Malaysia - Economic development

In the last 20 years, Malaysia economy has been transformed from a protected low income supplier of raw materials to a middle income emerging multi-sector market economy driven by manufactured exports, particularly electronics and semiconductors, which constitute about 90% of exports. Since 1970, and the institution of the New Economic Policy (NEP) following deadly riots in 1969 against economically dominant ethnic Chinese, the government's commitment to the free market has been hedged by its bumiputurna (literally, "sons of the soil") policies aimed at providing "constructive protection" for Islamic Malays against economic competition from other ethnic groups and foreign investors, particularly in the domestic market. In the Asian financial crisis of 1997, most of the major companies that the government had privatized and reserved for bumiputurna leadership, including Proton, the national car company, Malaysian Airlines, the Renong engineering group, and the Malaysian Resources media group, had to be renationalized to prevent their collapse. A vigorous recovery program mounted by the government that was showing positive results in 1999 and 2000 ran abruptly into the wall of the 2001 global slowdown. Worldwide, foreign direct investment dropped almost 50%, and in Malaysia the decline was an even more precipitous 85%. Gross domestic product growth dropped to 0.7% for 2001, from its usual 7% to 9%. Business in Malaysia remains dominated by non-Malays. Annual growth rates, which had been running 7% to 9%, came abruptly up against a wall in 2001. The government remains generally committed to a policy of free enterprise, although it owns and operates the railway and the majority of the communications systems and has become increasingly involved in certain key industries. In 1970, a government holding company, Perbadanan Nasional (PERNAS), was created to encourage Malay-controlled businesses; in 1975, the government attempted, through PERNAS, to strengthen Malaysian interests in the tin-mining sector. Also in 1974, the government established the National Oil Co. (PETRONAS), with the overall aim of acquiring majority control of the country's petroleum operations. The Industrial Coordination Act of 1975 attempted to accelerate indigenous Malay participation in the economy by setting limits on foreign participation in the processing, domestic distribution, and export of local raw materials. In 1971, the New Economic Policy (NEP) was adopted, with the aim of channeling a greater share of future economic growth into Malay hands. It specifically called for raising the level of corporate ownership by Malays to 30% by 1990, reducing corporate ownership by other Malaysians (i.e., Chinese and Indians) to 40%, and restricting foreigners to ownership of no more than 30%. Short-term investment strategies are set forth in a series of economic plans. The fourth Malaysia plan (198185) proposed a level of development spending of M $42.8 billion and called for acceleration of the NEP goals for Bumiputra economic participation. Major industrial and infrastructural development projects included a M $900-million bridge between Pulau Pinang and the mainland and a M $600-million automobilemanufacturing plant, both of which opened in 1985. Recent economic planning has stressed a "look East" policy, with Malaysia attempting to emulate the economic successes of Japan and the Republic of Korea by importing technology from those countries. In response to deteriorating prices for oil and other exports, the fifth

Malaysia plan (198690) has moved away from the goals of the NEP, aiming instead at promoting foreign investment, particularly in export industries. The year 1990 marked the culmination of several economic development plans: the fifth Malaysia plan (FMP), 198690; the conclusion of the first outline perspective plan (OPP1) 1971 1990; and the completion of the new economic policy (NEP) 19711990. The FMP emphasized industrialization. Specific targets were formulated to ensure that the distribution of ownership and participation in the commercial and industrial sector would be characterized by ethnic group participation, 30% bumiputraMalays and other indigenous peoples of Malaysia, 40% other Malaysians (Chinese and Indian descent), and 30% foreign. The government provided funds to purchase foreign-owned shareholding on behalf of the Bumiputra population, increasing their equity to 20% by 1990. These policies are part of the new national development policy, although specific targets and time tables have been dropped. A post-1990 NEP defined Malaysian economic strategy for full development by 2020. Three ten-year outline perspective plans, which included a new development plan and six five-year plans, made up the NEP. A second outline perspective plan (OPP2) 19912000 aimed to sustain growth momentum and to achieve a more balanced development of the economy. The sixth Malaysia plan called for an average annual growth rate of 7.5%, and expenditures on infrastructure were included to ensure prospects for further development. Development trends are toward privatization, encouraging the spread of industry throughout the country, increasing manufacturing in the free trade zones, and providing financing for industry through the establishment of specialized financing institutions. A five-year development plan announced by Dr. Mahathir on 6 May 1996 forecasted average growth of 8% per year from 1996 to 2000. But it also tackled issues that bothered skeptics of the Malaysian economy: low rises in productivity, a skills shortage, and a gaping current-account deficit. In 1997 and 1998, these issues, along with a global financial crisis based in Asia caused the downturn that skeptics expected. Prospects for continuation of the second industrial master plan for 1996 through 2005 seemed grim, although the economy began to rebound in 1999. Massive capital and infrastructure projects have attracted foreign investment and international respect.

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Economic History of Malaysia

Posted Mon, 2010-02-01 17:21 by Anonymous John H. Drabble, University of Sydney, Australia

General Background
The Federation of Malaysia , formed in 1963, originally consisted of Malaya, Singapore, Sarawak and Sabah. Due to internal political tensions Singapore was

obliged to leave in 1965. Malaya is now known as Peninsular Malaysia, and the two other territories on the island of Borneo as East Malaysia. Prior to 1963 these territories were under British rule for varying periods from the late eighteenth century. Malaya gained independence in 1957, Sarawak and Sabah (the latter known previously as British North Borneo) in 1963, and Singapore full independence in 1965. These territories lie between 2 and 6 degrees north of the equator. The terrain consists of extensive coastal plains backed by mountainous interiors. The soils are not naturally fertile but the humid tropical climate subject to monsoonal weather patterns creates good conditions for plant growth. Historically much of the region was covered in dense rainforest (jungle), though much of this has been removed for commercial purposes over the last century leading to extensive soil erosion and silting of the rivers which run from the interiors to the coast.

SINGAPORE
The present government is a parliamentary system at the federal level (located in Kuala Lumpur, Peninsular Malaysia) and at the state level, based on periodic general elections. Each Peninsular state (except Penang and Melaka) has a traditional Malay ruler, the Sultan, one of whom is elected as paramount ruler of Malaysia (Yang dipertuan Agung) for a five-year term. The population at the end of the twentieth century approximated 22 million and is ethnically diverse, consisting of 57 percent Malays and other indigenous peoples (collectively known as bumiputera), 24 percent Chinese, 7 percent Indians and the balance "others" (including a high proportion of non-citizen Asians, e.g., Indonesians, Bangladeshis, Filipinos) (Andaya and Andaya, 2001, 3-4) Significance as a Case Study in Economic Development Malaysia is generally regarded as one of the most successful non-western countries to have achieved a relatively smooth transition to modern economic growth over the last century or so. Since the late nineteenth century it has been a major supplier of primary products to the industrialized countries; tin, rubber, palm oil, timber, oil, liquified natural gas, etc. However, since about 1970 the leading sector in development has been a range of export-oriented manufacturing industries such as textiles, electrical and electronic goods, rubber products etc. Government policy has generally accorded a central role to foreign capital, while at the same time working towards more substantial participation for domestic, especially bumiputera, capital and enterprise. By 1990 the country had largely met the criteria for a Newly-Industrialized Country (NIC) status (30 percent of exports to consist of manufactured goods). While the Asian economic crisis of 1997-98 slowed growth temporarily, the current plan, titled Vision 2020, aims to achieve "a fully developed industrialized economy by that date. This will require an annual growth rate in real GDP of 7 percent" (Far Eastern Economic Review, Nov. 6, 2003). Malaysia is perhaps the best example of a country in which the economic roles and interests of various racial groups have been pragmatically managed in the long-term without significant loss of growth momentum, despite the ongoing

presence of inter-ethnic tensions which have occasionally manifested in violence, notably in 1969 (see below).

The Premodern Economy

Malaysia has a long history of internationally valued exports, being known from the early centuries A.D. as a source of gold, tin and exotics such as birds' feathers, edible birds' nests, aromatic woods, tree resins etc. The commercial importance of the area was enhanced by its strategic position athwart the seaborne trade routes from the Indian Ocean to East Asia. Merchants from both these regions, Arabs, Indians and Chinese regularly visited. Some became domiciled in ports such as Melaka [formerly Malacca], the location of one of the earliest local sultanates (c.1402 A.D.) and a focal point for both local and international trade. From the early sixteenth century the area was increasingly penetrated by European trading interests, first the Portuguese (from 1511), then the Dutch East India Company [VOC](1602) in competition with the English East India Company [EIC] (1600) for the trade in pepper and various spices. By the late eighteenth century the VOC was dominant in the Indonesian region while the EIC acquired bases in Malaysia, beginning with Penang (1786), Singapore (1819) and Melaka (1824). These were major staging posts in the growing trade with China and also served as footholds from which to expand British control into the Malay Peninsula (from 1870), and northwest Borneo (Sarawak from 1841 and North Borneo from 1882). Over these centuries there was an increasing inflow of migrants from China attracted by the opportunities in trade and as a wage labor force for the burgeoning production of export commodities such as gold and tin. The indigenous people also engaged in commercial production (rice, tin), but remained basically within a subsistence economy and were reluctant to offer themselves as permanent wage labor. Overall, production in the premodern economy was relatively small in volume and technologically undeveloped. The capitalist sector, already foreign dominated, was still in its infancy (Drabble, 2000).

