Country Study: Malaysia

Overview In 1948, the British-ruled colonies on Malay Peninsula formed a Federation of Malaya, which became independent in 1952 Malaysia was formed in 1963 when Singapore and Eastern states of Malaysia joined the Federation In 1965, Singapore was forced to leave the Federation

Overview (cont.) Under the 22-year leadership of the Prime Minister Mahathir ( ), Malaysia reduced its dependence on raw material exports Malaysia diversified into manufacturing service sector and tourism Malaysia’s population is 25.7 million, working age population being 63.6%

Overview (cont.) Population growth rate is relatively higher (1.73%), infant-mortality rate is 16 per 1000 live births Ethnicity is an important element in Malaysia’s development Malays constitute 50%, Overseas Chinese 24%, Indians 7%

Overview (cont.) Malaysia is primarily a Muslim country 60.4%, Buddhist 19%, Christians 9% and Hindu 6.3% Government expenditures on Education are high 6.2% of GDP Government represents ‘Constitutional Monarchy’. United Malay National Organization has played an important role country’s economic development

Development Model Role of state is very important in Malaysia’s economic growth Per Capita Income of Malaysia is $15,000. Growth rates have been uneven. During , growth- rates averaged at around 8%. However, recently, Malaysia is growing at around 6% Gini Index of 46.1 is among the highest in South East Asia

Development Model (cont.) Malaysia’s agriculture sector contributes 13% to the GDP Manufacturing sector has grown in the areas of medical technology, Pharmaceuticals, and computer parts Spill over effects of Singapore’s growth Malaysia’s major exports are rubber, palm oil, logging, electronics, and petroleum products

Development Model (cont.) Malaysia attracts significant amount of foreign direct investment in its manufacturing sector ($92 billion) External debt stands at $54 billion “Growth vs Equity” has remained an important trade off in Malaysia’s economic development

Development Model (cont.) Government has made deliberate efforts in National Economic Policy (NEP) and in National Development Plan (NDP) to improve the lot of Bhumiputras (Indigenous Malays) Foreign firms and domestic businesses are encouraged to form partnerships with Bhumiputras Low levels of income and educational achievement combined with lack of entrepreneurial skills of Bhumiputras has hampered economic growth

Development Model (cont.) Ethnic tensions against rich, entrepreneurial Chinese Steps to achieve equality come in the way of faster economic growth Realizing the issues with government policy of encouraging Bhumiputras participation, recent policies aim at higher growth rates

Asian Financial Crisis and Aftermath High inflation rate, and unequal distribution of income have remained the major development issues in Malaysia Malaysia was not as much affected by Asian Financial Crisis as Thailand, Indonesia, and South Korea were affected Malaysia followed a cautious path with liberalization and foreign investment

Asian Financial Crisis and Aftermath (cont.) During the crisis, Malaysia took an unpopular step of capital controls, but it moderated the effect on currency depreciation In 2005, Malaysia “unpegged” the Ringgit to dollar and the currency appreciated by 6%

Current Problems and Progress Economic well-being of Bhumiputras Inequalities of income and poverty Current recession in global market -government is trying to reduce the dependence on exports and generate domestic demand in Ninth Five Year Plan General inflationary pressures (6%)

Current Problems and Progress (cont.) Concentrated efforts to attract foreign investment in manufacturing hub such as Penang Nepotism but steady leadership Corruption Territorial issues with neighboring states – Thailand, Indonesia, Singapore