment and manufacturing during the NEP (2 broad policies), how did this contribute to economic growth?
IIA (investment incentives act) - 1968
- incentivised foreign investment to provide capital, expertise, competition
Free trade zone (FTZ) act - 1971
- tariff free platforms for firms with 80% exports
- drove exports, shift to EOI
What are 3 instances of economic nationalism
- PNB purchase of controlling british enterprises (e.g. gurthrie corporation) - 1.2 billion ringgit
- London tin -> Malaysian mining corporation
- Petronas nationalising oil industry (1974)
- Acquisition of Harrison’s and crossfield (1985) - all 3 largest plantations acquired
What characterised the 1980s under Mahathir
Heavy industry and privatisation
What corporation oversaw increased state led industrialisation in the 1980s, what did they do to help
HICOM (heavy industry coporation of Malaysia) - 1981
- subsidies and protection in domestic capital goods industry
- boost bumiputera ownership (proton)
What did Mahathir do in response to slow global growth in the 1980s (2)
- reduced business regulation to spur foreign investment and competition
- CB devalued ringgit in 1985
When did privatisation occur in Malaysia, what policy was launched in that year?
1983
- “Malaysia incorporated” launched - inject competitive elements of private ownership into public sectors
From 1980 to 1985, what percentage of the public sector was accounted for by public enterprises?
65%
How did the inefficient public enterprises become privatised (4)
- sale of state owned companies
- private financing of state projects
- contracting out services to private firms
- introduction of competition into areas of state monopoly
By 1992, how many state enterprises had been privatised
13
Which was prioritised in the 1990s, equity or industrialisation?
Industrialisation
What percentage of exports in 1990 was manufacturing
60%
Which 2 policies outlined Mahathir’s attention towards deepening Malaysia’s technology base
1986: promotion of investments act (PIA) - new incentives to foreign capital involved in r&d
1990: action plan for industrial technology development - development of high tech industries and human capital
Which 2 active steps were taken to develop skilled human capital under Mahathir
- Human resource development act (HRDA)
- Human resource development council (HRDC)
How did mahathir’s government promote widening localisation of firms
- support of locally owned firms (Proton, sapura)
- MTDC (Malaysian technology development corporation) - 1993: invested in 8 local firms to help with advancement in tech
How successful was the NEP? (And in which 4 aspects)
Many of the policy’s stated goals had been met
- income inequality and nationalisation - formation of Malay middle class
- poverty
- diversification
- economic growth
What was the reduction in the poverty rates during the NEP
40.3% to 15%
Bye what percentage did the main GDP contribution of the 3 main export commodities fall by from 1970 to 1990
54% to 44%
What were the 2 limitations to government strategies
- Concentration of wealth
- Negative impact on national unity
How was there the issue of concentration of wealth during the NEP
- preferential treatment — privatisation decisions and selective patronage meant wealth was instead distributed away from non-bumiputera to an oligopoly of bumiputera entrepreneurs linked to politicians (horizontal disparities became vertical)
What were the negative implications on national unity from NEP
- attempt to resolve ethnic economic differences further entrenched them (due to privilege of buminputera)
- regional differences form industrialisation - peninsula West Coast with higher concentration of manufacturing industries - led to different political weightage
What was the environment of financial liberalisation during the NEP (loans, property and stock market etc)
- dereg in the form of domestic credit and loans (sometimes government sponsored to boost Bumi equity share)
- overheated property and stock market
- low exposure to foreign currency
From 1987 to 88, what percentage of commercial bank loans were non-performing
30%
What was mahathir’s response to the NPLs in 1989 onwards
- tightened regulation and audit scrutiny by bank Negara (sufficient cash reserves etc)
- but did not last long as Mahathir continued to seek growth through easy credit
When did Malaysia experience a stock market meltdown, by how many points
1996-97, 600 bp
What was the main issue with Malaysia in the AFC
Domestic lending -> Overheating property and stock markets - exacerbated by MnAs - increased risk
- large CA deficit — vulnerable to speculation and internal stock market volatility
What percentage of loans in Malaysia pre-afc were property loans
45-55%
What was the government’s response to the AFC
- ringgit defense
- controls/regulations on speculation
- NPLs
- banking sector
- bank Negara tried to defend the ringgit but gave up in August
selective capital controls - limit speculation - fixed exchange rate to USD
- overseas investments required approval
- trading curbs on KL composite index
Government investment arm bought NPLs to prevent firms from defaulting
Restricted banks lending to controlling stakeholders
How did the AFC hit Malaysia
- overnight rate
- Ratings
- KLSE and ringgit
- overnight rate increased from 7% to 40% to combat inflation due to depre of ringgit
- ratings went to junk
- KLSE and ringgit fell by 50%
Impact of government policies during AFC
- decreased confidence in banking sector due to intervention
- overall, stabilised the economy and restored investor confidence
What was Malaysia’s GDP growth post AFC
6.9% in 1999, 8.9% in 2000
What was Malaysia’s FDI growth post AFC
8.4B in 1998 to 9.3B in 1999