The Transition to Capitalist Production

The nineteenth century witnessed an enormous expansion in world trade which, between 1815 and 1914, grew on average at 4-5 percent a year compared to 1 percent in the preceding hundred years. The driving force came from the Industrial Revolution in the West which saw the innovation of large scale factory production of manufactured goods made possible by technological advances, accompanied by more efficient communications (e.g., railways, cars, trucks, steamships, international canals [Suez 1869, Panama 1914], telegraphs) which speeded up and greatly lowered the cost of long distance trade. Industrializing countries required ever-larger supplies of raw materials as well as foodstuffs for their growing populations. Regions such as Malaysia with ample supplies of virgin land and relative proximity to trade routes were well placed to respond to this demand. What was lacking was an

adequate supply of capital and wage labor. In both aspects, the deficiency was supplied largely from foreign sources. As expanding British power brought stability to the region, Chinese migrants started to arrive in large numbers with Singapore quickly becoming the major point of entry. Most arrived with few funds but those able to amass profits from trade (including opium) used these to finance ventures in agriculture and mining, especially in the neighboring Malay Peninsula. Crops such as pepper, gambier, tapioca, sugar and coffee were produced for export to markets in Asia (e.g. China), and later to the West after 1850 when Britain moved toward a policy of free trade. These crops were labor, not capital, intensive and in some cases quickly exhausted soil fertility and required periodic movement to virgin land (Jackson, 1968). Tin Besides ample land, the Malay Peninsula also contained substantial deposits of tin. International demand for tin rose progressively in the nineteenth century due to the discovery of a more efficient method for producing tinplate (for canned food). At the same time deposits in major suppliers such as Cornwall (England) had been largely worked out, thus opening an opportunity for new producers. Traditionally tin had been mined by Malays from ore deposits close to the surface. Difficulties with flooding limited the depth of mining; furthermore their activity was seasonal. From the 1840s the discovery of large deposits in the Peninsula states of Perak and Selangor attracted large numbers of Chinese migrants who dominated the industry in the nineteenth century bringing new technology which improved ore recovery and water control, facilitating mining to greater depths. By the end of the century Malayan tin exports (at approximately 52,000 metric tons) supplied just over half the world output. Singapore was a major center for smelting (refining) the ore into ingots. Tin mining also attracted attention from European, mainly British, investors who again introduced new technology such as high-pressure hoses to wash out the ore, the steam pump and, from 1912, the bucket dredge floating in its own pond, which could operate to even deeper levels. These innovations required substantial capital for which the chosen vehicle was the public joint stock company, usually registered in Britain. Since no major new ore deposits were found, the emphasis was on increased efficiency in production. European operators, again employing mostly Chinese wage labor, enjoyed a technical advantage here and by 1929 accounted for 61 percent of Malayan output (Wong Lin Ken, 1965; Yip Yat Hoong, 1969).

Rubber While tin mining brought considerable prosperity, it was a non-renewable resource. In the early twentieth century it was the agricultural sector which came to the forefront. The crops mentioned previously had boomed briefly but were hard pressed to survive severe price swings and the pests and diseases that were endemic in tropical agriculture. The cultivation of rubber-yielding trees became commercially attractive as a raw material for new industries in the West, notably for tires for the booming automobile industry especially in the U.S. Previously rubber had come from scattered

trees growing wild in the jungles of South America with production only expandable at rising marginal costs. Cultivation on estates generated economies of scale. In the 1870s the British government organized the transport of specimens of the tree Hevea Brasiliensis from Brazil to colonies in the East, notably Ceylon and Singapore. There the trees flourished and after initial hesitancy over the five years needed for the trees to reach productive age, planters Chinese and European rushed to invest. The boom reached vast proportions as the rubber price reached record heights in 1910 (see Fig.1). Average values fell thereafter but investors were heavily committed and planting continued (also in the neighboring Netherlands Indies [Indonesia]). By 1921 the rubber acreage in Malaysia (mostly in the Peninsula) had reached 935 000 hectares (about 1.34 million acres) or some 55 percent of the total in South and Southeast Asia while output stood at 50 percent of world production.

Fig.1. Average London Rubber Prices, 1905-41 (current values) As a result of this boom, rubber quickly surpassed tin as Malaysia's main export product, a position that it was to hold until 1980. A distinctive feature of the industry was that the technology of extracting the rubber latex from the trees (called tapping) by an incision with a special knife, and its manufacture into various grades of sheet known as raw or plantation rubber, was easily adopted by a wide range of producers. The larger estates, mainly British-owned, were financed (as in the case of tin mining) through British-registered public joint stock companies. For example, between 1903 and 1912 some 260 companies were registered to operate in Malaya. Chinese planters for the most part preferred to form private partnerships to operate estates which were on average smaller. Finally, there were the smallholdings (under 40 hectares or 100 acres) of which those at the lower end of the range (2 hectares/5 acres or less) were predominantly owned by indigenous Malays who found growing and selling rubber more profitable than subsistence (rice) farming. These smallholders did not need much capital since their equipment was rudimentary and labor came either from within their family or in the form of share-tappers who received a proportion (say 50 percent) of the output. In Malaya in 1921 roughly 60 percent of the planted area was estates (75 percent European-owned) and 40 percent smallholdings (Drabble, 1991, 1). The workforce for the estates consisted of migrants. British estates depended mainly on migrants from India, brought in under government auspices with fares paid and accommodation provided. Chinese business looked to the "coolie trade" from South China, with expenses advanced that migrants had subsequently to pay off. The flow of immigration was directly related to economic conditions in Malaysia. For example arrivals of Indians averaged 61 000 a year between 1900 and 1920. Substantial numbers also came from the Netherlands Indies. Thus far, most capitalist enterprise was located in Malaya. Sarawak and British North Borneo had a similar range of mining and agricultural industries in the 19th century. However, their geographical location slightly away from the main trade route (see map) and the rugged internal terrain costly for transport made them less attractive to

foreign investment. However, the discovery of oil by a subsidiary of Royal DutchShell starting production from 1907 put Sarawak more prominently in the business of exports. As in Malaya, the labor force came largely from immigrants from China and to a lesser extent Java. The growth in production for export in Malaysia was facilitated by development of an infrastructure of roads, railways, ports (e.g. Penang, Singapore) and telecommunications under the auspices of the colonial governments, though again this was considerably more advanced in Malaya (Amarjit Kaur, 1985, 1998) The Creation of a Plural Society By the 1920s the large inflows of migrants had created a multi-ethnic population of the type which the British scholar, J.S. Furnivall (1948) described as a plural society in which the different racial groups live side by side under a single political administration but, apart from economic transactions, do not interact with each other either socially or culturally. Though the original intention of many migrants was to come for only a limited period (say 3-5 years), save money and then return home, a growing number were staying longer, having children and becoming permanently domiciled in Malaysia. The economic developments described in the previous section were unevenly located, for example, in Malaya the bulk of the tin mines and rubber estates were located along the west coast of the Peninsula. In the boom-times, such was the size of the immigrant inflows that in certain areas they far outnumbered the indigenous Malays. In social and cultural terms Indians and Chinese recreated the institutions, hierarchies and linguistic usage of their countries of origin. This was particularly so in the case of the Chinese. Not only did they predominate in major commercial centers such as Penang, Singapore, and Kuching, but they controlled local trade in the smaller towns and villages through a network of small shops (kedai) and dealerships that served as a pipeline along which export goods like rubber went out and in return imported manufactured goods were brought in for sale. In addition Chinese owned considerable mining and agricultural land. This created a distribution of wealth and division of labor in which economic power and function were directly related to race. In this situation lay the seeds of growing discontent among bumiputera that they were losing their ancestral inheritance (land) and becoming economically marginalized. As long as British colonial rule continued the various ethnic groups looked primarily to government to protect their interests and maintain peaceable relations. An example of colonial paternalism was the designation from 1913 of certain lands in Malaya as Malay Reservations in which only indigenous people could own and deal in property (Lim Teck Ghee, 1977). Benefits and Drawbacks of an Export Economy Prior to World War II the international economy was divided very broadly into the northern and southern hemispheres. The former contained most of the industrialized manufacturing countries and the latter the principal sources of foodstuffs and raw materials. The commodity exchange between the spheres was known as the Old International Division of Labor (OIDL). Malaysia's place in this system was as a leading exporter of raw materials (tin, rubber, timber, oil, etc.) and an importer of manufactures. Since relatively little processing was done on the former prior to

export, most of the value-added component in the final product accrued to foreign manufacturers, e.g. rubber tire manufacturers in the U.S. It is clear from this situation that Malaysia depended heavily on earnings from exports of primary commodities to maintain the standard of living. Rice had to be imported (mainly from Burma and Thailand) because domestic production supplied on average only 40 percent of total needs. As long as export prices were high (for example during the rubber boom previously mentioned), the volume of imports remained ample. Profits to capital and good smallholder incomes supported an expanding economy. There are no official data for Malaysian national income prior to World War II, but some comparative estimates are given in Table 1 which indicate that Malayan Gross Domestic Product (GDP) per person was easily the leader in the Southeast and East Asian region by the late 1920s. Table 1 GDP per Capita: Selected Asian Countries, 1900-1990 (in 1985 international dollars) 1900 Malaya/Malaysia1 Singapore Burma Thailand Indonesia Philippines South Korea Japan 6002 523 594 617 735 568 724 1929 1910 651 623 1009 1106 945 1192 1950 1828 22763 304 652 727 943 565 1208 1973 3088 5372 446 1559 1253 1629 1782 7133 1990 5775 14441 562 3694 2118 1934 6012 13197

Notes: Malaya to 19731; Guesstimate2; 19603 Source: van der Eng (1994). However, the international economy was subject to strong fluctuations. The levels of activity in the industrialized countries, especially the U.S., were the determining factors here. Almost immediately following World War I there was a depression from 1919-22. Strong growth in the mid and late-1920s was followed by the Great Depression (1929-32). As industrial output slumped, primary product prices fell even more heavily. For example, in 1932 rubber sold on the London market for about one one-hundredth of the peak price in 1910 (Fig.1). The effects on export earnings were very severe; in Malaysia's case between 1929 and 1932 these dropped by 73

percent (Malaya), 60 percent (Sarawak) and 50 percent (North Borneo). The aggregate value of imports fell on average by 60 percent. Estates dismissed labor and since there was no social security, many workers had to return to their country of origin. Smallholder incomes dropped heavily and many who had taken out highinterest secured loans in more prosperous times were unable to service these and faced the loss of their land. The colonial government attempted to counteract this vulnerability to economic swings by instituting schemes to restore commodity prices to profitable levels. For the rubber industry this involved two periods of mandatory restriction of exports to reduce world stocks and thus exert upward pressure on market prices. The first of these (named the Stevenson scheme after its originator) lasted from 1 October 19221 November 1928, and the second (the International Rubber Regulation Agreement) from 1 June 1934-1941. Tin exports were similarly restricted from 1931-41. While these measures did succeed in raising world prices, the inequitable treatment of Asian as against European producers in both industries has been debated. The protective policy has also been blamed for "freezing" the structure of the Malaysian economy and hindering further development, for instance into manufacturing industry (Lim Teck Ghee, 1977; Drabble, 1991).

Why No Industrialization?
Malaysia had very few secondary industries before World War II. The little that did appear was connected mainly with the processing of the primary exports, rubber and tin, together with limited production of manufactured goods for the domestic market (e.g. bread, biscuits, beverages, cigarettes and various building materials). Much of this activity was Chinese-owned and located in Singapore (Huff, 1994). Among the reasons advanced are; the small size of the domestic market, the relatively high wage levels in Singapore which made products uncompetitive as exports, and a culture dominated by British trading firms which favored commerce over industry. Overshadowing all these was the dominance of primary production. When commodity prices were high, there was little incentive for investors, European or Asian, to move into other sectors. Conversely, when these prices fell capital and credit dried up, while incomes contracted, thus lessening effective demand for manufactures. W.G. Huff (2002) has argued that, prior to World War II, "there was, in fact, never a good time to embark on industrialization in Malaya." War Time 1942-45: The Japanese Occupation During the Japanese occupation years of World War II, the export of primary products was limited to the relatively small amounts required for the Japanese economy. This led to the abandonment of large areas of rubber and the closure of many mines, the latter progressively affected by a shortage of spare parts for machinery. Businesses, especially those Chinese-owned, were taken over and reassigned to Japanese interests. Rice imports fell heavily and thus the population devoted a large part of their efforts to producing enough food to stay alive. Large numbers of laborers (many of whom died) were conscripted to work on military projects such as construction of the Thai-Burma railroad. Overall the war period saw the dislocation of the export economy, widespread destruction of the infrastructure

(roads, bridges etc.) and a decline in standards of public health. It also saw a rise in inter-ethnic tensions due to the harsh treatment meted out by the Japanese to some groups, notably the Chinese, compared to a more favorable attitude towards the indigenous peoples among whom (Malays particularly) there was a growing sense of ethnic nationalism (Drabble, 2000).

Postwar Reconstruction and Independence

The returning British colonial rulers had two priorities after 1945; to rebuild the export economy as it had been under the OIDL (see above), and to rationalize the fragmented administrative structure (see General Background). The first was accomplished by the late 1940s with estates and mines refurbished, production restarted once the labor force had been brought back and adequate rice imports regained. The second was a complex and delicate political process which resulted in the formation of the Federation of Malaya (1948) from which Singapore, with its predominantly Chinese population (about 75%), was kept separate. In Borneo in 1946 the state of Sarawak, which had been a private kingdom of the English Brooke family (so-called "White Rajas") since 1841, and North Borneo, administered by the British North Borneo Company from 1881, were both transferred to direct rule from Britain. However, independence was clearly on the horizon and in Malaya tensions continued with the guerrilla campaign (called the "Emergency") waged by the Malayan Communist Party (membership largely Chinese) from 1948-60 to force out the British and set up a Malayan Peoples' Republic. This failed and in 1957 the Malayan Federation gained independence (Merdeka) under a "bargain" by which the Malays would hold political paramountcy while others, notably Chinese and Indians, were given citizenship and the freedom to pursue their economic interests. The bargain was institutionalized as the Alliance, later renamed the National Front (Barisan Nasional) which remains the dominant political grouping. In 1963 the Federation of Malaysia was formed in which the bumiputera population was sufficient in total to offset the high proportion of Chinese arising from the short-lived inclusion of Singapore (Andaya and Andaya, 2001).

Towards the Formation of a National Economy

Postwar two long-term problems came to the forefront. These were (a) the political fragmentation (see above) which had long prevented a centralized approach to economic development, coupled with control from Britain which gave primacy to imperial as opposed to local interests and (b) excessive dependence on a small range of primary products (notably rubber and tin) which prewar experience had shown to be an unstable basis for the economy. The first of these was addressed partly through the political rearrangements outlined in the previous section, with the economic aspects buttressed by a report from a mission to Malaya from the International Bank for Reconstruction and Development (IBRD) in 1954. The report argued that Malaya "is now a distinct national economy." A further mission in 1963 urged "closer economic cooperation between the prospective Malaysia[n] territories" (cited in Drabble, 2000, 161, 176). The rationale

for the Federation was that Singapore would serve as the initial center of industrialization, with Malaya, Sabah and Sarawak following at a pace determined by local conditions. The second problem centered on economic diversification. The IBRD reports just noted advocated building up a range of secondary industries to meet a larger portion of the domestic demand for manufactures, i.e. import-substitution industrialization (ISI). In the interim dependence on primary products would perforce continue.

The Adoption of Planning

In the postwar world the development plan (usually a Five-Year Plan) was widely adopted by Less-Developed Countries (LDCs) to set directions, targets and estimated costs. Each of the Malaysian territories had plans during the 1950s. Malaya was the first to get industrialization of the ISI type under way. The Pioneer Industries Ordinance (1958) offered inducements such as five-year tax holidays, guarantees (to foreign investors) of freedom to repatriate profits and capital etc. A modest degree of tariff protection was granted. The main types of goods produced were consumer items such as batteries, paints, tires, and pharmaceuticals. Just over half the capital invested came from abroad, with neighboring Singapore in the lead. When Singapore exited the federation in 1965, Malaysia's fledgling industrialization plans assumed greater significance although foreign investors complained of stifling bureaucracy retarding their projects. Primary production, however, was still the major economic activity and here the problem was rejuvenation of the leading industries, rubber in particular. New capital investment in rubber had slowed since the 1920s, and the bulk of the existing trees were nearing the end of their economic life. The best prospect for rejuvenation lay in cutting down the old trees and replanting the land with new varieties capable of raising output per acre/hectare by a factor of three or four. However, the new trees required seven years to mature. Corporately owned estates could replant progressively, but smallholders could not face such a prolonged loss of income without support. To encourage replanting, the government offered grants to owners, financed by a special duty on rubber exports. The process was a lengthy one and it was the 1980s before replanting was substantially complete. Moreover, many estates elected to switch over to a new crop, oil palms (a product used primarily in foodstuffs), which offered quicker returns. Progress was swift and by the 1960s Malaysia was supplying 20 percent of world demand for this commodity. Another priority at this time consisted of programs to improve the standard of living of the indigenous peoples, most of whom lived in the rural areas. The main instrument was land development, with schemes to open up large areas (say 100,000 acres or 40 000 hectares) which were then subdivided into 10 acre/4 hectare blocks for distribution to small farmers from overcrowded regions who were either short of land or had none at all. Financial assistance (repayable) was provided to cover housing and living costs until the holdings became productive. Rubber and oil palms were the main commercial crops planted. Steps were also taken to increase the domestic production of rice to lessen the historical dependence on imports.

In the primary sector Malaysia's range of products was increased from the 1960s by a rapid increase in the export of hardwood timber, mostly in the form of (unprocessed) saw-logs. The markets were mainly in East Asia and Australasia. Here the largely untapped resources of Sabah and Sarawak came to the fore, but the rapid rate of exploitation led by the late twentieth century to damaging effects on both the environment (extensive deforestation, soil-loss, silting, changed weather patterns), and the traditional hunter-gatherer way of life of forest-dwellers (decrease in wild-life, fish, etc.). Other development projects such as the building of dams for hydroelectric power also had adverse consequences in all these respects (Amarjit Kaur, 1998; Drabble, 2000; Hong, 1987). A further major addition to primary exports came from the discovery of large deposits of oil and natural gas in East Malaysia, and off the east coast of the Peninsula from the 1970s. Gas was exported in liquified form (LNG), and was also used domestically as a substitute for oil. At peak values in 1982, petroleum and LNG provided around 29 percent of Malaysian export earnings but had declined to 18 percent by 1988.

Industrialization and the New Economic Policy 1970-90

The program of industrialization aimed primarily at the domestic market (ISI) lost impetus in the late 1960s as foreign investors, particularly from Britain switched attention elsewhere. An important factor here was the outbreak of civil disturbances in May 1969, following a federal election in which political parties in the Peninsula (largely non-bumiputera in membership) opposed to the Alliance did unexpectedly well. This brought to a head tensions, which had been rising during the 1960s over issues such as the use of the national language, Malay (Bahasa Malaysia) as the main instructional medium in education. There was also discontent among Peninsular Malays that the economic fruits since independence had gone mostly to non-Malays, notably the Chinese. The outcome was severe inter-ethnic rioting centered in the federal capital, Kuala Lumpur, which led to the suspension of parliamentary government for two years and the implementation of the New Economic Policy (NEP). The main aim of the NEP was a restructuring of the Malaysian economy over two decades, 1970-90 with the following aims: to redistribute corporate equity so that the bumiputera share would rise from around 2 percent to 30 percent. The share of other Malaysians would increase marginally from 35 to 40 percent, while that of foreigners would fall from 63 percent to 30 percent. to eliminate the close link between race and economic function (a legacy of the colonial era) and restructure employment so that that the bumiputera share in each sector would reflect more accurately their proportion of the total population (roughly 55 percent). In 1970 this group had about two-thirds of jobs in the primary sector where incomes were generally lowest, but only 30 percent in the secondary sector. In high-income middle class occupations (e.g. professions, management) the share was only 13 percent.

To eradicate poverty irrespective of race. In 1970 just under half of all households in Peninsular Malaysia had incomes below the official poverty line. Malays accounted for about 75 percent of these. The principle underlying these aims was that the redistribution would not result in any one group losing in absolute terms. Rather it would be achieved through the process of economic growth, i.e. the economy would get bigger (more investment, more jobs, etc.). While the primary sector would continue to receive developmental aid under the successive Five Year Plans, the main emphasis was a switch to export-oriented industrialization (EOI) with Malaysia seeking a share in global markets for manufactured goods. Free Trade Zones (FTZs) were set up in places such as Penang where production was carried on with the undertaking that the output would be exported. Firms locating there received concessions such as duty-free imports of raw materials and capital goods, and tax concessions, aimed at primarily at foreign investors who were also attracted by Malaysia's good facilities, relatively low wages and docile trade unions. A range of industries grew up; textiles, rubber and food products, chemicals, telecommunications equipment, electrical and electronic machinery/appliances, car assembly and some heavy industries, iron and steel. As with ISI, much of the capital and technology was foreign, for example the Japanese firm Mitsubishi was a partner in a venture to set up a plant to assemble a Malaysian national car, the Proton, from mostly imported components (Drabble, 2000). Results of the NEP Table 2 below shows the outcome of the NEP in the categories outlined above. Table 2 Restructuring under the NEP, 1970-90 1970 Bumiputera Wealth Ownership (%) Other Malaysians Foreigners Primary sector Employment (agriculture, mineral (%) of total extraction, forest products and fishing) workers in each Secondary sector sector (manufacturing and construction) Bumiputera Others Bumiputera Others 2.0 34.6 63.4 67.6 32.4 30.8 69.2 1990 20.3 54.6 25.1 [61.0]* 71.2 28.8 [14.6]* 48.0 52.0 [26.3]* [36.7]*

Tertiary sector (services)

Bumiputera Others

37.9 62.1

[24.4]* 51.0 49.0

[36.9]*

Note: [ ]* is the proportion of the ethnic group thus employed. The "others" category has not been disaggregated by race to avoid undue complexity. Source: Drabble, 2000, Table 10.9. Section (a) shows that, overall, foreign ownership fell substantially more than planned, while that of "Other Malaysians" rose well above the target. Bumiputera ownership appears to have stopped well short of the 30 percent mark. However, other evidence suggests that in certain sectors such as agriculture/mining (35.7%) and banking/insurance (49.7%) bumiputera ownership of shares in publicly listed companies had already attained a level well beyond the target. Section (b) indicates that while bumiputera employment share in primary production increased slightly (due mainly to the land schemes), as a proportion of that ethnic group it declined sharply, while rising markedly in both the secondary and tertiary sectors. In middle class employment the share rose to 27 percent. As regards the proportion of households below the poverty line, in broad terms the incidence in Malaysia fell from approximately 49 percent in 1970 to 17 percent in 1990, but with large regional variations between the Peninsula (15%), Sarawak (21 %) and Sabah (34%) (Drabble, 2000, Table 13.5). All ethnic groups registered big falls, but on average the non-bumiputera still enjoyed the lowest incidence of poverty. By 2002 the overall level had fallen to only 4 percent. The restructuring of the Malaysian economy under the NEP is very clear when we look at the changes in composition of the Gross Domestic Product (GDP) in Table 3 below. Table 3 Structural Change in GDP 1970-90 (% shares) Year 1970 1990 Primary 44.3 28.1 Secondary 18.3 30.2 Tertiary 37.4 41.7

Source: Malaysian Government, 1991, Table 3-2. Over these three decades Malaysia accomplished a transition from a primary product-dependent economy to one in which manufacturing industry had emerged as the leading growth sector. Rubber and tin, which accounted for 54.3 percent of Malaysian export value in 1970, declined sharply in relative terms to a mere 4.9 percent in 1990 (Crouch, 1996, 222).

Factors in the structural shift

The post-independence state played a leading role in the transformation. The transition from British rule was smooth. Apart from the disturbances in 1969 government maintained a firm control over the administrative machinery. Malaysia's Five Year Development plans were a model for the developing world. Foreign capital was accorded a central role, though subject to the requirements of the NEP. At the same time these requirements discouraged domestic investors, the Chinese especially, to some extent (Jesudason, 1989). Development was helped by major improvements in education and health. Enrolments at the primary school level reached approximately 90 percent by the 1970s, and at the secondary level 59 percent of potential by 1987. Increased female enrolments, up from 39 percent to 58 percent of potential from 1975 to 1991, were a notable feature, as was the participation of women in the workforce which rose to just over 45 percent of total employment by 1986/7. In the tertiary sector the number of universities increased from one to seven between 1969 and 1990 and numerous technical and vocational colleges opened. Bumiputera enrolments soared as a result of the NEP policy of redistribution (which included ethnic quotas and government scholarships). However, tertiary enrolments totaled only 7 percent of the age group by 1987. There was an "educational-occupation mismatch," with graduates (bumiputera especially) preferring jobs in government, and consequent shortfalls against strong demand for engineers, research scientists, technicians and the like. Better living conditions (more homes with piped water and more rural clinics, for example) led to substantial falls in infant mortality, improved public health and longer life-expectancy, especially in Peninsular Malaysia (Drabble, 2000, 248, 284-6). The quality of national leadership was a crucial factor. This was particularly so during the NEP. The leading figure here was Dr Mahathir Mohamad, Malaysian Prime Minister from 1981-2003. While supporting the NEP aim through positive discrimination to give bumiputera an economic stake in the country commensurate with their indigenous status and share in the population, he nevertheless emphasized that this should ultimately lead them to a more modern outlook and ability to compete with the other races in the country, the Chinese especially (see Khoo Boo Teik, 1995). There were, however, some paradoxes here. Mahathir was a meritocrat in principle, but in practice this period saw the spread of "money politics" (another expression for patronage) in Malaysia. In common with many other countries Malaysia embarked on a policy of privatization of public assets, notably in transportation (e.g. Malaysian Airlines), utilities (e.g. electricity supply) and communications (e.g. television). This was done not through an open process of competitive tendering but rather by a "nebulous 'first come, first served' principle" (Jomo, 1995, 8) which saw ownership pass directly to politically well-connected businessmen, mainly bumiputera, at relatively low valuations.

The New Development Policy

Positive action to promote bumiputera interests did not end with the NEP in 1990, this was followed in 1991 by the New Development Policy (NDP), which emphasized assistance only to "Bumiputera with potential, commitment and good track records" (Malaysian Government, 1991, 17) rather than the previous blanket measures to redistribute wealth and employment. In turn the NDP was part of a longer-term

program known as Vision 2020. The aim here is to turn Malaysia into a fully industrialized country and to quadruple per capita income by the year 2020. This will require the country to continue ascending the technological "ladder" from low- to high-tech types of industrial production, with a corresponding increase in the intensity of capital investment and greater retention of value-added (i.e. the value added to raw materials in the production process) by Malaysian producers. The Malaysian economy continued to boom at historically unprecedented rates of 8-9 percent a year for much of the 1990s (see next section). There was heavy expenditure on infrastructure, for example extensive building in Kuala Lumpur such as the Twin Towers (currently the highest buildings in the world). The volume of manufactured exports, notably electronic goods and electronic components increased rapidly.

Asian Financial Crisis, 1997-98

The Asian financial crisis originated in heavy international currency speculation leading to major slumps in exchange rates beginning with the Thai baht in May 1997, spreading rapidly throughout East and Southeast Asia and severely affecting the banking and finance sectors. The Malaysian ringgit exchange rate fell from RM 2.42 to 4.88 to the U.S. dollar by January 1998. There was a heavy outflow of foreign capital. To counter the crisis the International Monetary Fund (IMF) recommended austerity changes to fiscal and monetary policies. Some countries (Thailand, South Korea, and Indonesia) reluctantly adopted these. The Malaysian government refused and implemented independent measures; the ringgitbecame non-convertible externally and was pegged at RM 3.80 to the US dollar, while foreign capital repatriated before staying at least twelve months was subject to substantial levies. Despite international criticism these actions stabilized the domestic situation quite effectively, restoring net growth (see next section) especially compared to neighboring Indonesia.

Rates of Economic Growth

Malaysia's economic growth in comparative perspective from 1960-90 is set out in Table 4 below. Table 4 Asia-Pacific Region: Growth of Real GDP (annual average percent) 1960-69 Japan Asian "Tigers" Hong Kong South Korea 10.0 8.5 9.5 8.7 7.2 9.3 10.9 1971-80 5.0 1981-89 4.0

Singapore Taiwan ASEAN-4 Indonesia Malaysia Philippines Thailand

8.9 11.6

9.0 9.7

6.9 8.1

3.5 6.5 4.9 8.3

7.9 8.0 6.2 9.9

5.2 5.4 1.7 7.1

Source: Drabble, 2000, Table 10.2; figures for Japan are for 1960-70, 1971-80, and 1981-90. The data show that Japan, the dominant Asian economy for much of this period, progressively slowed by the 1990s (see below). The four leading Newly Industrialized Countries (Asian "Tigers" as they were called) followed EOF strategies and achieved very high rates of growth. Among the four ASEAN (Association of Southeast Asian Nations formed 1967) members, again all adopting EOI policies, Thailand stood out followed closely by Malaysia. Reference to Table 1 above shows that by 1990 Malaysia, while still among the leaders in GDP per head, had slipped relative to the "Tigers." These economies, joined by China, continued growth into the 1990s at such high rates (Malaysia averaged around 8 percent a year) that the term "Asian miracle" became a common method of description. The exception was Japan which encountered major problems with structural change and an over-extended banking system. Post-crisis the countries of the region have started recovery but at differing rates. The Malaysian economy contracted by nearly 7 percent in 1998, recovered to 8 percent growth in 2000, slipped again to under 1 percent in 2001 and has since stabilized at between 4 and 5 percent growth in 2002-04. The new Malaysian Prime Minister (since October 2003), Abdullah Ahmad Badawi, plans to shift the emphasis in development to smaller, less-costly infrastructure projects and to break the previous dominance of "money politics." Foreign direct investment will still be sought but priority will be given to nurturing the domestic manufacturing sector. Further improvements in education will remain a key factor (Far Eastern Economic Review, Nov.6, 2003).

Overview
Malaysia owes its successful historical economic record to a number of factors. Geographically it lies close to major world trade routes bringing early exposure to the

international economy. The sparse indigenous population and labor force has been supplemented by immigrants, mainly from neighboring Asian countries with many becoming permanently domiciled. The economy has always been exceptionally open to external influences such as globalization. Foreign capital has played a major role throughout. Governments, colonial and national, have aimed at managing the structure of the economy while maintaining inter-ethnic stability. Since about 1960 the economy has benefited from extensive restructuring with sustained growth of exports from both the primary and secondary sectors, thus gaining a double impetus. However, on a less positive assessment, the country has so far exchanged dependence on a limited range of primary products (e.g. tin and rubber) for dependence on an equally limited range of manufactured goods, notably electronics and electronic components (59 percent of exports in 2002). These industries are facing increasing competition from lower-wage countries, especially India and China. Within Malaysia the distribution of secondary industry is unbalanced, currently heavily favoring the Peninsula. Sabah and Sarawak are still heavily dependent on primary products (timber, oil, LNG). There is an urgent need to continue the search for new industries in which Malaysia can enjoy a comparative advantage in world markets, not least because inter-ethnic harmony depends heavily on the continuance of economic prosperity.

Background Note: Malaysia

Official Name: Malaysia

PROFILE Geography Area: 329,847 sq. km. (127,315 sq. mi.); slightly larger than New Mexico. Cities: Capital--Kuala Lumpur. Other cities--Penang, Ipoh, Malacca, Johor Baru, Shah Alam, Klang, Kuching, Kota Kinabalu, Kota Baru, Kuala Terengganu, Miri, Petaling Jaya. Terrain: Coastal plains and interior, jungle-covered mountains. The South China Sea separates peninsular Malaysia from East Malaysia on Borneo. Climate: Tropical. People

Nationality: Noun and adjective--Malaysian(s). Population (2010): 28.3 million. Annual population growth rate: 1.7%. Ethnic groups: Malay 53.3%, Chinese 26.0%, indigenous 11.8%, Indian 7.7%, others 1.2%. Religions: Islam (60.4%), Buddhism (19.2%), Christianity (9.1%), Hinduism (6.3%), other/none (5.0%). Languages: Bahasa Melayu (official), Chinese (various dialects), English, Tamil, indigenous. Education: Years compulsory--6. Attendance--90.1% (primary), 60.0% (secondary). Literacy--93.5%. Health: Infant mortality rate (2007)--6.7/1,000. Life expectancy (2007)--female 76.4 years, male 71.9 years. Work force (10.89 million, 2007): Services--57%; industry--28% (manufacturing-19%, mining and construction--9%); agriculture--15%. Government Type: Federal parliamentary democracy with a constitutional monarch. Independence: August 31, 1957. (Malaya, which is now peninsular Malaysia, became independent in 1957. In 1963 Malaya, Sabah, Sarawak, and Singapore formed Malaysia. Singapore became an independent country in 1965.) Constitution: 1957. Subdivisions: 13 states and three federal territories (Kuala Lumpur, Labuan Island, Putrajaya federal administrative territory). Each state has an assembly and government headed by a chief minister. Nine of these states have hereditary rulers, generally titled "sultans," while the remaining four have appointed governors in counterpart positions. Branches: Executive--Yang di-Pertuan Agong (head of state and customarily referred to as the king; has ceremonial duties), prime minister (head of government), cabinet. Legislative--bicameral parliament, comprising 70-member Senate (26 elected by the 13 state assemblies, 44 appointed by the king on the prime minister's recommendation) and 222-member House of Representatives (elected from singlemember districts). Judicial--Federal Court, Court of Appeals, high courts, sessions courts, magistrate's courts, and juvenile courts. Sharia courts hear cases on certain matters involving Muslims only. Political parties: Barisan Nasional (National Front)--a coalition comprising the United Malays National Organization (UMNO) and 12 other parties, most of which are ethnically based; Democratic Action Party (DAP); Parti Islam se Malaysia (PAS); Parti Keadilan Rakyat Malaysia (PKR). There are more than 30 registered political parties, including the foregoing, not all of which are represented in the federal parliament. Suffrage: Universal adult (voting age 21). Economy (2010) Nominal GDP: $255.3 billion. Annual real GDP growth rate: 5.9% (2006); 6.3% (2007); 4.6% (2008); -1.7% (2009); 7.2% (2010); 5%-6% (2011 est., Malaysian Government). Nominal per capita income (GNI): $8,126. Natural resources: Petroleum, liquefied natural gas (LNG), tin, minerals. Agricultural products: Palm oil, rubber, timber, cocoa, rice, tropical fruit, fish, coconut. Industry: Types--electronics, electrical products, chemicals, food and beverages, metal and machine products, apparel. Trade: Merchandise exports--$210.3 billion: electronic products, machinery, liquid

natural gas, petroleum and petroleum products, telecom equipment. Major markets-Singapore 13.8%, China 12.1%, Japan 10.9%, U.S. 9.1%, Thailand 5.3%. Merchandise imports--$174.1 billion: electronic products, machinery, machinery parts and apparatus, petroleum and petroleum products. Major suppliers--China 12.6%, Japan 12.6%, Singapore 11.4%, U.S. 10.7%, Thailand 6.2%. PEOPLE Malaysia's multi-racial society contains many ethnic groups. Malays comprise a majority of just over 50%. By constitutional definition, all Malays are Muslim. About a quarter of the population is ethnic Chinese, a group which historically played an important role in trade and business. Malaysians of Indian descent comprise about 7% of the population and include Hindus, Muslims, Buddhists, and Christians. NonMalay indigenous groups combine to make up approximately 11% of the population. Population density is highest in peninsular Malaysia, home to some 20 million of the country's 28 million inhabitants. The rest live on the Malaysian portion of the island of Borneo in the large but less densely-populated states of Sabah and Sarawak. More than half of Sarawak's residents and about two-thirds of Sabah's are from indigenous groups. HISTORY The early Buddhist Malay kingdom of Srivijaya, based at what is now Palembang, Sumatra, dominated much of the Malay peninsula from the 9th to the 13th centuries AD. The powerful Hindu kingdom of Majapahit, based on Java, gained control of the Malay peninsula in the 14th century. Conversion of the Malays to Islam, beginning in the early 14th century, accelerated with the rise of the state of Malacca under the rule of a Muslim prince in the 15th century. Malacca was a major regional commercial center, where Chinese, Arab, Malay, and Indian merchants traded precious goods. Drawn by this rich trade, a Portuguese fleet conquered Malacca in 1511, marking the beginning of European expansion in Southeast Asia. The Dutch ousted the Portuguese from Malacca in 1641. The British obtained the island of Penang in 1786 and temporarily controlled Malacca with Dutch acquiescence from 1795 to 1818 to prevent it from falling to the French during the Napoleonic war. The British gained lasting possession of Malacca from the Dutch in 1824, through the Anglo-Dutch treaty, in exchange for territory on the island of Sumatra in what is today Indonesia. In 1826, the British settlements of Malacca, Penang, and Singapore were combined to form the Colony of the Straits Settlements. From these strongholds, in the 19th and early 20th centuries the British established protectorates over the Malay sultanates on the peninsula. During their rule the British developed large-scale rubber and tin production and established a system of public administration. British control was interrupted by World War II and the Japanese occupation from 1941 to 1945. Popular sentiment for independence swelled during and after the war. The territories of peninsular Malaysia joined together to form the Federation of Malaya in 1948 and eventually negotiated independence from the British in 1957. Tunku Abdul Rahman became the first prime minister. In 1963 the British colonies of Singapore, Sarawak, and Sabah joined the Federation, which was renamed Malaysia. Singapore's membership was short-lived, however; it left in 1965 and became an independent republic.

Neighboring Indonesia objected to the formation of Malaysia and began a program of economic, political, diplomatic, and military "confrontation" against the new country in 1963, which ended only after the fall of Indonesia's President Sukarno in 1966. Internally, local communists, nearly all Chinese, carried out a long, bitter insurgency both before and after independence, prompting the imposition of a state of emergency from 1948 to 1960. Small bands of guerrillas remained in bases along the rugged border with southern Thailand, occasionally entering northern Malaysia. These guerrillas finally signed a peace accord with the Malaysian Government in December 1989. A separate, small-scale communist insurgency that began in the mid-1960s in Sarawak also ended with the signing of a peace accord in October 1990. GOVERNMENT Malaysia is a constitutional monarchy, nominally headed by the Yang di-Pertuan Agong, customarily referred to as the king. The king is elected for 5-year terms from among the nine sultans of the peninsular Malaysian states. The king also is the leader of the Islamic faith in Malaysia. Executive power is vested in the cabinet led by the prime minister; the Malaysian constitution stipulates that the prime minister must be a member of the lower house of parliament who, in the opinion of the Yang di-Pertuan Agong, commands a majority in parliament. The cabinet is chosen from among members of both houses of parliament and is responsible to that body. The bicameral parliament consists of the Senate (Dewan Negara) and the House of Representatives (Dewan Rakyat). All 70 Senate members sit for 3-year terms, which are normally extended for an additional 3 years; 26 are elected by the 13 state assemblies, and 44 are appointed by the king following the prime minister's recommendation. Representatives of the House are elected from single-member districts by universal adult suffrage. The 222 members of the House of Representatives are elected to parliamentary terms lasting up to 5 years. Legislative power is divided between federal and state legislatures. The Malaysian legal system is based on English common law. The Federal Court reviews decisions referred from the Court of Appeal; it has original jurisdiction in constitutional matters and in disputes between states or between the federal government and a state. Peninsular Malaysia and the East Malaysian states of Sabah and Sarawak each have a high court. The federal government has authority over external affairs, defense, internal security, justice (except civil law cases among Malays or other Muslims and other indigenous peoples, adjudicated under Islamic and traditional law), federal citizenship, finance, commerce, industry, communications, transportation, and other matters. Principal Government Officials Prime Minister--Mohd Najib bin Abdul Razak Foreign Minister--Anifah Aman Ambassador to the U.S.--Jamaluddin Jarjis Ambassador to the UN--Hussein Haniff Malaysia maintains an embassy in the U.S. at 3516 International Court NW, Washington, DC 20008, tel. (202) 572-9700; a Consulate General at 550 South Hope Street, Suite 400, Los Angeles, CA 90071, tel. (213) 892-1238; and a Consulate

General at 313 East 43rd Street, New York City, NY 10017, tel. (212) 490-2722/23. POLITICAL CONDITIONS Malaysia's predominant political party, the United Malays National Organization (UMNO), has held power in coalition with other parties continuously since independence in 1957. The UMNO coalition's share of the vote declined in national elections held in May 1969, after which riots broke out in Kuala Lumpur and elsewhere, mainly between Malays and ethnic Chinese. Several hundred people were killed or injured. The government declared a state of emergency and suspended all parliamentary activities. In the years that followed, Malaysia undertook several initiatives that became integral parts of its socioeconomic model. The New Economic Policy (NEP), launched in 1971, contained a series of affirmative action policies designed to benefit Malays and certain indigenous groups (together known as Bumiputras or "sons of the soil"). The constitution was amended to limit dissent against the specially-protected and sensitive portions of the constitution pertaining to the social contract. The government identified intercommunal harmony as one of its official goals. The previous alliance of communally based parties was replaced with a broader coalition-the Barisan Nasional (BN) or National Front. The BN won large majorities in the 1974 federal and state elections. Mahathir Mohamad was Prime Minister between 1981 and 2003, leading UMNO and BN to successive election victories. Mahathir emphasized economic development during his tenure, in particular the export sector, as well as large-scale infrastructure projects. Mahathir attributed the success of the Asian tiger economies to the "Asian values" of its people, which he believed were superior to those of the West. Mahathir sharply criticized the International Monetary Fund (IMF), international financiers, and Western governments during the economic and financial crisis that affected Asia in 1997-1998, and denied that the sharp downturn was due to economic or corporate mismanagement, corruption, or "crony capitalism." The end of Mahathir's tenure was marred by a falling out with his deputy and presumed successor, Anwar Ibrahim. In September 1998, Mahathir dismissed Anwar and accused him of immoral and corrupt conduct. Although Anwar was convicted on both charges in 1999 and 2000, the trials were viewed as seriously flawed. Malaysia's Federal Court eventually freed Anwar after overturning his immoral conduct conviction in September 2004. Mahathir stepped down as Prime Minister in October 2003 after 22 years in power, and his successor, Deputy Prime Minister Abdullah Ahmad Badawi, was sworn into office. Abdullah called elections and won an overwhelming victory in March 2004. Abdullah, an Islamic scholar, promoted the concept of "Islam Hadhari" or "civilizational Islam," emphasizing the importance of education, social harmony, and economic progress. His relationship with Mahathir eventually soured, with Mahathir expressing regret at supporting Abdullah to be his successor. Malaysia held national elections in March 2008. UMNO and its coalition allies in the BN won a simple majority of the seats in the national parliament, but for the first time in history failed to gain the two-thirds majority necessary to amend the constitution. A loose coalition of opposition parties, called the Pakatan Rakyat or People's Alliance, led by Anwar Ibrahim, won 82 of 222 seats in parliament and took control of the state-level assemblies in five of Malaysia's 13 states. However, in February 2009 the

opposition Alliance lost control of one of the states through defections of its assembly members--several members of the opposition and two from the BN became independent, bringing the opposition strength down to 76 members and the BN to 138 members. Prime Minister Abdullah, taking responsibility for his partys poor showing in the March 2008 general election, stepped down as Prime Minister in a carefully timed transfer of power to his deputy, Mohd Najib bin Abdul Razak, in April 2009. The Najib administration's cornerstone policy is the "1Malaysia" initiative, which emphasizes national unity amongst Malaysia's ethnically diverse population. Other initiatives include the Government Transformation Program to improve government services delivery systems; the Economic Transformation Program to provide a framework to emphasize private investment and de-emphasize public investment; and the New Economic Model (NEM), to reform the 1970s (and still current) economic policy known as the New Economic Policy. ECONOMY Since it became independent in 1957, Malaysia's economic record has been one of Asia's best. Real gross domestic product (GDP) grew by an average of 6.5% per year from 1957 to 2005. Performance peaked in the early 1980s through the mid1990s, as the economy experienced sustained rapid growth averaging almost 8% annually. High levels of foreign and domestic private investment played a significant role as the economy diversified and modernized. Once heavily dependent on primary products such as rubber and tin, Malaysia today is a middle-income country with a multi-sector economy based on services and manufacturing. Malaysia is one of the world's largest exporters of semiconductor devices, electrical goods, solar panels, and information and communication technology (ICT) products. Malaysia struggled economically during the 1997-1998 Asian financial crisis and applied several valuable lessons to its economic management strategies that contributed to the economys resilience to the 2008-2009 global financial crisis. After contracting 1.7% in 2009, Malaysias GDP grew 7.2% in 2010. Malaysian banks are well capitalized, conservatively managed, and had no measurable exposure to the U.S. sub-prime market. The central bank maintains a conservative regulatory environment, having prohibited some of the riskier assets in vogue elsewhere. Malaysia maintains high levels of foreign exchange reserves and has relatively little external debt. The government continues to actively manage the economy with state-owned enterprises heavily involved in the oil and gas, plantation, ship building, steel, telecommunications, utilities, automotive, mining, and other sectors. Since 1971, ethnic preferences have been given to Bumiputras (ethnic Malays and indigenous peoples) by requiring 30% Bumiputra ownership in new businesses. Prime Minister Najibs New Economic Model reform program includes measures and proposals to modify these ethnic preferences and to divest state enterprises while increasing the private sectors role in stimulating higher levels of investment and boosting GDP growth. The NEM aims to create a business environment more conducive to longterm sustained economic growth, development, and investment, with the goal of Malaysia becoming a high-income, developed nation by 2020. The governments Economic Transformation Program includes individual projects and other reform measures. Malaysia has a managed float currency exchange regime. It gives flexibility for the

ringgit to adjust to global economic and financial developments and has accorded a level of stability against the currencies of Malaysias major trading partners. FOREIGN RELATIONS Regional cooperation is a cornerstone of Malaysia's foreign policy. It was a founding member of the Association of Southeast Asian Nations (ASEAN). Malaysia is an active member of the Asia Pacific Economic Cooperation (APEC) forum, the Organization of the Islamic Conference (OIC), the Non-Aligned Movement (NAM), and the United Nations. Malaysia is a frequent contributor to UN and other peacekeeping and stabilization missions, including recent deployments to Lebanon, Timor-Leste, Philippines, Indonesia, Pakistan, Sierra Leone, Sudan, Western Sahara, Nepal, and Kosovo. Malaysia has also deployed a medical unit to Afghanistan. U.S.-MALAYSIAN RELATIONS The United States and Malaysia share a diverse and expanding partnership. Economic ties are robust. The United States is Malaysia's third-largest trading partner and Malaysia is the eighteenth-largest trading partner of the United States. Annual two-way trade amounts to $33 billion. In October 2010, Malaysia joined negotiations for a Trans-Pacific Partnership free trade agreement. The United States is the largest foreign investor in Malaysia on a cumulative basis, and was the largest source of new foreign direct investment in Malaysia in 2010. American companies are particularly active in the electronics, manufacturing, and oil and gas sectors. According to Malaysian data, U.S. direct investment in the manufacturing sector in Malaysia as of year-end 2009 was $15.1 billion, with billions of dollars in additional investment in the oil and gas and financial services sectors of the economy. The United States and Malaysia cooperate closely on security matters, including counterterrorism, maritime domain awareness, and regional stability. The relationship between the U.S. and Malaysian militaries is also strong with numerous exchanges, training, joint exercises, and visits. The U.S. and Malaysia signed a Mutual Legal Assistance Treaty (MLAT) in July 2006 during the visit to Kuala Lumpur by Secretary of State Condoleezza Rice. The United States and Malaysia have a long history of people-to-people exchanges. Well over 100,000 Malaysians have studied in the U.S. At any one time there are over 7,000 Malaysians studying at U.S. universities. Last year approximately 130 Malaysians took part in U.S. Government-sponsored exchange programs for professional development and study. Each year, about 50 Americans travel to Malaysia under U.S. Government auspices to share their experience as visiting academics or speakers. In November 2010, the U.S. and Malaysia signed a bilateral Memorandum of Understanding on Science and Technology Cooperation. There are approximately 1,500 alumni of the International Visitor Leadership Program (IVLP) and 2,000 from the Fulbright, Humphrey, Eisenhower, Youth Exchange for Study (YES), and Study of the U.S. Institute (SUSI) programs. Prominent Malaysian alumni include federal ministers, deputy ministers, and members of parliament from both the ruling party and opposition parties. At least four current and past chief ministers (state governors) are alumni, and former Prime

Minister Mahathir is an alumnus of a 1973 program. These alumni have used their educations to create a stronger Malaysian society and have built enduring understanding between Malaysia and America. Their contributions to Malaysian society will continue for many years to come. Principal U.S. Embassy Officials Ambassador--Paul W. Jones Deputy Chief of Mission--Lee McClenny Political Counselor--Jeffrey Rathke Economic Counselor--Paul A. Brown Commercial Counselor--Stephen Jacques Public Affairs Officer--Scott M. Rauland Agricultural Attache--Christopher P. Rittgers Consul General--Timothy M. Scherer The U.S. Embassy in Malaysia is located at 376 Jalan Tun Razak, 50400 Kuala Lumpur (tel. 60-3-2168-5000, fax 60-3-2142-2207). TRAVEL AND BUSINESS INFORMATION Travel Alerts, Travel Warnings, Trip Registration The U.S. Department of State's Consular Information Program advises Americans traveling and residing abroad through Country Specific Information, Travel Alerts, and Travel Warnings. Country Specific Information exists for all countries and includes information on entry and exit requirements, currency regulations, health conditions, safety and security, crime, political disturbances, and the addresses of the U.S. embassies and consulates abroad. Travel Alerts are issued to disseminate information quickly about terrorist threats and other relatively short-term conditions overseas that pose significant risks to the security of American travelers. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country because the situation is dangerous or unstable. For the latest security information, Americans living and traveling abroad should regularly monitor the Department's Bureau of Consular Affairs Internet web site at http://travel.state.gov, where current Worldwide Caution, Travel Alerts, and Travel Warnings can be found. The travel.state.gov website also includes information about passports, tips for planning a safe trip abroad and more. More travel-related information also is available at http://www.usa.gov/Citizen/Topics/Travel/International.shtml. The Department's Smart Traveler app for U.S. travelers going abroad provides easy access to the frequently updated official country information, travel alerts, travel warnings, maps, U.S. embassy locations, and more that appear on the travel.state.gov site. Travelers can also set up e-tineraries to keep track of arrival and departure dates and make notes about upcoming trips. The app is compatible with iPhone, iPod touch, and iPad (requires iOS 4.0 or later). The Department of State encourages all U.S. citizens traveling or residing abroad to register via the State Department's travel registration website or at the nearest U.S. embassy or consulate abroad (a link to the registration page is also available through the Smart Traveler app). Registration will make your presence and whereabouts known in case it is necessary to contact you in an emergency and will enable you to receive up-to-date information on security conditions.

Emergency information concerning Americans traveling abroad may be obtained by calling 1-888-407-4747 toll free in the U.S. and Canada or the regular toll line 1-202501-4444 for callers outside the U.S. and Canada.

http://therandymon.com/papers/indo-malay.pdf

COUNTRY OVERVIEW LOCATION AND SIZE.

Malaysia is situated in Southeast Asia, bordered by Thailand in the north, Indonesia in the south, and the Philippines in the east. The country has an area of 329,758 square kilometers (127,320 square miles). Comparatively, the territory of Malaysia is slightly greater than that of the state of New Mexico, the fourth-largest state in the United States. The Federation of Malaysia consists of 13 states, and is divided into 2 parts: 11 states are located in Peninsular Malaysia (also called West Malaysia) and 2 comprise East Malaysia, which is situated on the island of Borneo (see map). Peninsular and East Malaysia are separated by 640 kilometers (400 miles) of the South China Sea. Malaysia's capital city, Kuala Lumpur, is located in southeast Peninsular Malaysia, just 300 kilometers (187 miles) from Singapore. However, a new capital, Putrajaya, is being developed outside the overcrowded metropolitan area as the new administrative center. The strategic importance of Malaysia is in its location along the Strait of Malacca, which is a major sea-route connecting the Far East to Asia, Europe, and the Middle East.

POPULATION.
The population of Malaysia was estimated at 21,793,000 in July 2000. It has almost doubled since the 1960s due to improved health, medical facilities, and longer life expectancy. In 2000, the birth rate stood at 25.3 per 1,000, while the death rate stood at 5.25 per 1,000. The estimated population growth rate is 2.01 percent and if the current trend remains unchanged, the population could reach 31 million by 2020. The population is very unevenly distributed, with almost 81 percent, or 17.5 million, living in Peninsular Malaysia, and 19 percent, or 4.2 million, living in East Malaysia. The population density is about 129 people per square kilometer (334 people per square mile) in Peninsular Malaysia and about 20 people per square kilometer (52 people per square mile) in East Malaysia.

Malaysia is a multinational and multicultural country with a very diverse population. Malays and several indigenous groups make up 58 percent of the population. Ethnic Chinese, the second-largest ethnic group, make up 26 percent of the population; Indian descendants make up 7 percent, and various other groups together account for the remaining 9 percent. The current ethnic structure was formed during the colonial era in the 19th and 20th centuries, when the British administration encouraged migration from India and especially from China. The Malaysian population is very young, with 35 percent below age 14 and just 4 percent of the population older than 65. Urbanization came to Malaysia relatively late. In 1970, just over 28.8 percent of Malaysians lived in urban areas. In 1999 over half of Malaysians57 percentwere living in urban areas. It is expected that within the next 10 to 15 years more than 70 percent of the population will live in urban areas, mainly in the Peninsular Malaysia. Religion plays a very important role in the country. Islam is the official national religion and nearly all Malays are Muslims. Most ethnic Chinese are Buddhist. The majority of Indians (comprising the descendants of migrants from what became India, Pakistan, and Bangladesh) are Hindu, although there are many Muslims among members of this community. The largest proportion of the Chinese community has traditionally lived in the urban areas, while Malays have often lived in the country's rural regions. In 1960, the Malaysian population was about 8 million, and the country at one time had one of the highest birth rates in Asia. The population doubled between 1960 and 1990, although population growth began to decline in the 1990s. The decline in population rates could be linked to the socio-economic changes in the economy that tightened the labor market and increased the number of women in the workforce, and the better education of women. Malaysia experienced an inflow of foreign workers employed mainly in the low-skill and low-wage construction and services sectors and in agricultural plantations. The Malaysian government would like to regulate the inflow of illegal migrants, who arrive mainly from neighboring Indonesia, as well as from Bangladesh and Burma, attracted by the geographical proximity and higher wages.

INDUSTRY MINING.
Tin, oil, and gas are the major natural resources of export significance produced by the mining sector in Malaysia. The mining of tin was introduced during the colonial era and until the 1980s the country was the world's largest producer of tin, being overtaken in the early 1990s by Brazil and neighboring Indonesia. The major mines are situated in Peninsular Malaysia, making it easy to transport their products to the nearest seaports. Malaysia's exports of tin declined from 36,812 metric tons in 1994 to 22,376 metric tons in 1998, affected by fluctuations in the world market. During recent decades, Malaysia has increased production of crude petroleum and natural gas. In 1999, it produced 693,000 barrels of crude oil per day and 3.8 billion cubic feet of liquefied natural gas (LNG). The high-quality oil is extracted mainly from offshore platforms in the states of Terengganu, Sabah, and Sarawak, with a total of about 40 oilfields in operation (1999). There are 5 oil refineries situated in Malaysia. The production of gas increased steadily in the 1990s to meet the rising demand in the domestic and international markets, with exports mainly going to Taiwan, South Korea, and Singapore. Malaysia was ranked thirteenth in the world in terms of gas reserves and twenty-second in oil reserves in 1999. The state-controlled petroleum corporation, Petronas, has been seeking a greater role in the international market, investing in promising new projects in the Middle East and Southeast Asia. Overall, mining plays a declining role in the national economy of the country, contributing just under 7.3 percent of GDP and providing employment for 39,000 people or under 1 percent of the labor force (1998). However, there is great potential for development of this sector, since Malaysia has various relatively under-exploited mineral resources in East Malaysia (Sabah and Sarawak), including bauxite, iron ore, copper, ilmenite, and gold. Additionally, there are large offshore reserves of highquality oil and gas.

MANUFACTURING.
Malaysia has established a diverse and quickly-growing manufacturing sector that plays an increasing role in the Malaysian economy. Manufacturing contributes about 29 percent of the GDP, providing employment to 2.3 million people or 27 percent of

the workforce (1999). From the late 1970s, the proportion of GDP provided by the manufacturing sector in Malaysia grew from 20.2 percent in 1979 to around 29 percent in 1999. The United States continues to be the single largest foreign investor in Malaysia's manufacturing sector, with approved new manufacturing investments totaling US$1.37 billion (RM5.2 billion) in 1999. The major investment projects were in the chemical, electronics, and electrical industries. Malaysia built up its manufacturing sector mainly in the 1970s and 1980s, utilizing its long-established industrial centers on the island of Pinang and the Kelang Valley, its well-developed transportation infrastructure (including seaports and railways), and the entrepreneurial skills of its small and medium-sized businesses. The industrial sector initially consisted of oil refining, machinery assembly, and light industries (including foodstuff processing and textile manufacturing). However, as in neighboring Singapore, the Malaysian manufacturing sector was boosted in the 1970s and 1980s by the extensive growth of the electric assembly and electronics sectors. Malaysia became an important producer of radios, television sets, stereo equipment, and other related products. In the 1980s, the Malaysian government launched its national automobile project, the locally produced Proton car (in cooperation with Mitsubishi of Japan), and in the late 1980s, it started exporting the Proton to the international market. In the 1990s, there was further growth in the manufacturing sector, especially in export-oriented electronics production, including semiconductors, silicon wafers, and other items. Malaysia has become the world's third-largest producer, and one of the world's largest exporters, of semiconductors. As in neighboring Singapore, the Malaysian government has played an active role in industrialization and economic development. In this regard, the Malaysian Industrial Development Agency (MIDA) has been instrumental in promoting the rapid development of targeted sectors of industries (especially knowledge-and technologyintensive sectors), since all industrial projects that involve foreign direct investments (FDIs) must be approved by the MIDA. The government also used direct investments and encouraged the inflow of FDIs, establishing special exportprocessing zones where investors were given access to well-developed infrastructure and enjoyed tax breaks and other privileges. Since the 1980s, the government has actively promoted the electronics, information technology, and multimedia sectors,

and has encouraged the relocation of labor-intensive industries to Indonesia and Thailand. Most of Malaysia's electrical and electronic products are produced for export to the United States, Europe, and other markets. This makes its manufacturing economy vulnerable to downturns in the regional and international market. Despite some restrictive measures and financial initiatives, Malaysia was negatively affected by the 1997 Asian financial crisis. In 1997 and 1998, its manufacturing sector experienced serious contraction; dozens of plants were closed and thousands of workers lost their jobs. In 1998 alone, the sector was reduced by about 10.9 percent across the board. However, in 1999 and 2000, Malaysia managed to reverse the recession in manufacturing, and this sector experienced an impressive growth of 12 percent per annum. Malaysia is one of ASEAN's leading exporters of furniture, with total exports reaching about US$1.02 billion (RM3.9 billion) in 1999. Access to cheap local wood makes Malaysian furniture manufactures very competitive in the international market. In 1999, the United States was the largest single market for Malaysian wooden furniture (37 percent), followed by Japan (14 percent), Singapore (9 percent), and the United Kingdom (9 percent). If the rapid growth in this sector remains unchanged, by 2005 Malaysia could become one of the top ten furniture exporters in the world.

SERVICES TOURISM.
Tourism is becoming an increasingly important sector of Malaysia economy. Together with the retail sector, it provides employment for almost 1.57 million people, or around 17 percent of the labor force. Roughly 7.5 million tourists visited the country in 1999, contributing RM10 billion to the national economy. This makes tourism one of Malaysia's top foreign exchange earners. According to the national authorities, the country has 1,426 hotels, the total room capacity of which almost doubled during the 1990s to about 110,000 in 2000. Most visitors have been from Singapore, Thailand, Indonesia, Japan, China, the United Kingdom, and Australia. In order to develop tourism, Malaysia has promoted its diverse cultural environment, hosting a number of cultural festivals and performances. It has also publicized its rich

natural heritage, which includes tropical forests, coral reefs, unspoiled mountain ranges, rivers, and national parks. The country offers tax-free bargain shopping and excellent service, with top-class hotels such as Sheraton, Hilton, Intercontinental, and other well-established international chains opening branches. It offers a wide variety of activities, from eco-friendly and adventure tourism to scuba diving and relaxed family holidays on the numerous Malaysian islands and beaches. Additionally, Malaysia has signed visa-free regimes with most countries in Asia, the Americas, and Europe, enabling international tourists to travel to Malaysia without obtaining entry visas. In 1997, however, tourism suffered from the regional financial crisis and by the smog caused by several months of forest fires in Indonesia. The number of tourist arrivals declined significantly in 1997 and 1998; however, there was a strong recovery in arrivals in 1999 and 2000.

FINANCIAL SERVICES.
The financial service industry is another rapidly growing sector of Malaysia's economy. In terms of employment, it almost doubled from 230,900 people in 1988 to 447,200 people in 1998. Traditionally, this sector was built around the banking system, investments, insurance, and some other activities. For more than a decade until 1997, the financial service sector experienced rapid expansion fuelled by the inflow of Foreign Direct Investments (FDIs), reasonably cheap credits, and overall rapid economic growth in all sectors of the economy. Malaysia developed a sophisticated computerized banking payment system, encouraging development of electronic payment systems and electronic banking. The U.S.-based Motorola and Unisys have taken part in these projects as members of consortia that included local companies. Malaysia's government considered developing Kuala Lumpur into a regional financial center, competing with Singapore for this role, although it was slow to allow foreign brokers to operate at the Kuala Lumpur Stock Exchange (KLSE). The 1997 regional financial crisis started with the collapse of the Thai currency (the Baht), which severely affected the Malaysian financial sector. Share and property prices declined significantly, provoking panic among local and international investors. Within a short time, the Malaysian ringgit had depreciated against major international currencies, especially the U.S. dollar. This inflicted considerable damage on local businesses, as a significant number of credits were in U.S. dollars and local companies faced extreme difficulties repaying those credits. The Kuala Lumpur Stock

Exchange (KLSE) lost more than half its value, plunging from RM807 billion in the middle of 1996 to RM376 billion in the middle of 1997. In response to this crisis, the Malaysian government imposed currency and capital controls, locked in foreign investors' share holdings for 1 year, and initiated a share-buying scheme with the government-controlled funds. In 1999 and 2000, financial services began their recovery, and the government slowly eased various restrictions and state control in this sector.

RETAIL.
Traditionally, in Malaysia many small and medium-sized businesses were built around the retail sector and were often associated with small shops and cafs run by Chinese merchants. The retail sector grew, in terms of its size and quality of service, due to a general rise in income among the population and an increase in tourism arrivals. In the 1990s, major international retail chains such as Yaohan and SOGO of Japan, Marks and Spencer of the United Kingdom, MAKRO of France and fast-food franchises such as McDonald's, Kentucky Fried Chicken (KFC), and others opened outlets in Malaysia. However, there are still a number of small family-run traditional shops and cafs, selling both imported and locally-made products. Tourists can also buy pirated products, including footwear, optical disks (CDs), and computer software. According to one study, piracy may have accounted for losses of US$84.2 million (RM320 million) in market value in 1999. In April 2000, the United States Trade Representative (USTR) placed Malaysia on the special Priority Watch List for its failure to reduce pirated optical disc production and export. In response to this, the Malaysian police regularly launch crackdowns on unlicensed software businesses.

DEPENDENCIES
Malaysia has no territories or colonies.

Rafis Abazov CAPITAL:

Kuala Lumpur.

MONETARY UNIT:
Malaysian ringgit (also known as the Malaysian dollar). One Malaysian ringgit (RM1) equals 100 sens. There are coins of 1, 5, 10, 20, and 50 sens. Paper currency is in denominations of RM2, 5, 20, 50, and 100.

CHIEF EXPORTS:
Electronic equipment, petroleum and liquefied natural gas, chemicals, palm oil, wood and wood products, rubber, textiles.

CHIEF IMPORTS:
Machinery and equipment, chemicals, food, fuel, lubricants.

GROSS DOMESTIC PRODUCT:

US$229.1 billion (at purchasing power parity, 1999 est.).

BALANCE OF TRADE:
Exports: US$83.5 billion (1999 est.). Imports: US$61.5 billion (1999 est.). http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Malaysia.html

The Globalization of the Malaysian Economy

Economic 'globalization' is generally defined as the openness, integration, and interdependence of various economies, whereby economic activities, products, services, capital, intellectual properties and investments are flowed across borders; whereby global resources are operated internationally. Malaysia showed her commitment in accepting the challenges of globalization by joining the General Agreement on Tariffs and Trade (GATT), and further ratified the establishment of the World Trade Organization (WTO) on 6 September 1994 (to replace the GATT with effect from 1 January 1995). So far, globalization has yielded multiple effects to the Malaysian economy, both positive and negative. Since Malaysia's independence, she has been since one of the most globalized developing countries. Hence, globalization is claimed to be the major factor to Malaysia's phenomenal economic development and growth. As Anwar Ibrahim once mentioned, "Globalization has done us a good service, particularly in the economic sphere, a sphere in which the table has been turned, with the denominator fearing the loss of his domination." In essence to liberalize trade, Malaysia offered to reduce tariffs on 79% of imports in 1992, and converted non-tariff measures into tariffs,

mainly for import licenses involving approval permits (APs). With these measures, Malaysia benefited from increased manufactured exports and improved consumer welfare. These measures also saw her trade to Gross Domestic Product (GDP) ratio rising, and index of trade liberalization decreasing, indicating the increase in her economic liberalization year-by-year. In addition, several globalization steps in the agricultural market, such as reducing most of the major agricultural products' tariffs by 35%, and converting all non-tariff import regulatory measures to tariffs have improved the access of this sector to markets for manufactured exports. On the other hand, globalization has been claimed to be a threat (from developed countries) to developing countries' autonomy, both economically and politically. As stated by the Mexican President, Ernesto Zedillo Ponce de Leon in the recently held World Economic Forum in Davos, "The motives for 'globalphobia' had more to do with vested interests and fears of competition than any real altruism or concern for developing countries." Hence, globalization (particularly in the financial sector) is once blamed to be the nuisance behind the 1997-98 crisis. Subsequently, it was extended to the implementation of the ASEAN Free Trade Agreement (AFTA), which is claimed to result in an increase in income inequality and poverty within the country, which may then lead to the collapse of the local small and medium-sized industries (SMI). Plus, the phasing out of the Multi-Fiber Agreement (MFA) by 1996 (in accordance to the GATT) would adversely reduce Malaysian markets in textile/clothing to the developed countries due to incompetitiveness. In addition, the economic liberalization has indirectly made the economy increasingly susceptible to external shocks, and undermined the expansion of domestic industrial capacity and capability. Terms-of-trade (TOT) has declined severely, provoked by the decline in TOT for primary commodity and manufactured products. This saw Malaysia incurring trading losses from RM 809 million in 1961 to RM 53,691 million in 1997, and in total led to a decrease in the export purchasing power, and reduced the quantity of imports into the country. The establishment of the Trade-Related Investment Measures (TRIMs) and Trade-Related Intellectual Property Rights (TRIPs) further deepened the disadvantage of Malaysia to developed countries. Although the TRIMs has practically increased the foreign direct investment (FDI) into Malaysia (manufacturing: RM 1,880.6 million in 1971-79 to RM 80,870.4 million in 1990-94), it indirectly eliminated any investment conditions favoring domestic industries, benefiting only transnational corporations' (TNCs) interest and leverage, usually at the expense of national reign. The establishment of TRIPs then tightened the monopolies of TNCs over various technologies, enhanced the technology superiority of the developed nations (whereby most TNCs originated from), and practically limited technology transfers. The impact of TRIPs was envisaged in Malaysia's pharmaceutical industry, whereby price of drugs increased between 6110%, and availability of new drugs and medicines was constrained. To add further impact, the establishment of the General Agreement on Trade in Services (GATs), whereby the 'most-favored-treatment' (MFN) is extended to all participating nations and the World Trade Organization (WTO), whereby innovations were established for effective implementation of the GATT, places Malaysia into deeper handicap compared to developed nations. In sum, globalization can be viewed as a double-edge sword, yielding advantages or disadvantages to the Malaysian economy, depending on the approach. Thus, globalization must be approached rationally, moderately and selectively, rather than whole-heartedly as most people believe it should be.

http://www.freewebs.com/suaraanum/0310b02.htm

Slides:
Introduction of malaysia:
Malaysia is a country in Southeast Asia that consists of thirteen states and three Federal Territories, with a total landmass of 329,845 square kilometres (127,354 sq mi). The capital city is Kuala Lumpur, while Putrajaya is the seat of the federal government. The population stands at over 28 million inhabitants. The country is separated into two regions, Peninsular Malaysia and Malaysian Borneo, by the South China Sea. Malaysia borders Thailand, Indonesia, Singapore and Brunei. The country is located near the equator and experiences a tropical climate. Malaysia's head of state is the Yang di-Pertuan Agong, an elected monarch, and the head of government is the Prime Minister. The government is closely modeled after the Westminster parliamentary system. Malaysia as a unified state did not exist until 1963. Previously, the United Kingdom had established influence in colonies in the territory from the late 18th century. The western half of modern Malaysia was composed of several separate kingdoms. This group of colonies was known as British Malaya until its dissolution in 1946, when it was reorganized as the Malayan Union. Due to widespread opposition, it was reorganized again as the Federation of Malaya in 1948 and later gained independence on 31 August 1957. Singapore, Sarawak, British North Borneo and the Federation of Malaya merged to form Malaysia on 16 September 1963. Tensions in the early years of the new union sparked an armed conflict with Indonesia, and the expulsion of Singapore on 9 August 1965. During the late 20th century, this Southeast Asian nation experienced an economic boom and underwent rapid development. Bordering the Strait of Malacca, an important international shipping crossroad, international trade is integral to Malaysia's economy. Manufacturing makes up a major sector of the country's economy. Malaysia has a biodiverse range of flora and fauna, and is also considered one of the 17 megadiverse countries.

Malaysia Profile:

Area: 329,847 sq km (127,355 sq miles) Population: 28.3m (2010 estimate) Capital City: Kuala Lumpur (population: 1.5m); Putrajaya (Administrative Capital) People: Bumiputra (mostly Malays) (66%), Chinese (25%), Indians (8%), Others (1%) Languages: Bahasa Malaysia (Malay) is the national language. Other languages include Chinese, Tamil and Iban. English is widely used.

Religions: 55% Muslim, 17% Buddhist, 12% Taoist, 7% Christian, 7% Hindu, 2% Animist/Other Geography: Malaysia has two geographically distinct areas. 11 of its 13 states are in Peninsular Malaysia, bordering Thailand and Singapore. Sabah and Sarawak, as well as the federal territory of Labuan, form East Malaysia on the north of Borneo, bordering Indonesia and Brunei. Currency: Ringgit Malaysia (RM) Major Political Parties: Malaysian political parties are distinguished more by their differing racial compositions than by competing political philosophies. The Government has been dominated since Independence by the Barisan Nasional (BN), a coalition of the United Malays National Organisation (UMNO), Malaysian Chinese Association (MCA), Malaysian Indian Congress (MIC), plus a series of smaller parties (mainly from the East Malaysian states of Sabah and Sarawak and reflecting their complex ethnically mixed populations). The main opposition parties are the Democratic Action Party (DAP), the PanMalaysian Islamic Party (PAS), and Parti Keadilan Rakyat (PKR - People's Justice Party). These three parties formed the loose coalition Pakatan Rakyat after the March 2008 elections. Government: Constitutional Monarchy: the King (Yang di-Pertuan Agong) is drawn on a rotating five-year basis from the Sultans and hereditary rulers of the states of the Malay Peninsula. Head of State (Agong): HM Al-Wathiqu Billah Tuanku Mizan Zainal Abidin Ibni Al-Marhum Sultan Mahmud Al-Muktafi Billah Shah Prime Minister: Datuk Seri Najib Tun Razak Foreign Minister: Dato Sri Anifah Aman Membership of international groupings/organisations: Malaysia is a member of the Commonwealth, the UN, the Asia-Europe Meeting (ASEM), the Association of Southeast Asian Nations (ASEAN), the Non-Aligned Movement (NAM), Asia Pacific Economic Co-operation (APEC) and the Organisation of Islamic Conference (OIC).

http://www.hawker.com.bd/news_details.php?news_id=63656&news_categor y_id=19&val_lan=2
http://www.economywatch.com/economic-development/malaysia.html

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)_per_capita http://en.wikipedia.org/wiki/Tourism_Malaysia

http://www.unescap.org/ttdw/Publications/TPTS_pubs/pub_1748/pub_1748_TPC.pdf http://www.ehow.com/about_5481917_tourism-development-malaysia.html http://www.ehow.com/about_5389720_types-tourism-malaysia.html

Malaysian Mobile Market Reaching the Maturity Stage

A research note from IDC notes that with Malaysia's mobile services market reaching a maturity stage, mobile phone vendors will have a challenging time increasing the mobile unit shipments in the country and will need to be flexible while executing their business strategies.

The impact of the global economic slowdown in year 2009 will also impact the mobile phone vendor bottom line in year 2009 but is expected to recover quickly once the Malaysia economic improves. "The market outlook for the mobile phone industry in year 2009 may not be as strong as a year ago but the market is anticipated to improve over time and reach 6.4 million units by year 2013. Strong competition by incumbent mobile phone vendors (Nokia, Samsung, Sony Ericsson, LG, Motorola) and late-entrant vendors (Apple, RIM, Google, and Microsoft) in the future will continue to keep the industry fresh and vibrant, creating a strong demand for mobile phones in the market. The migration of 2G subscribers to the 3G network will also increase the number of 3G mobile phones being shipped in Malaysia over the next few years," says Chua Fong Yang, associate analyst, Telecommunications Services, IDC Malaysia.