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| Written by Our Correspondent | |
| Wednesday, 25 November 2009 | |
 Some good news, some bad news from the World Bank
Despite former Prime Minister Mahathir Mohamad's Vision 2020 of a self-sufficient industrial society by 2020, fundamental social changes are needed if Malaysia is to reach the ranks of the rich nations. That is the crucial subtext of a recent report on the Malaysian economy produced by the World Bank. Of course, being an international organization, the bank cannot put things so bluntly. But it is the conclusion that can be drawn from a report which, while complimentary about economic management and reasonably optimistic about the short to medium term, focuses on the need to improve skills, competition, inclusiveness and the investment climate for private investment. For Malaysians there are no prizes for guessing the impediments which lie in the way. In the short term the economy is on a recovery path, with the bank suggesting 4 percent growth in 2010 after a 2 percent contraction this year and implying that the medium term outlook is satisfactory. But "for Malaysia to climb the next step up the income ladder it needs to prioritize on improving the investment climate to focus on productivity growth." In fact the government has already promised a "New Economic Model" and Prime Minister Najib Tun Razak has taken some steps to encourage private investment by easing requirements for non-Bumiputras in some areas. More are likely. But whether there is the political will to address underlying social issues is another matter. The report underlines one of the more remarkable, if seldom remarked, facts about Malaysia: for almost the whole of this decade it has registered a current account surplus of over 10 percent of GDP. It peaked in 2008 at almost 18 percent and even a manufactured export slump caused by the global crisis has not eliminated it. At one level this has enabled official Malaysia to go from being net foreign debtor to net creditor, with loans repaid and a sharp rise in foreign exchange reserves. This turnaround has surpassed that of any of the other crisis countries. But it also reflects a sustained slump in private investment, which has yet to recover from the Asian crisis. Private savings have been strong but much of that has moved offshore, either seeking higher returns or a more benign operating or political climate. Malaysia's savings excess is extreme even by the standards of East Asia where surpluses are the norm, and is reflected more in private outflow than official accumulation reserves. There has always been some private capital outflow from Malaysia but for years that was more than matched by foreign investment, which created most of the manufacturing sector. But foreign investment has been meager since the Asian crisis even as it has picked up in other former crisis-hit countries. Given the state of OECD economies and the fact that China and Vietnam are competitors for manufacturing investment dollars, the outlook for a new round of foreign investment is modest. Yes, Malaysia can attract footloose money from the Gulf and maybe China into real estate and the stock market. But direct investment in employment-generating projects is much harder to find. Also foreign investment plays a major role in technology upgrading, so lack of it will keep productivity growth low. As it is, access to a cheap foreign labor pool also impedes productivity growth while providing a cushion of workers who can bear the first brunt of recession and hence delay the social adjustments that Malaysia needs. Public investment now exceeds private investment, a troubling state of affairs given the structure of the economy. Public investment has of course created a mostly excellent physical infrastructure which remains an attraction for investors – and tourists. But the report suggests that a lot too has gone to projects with scant economic returns. Waste of public money is well enough known in Malaysia, where at least a few scandals come to public attention. But the broader macro-economic consequences of unproductive spending gets less notice. The activities of government and government-linked companies have crowded out the genuine private sector, reduced opportunities and squeezed expected returns. Anti-competitive practices were a major concern, particularly in the services sector, which was supposed to be the main driver of growth. Crime, bureaucracy and other government related problems were also obstacles to a recovery in private investment. The other area of major concern was the shortage of skilled labor and the educational standards needed to get Malaysia to a higher level. Again, outsiders at least see social policies are clearly at least partly to blame. While there are areas of innovation and excellence such as the development of Islamic Finance products in a orderly and systematic manner unequalled elsewhere. But the overall innovation performance is very weak, says the Bank. The weakness of private sector investment has been partially offset by government spending increasingly paid for by government borrowing. So-called "fiscal consolidation," to use the Bank's euphemism for smaller budget deficits, is now accepted by the government and was reflected in the recent budget. But if the private sector remains so reluctant and ships much of its savings overseas, the government will have little choice but to continue stimulus, at least so long as the external position can sustain it. There is no threat there at least so long as commodity prices remain quite buoyant and manufacturing continues to recover gradually from the shock earlier this year. But prolonged deterioration in Malaysia's terms of trade would produce a very different set of circumstances including rising youth unemployment, which would make social policy changes more urgent but conceivably also more difficult in this racially compartmentalized society. At the macro-economic level Malaysia remains run in a pragmatic but cautious manner. But just as Najib not one for taking Mahathir-style risks with economic policy, so he may be incapable of taking the risks with social policy necessary to get Malaysia out of its comfortable but resources dependent niche to a higher level of development.
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Where are the UMNO pirates and their crones?
written by retired pirate , December 01, 2009
No wonder Malaysian economy is in the doldrums. Malaysian ministers practise the "one for you and two for me" policy - one dollar for you and two dollars for me. The wealth of the country is sucked into the pockets of UMNO Putras and their cronies. There is so much wealth among the Malays, it is about time they stop the hoarding and bring it all out to help their country, i.e if they have any love for the country. Judging by their actions, their only aim is to milk all they can from the government as well as the people. Imagine - the money for the 9th Malaysian Plan has already been taken by the 8th Malasian Plan. Most of it into the pockets of UMNO Putras and their cronies. What have they done for the country? They keep whipping up religious and racial animosity towards their non Muslim non Malay fellow citizens! That's the way to stay in power and to keep hoarding money. Piracy rules in Malaysia. It is about time Malaysians realise that the Malays have failed the country. It is time for the non Malays to come to the rescue again (like the old Malacca Sultanate who had to depend on Admiral Zheng He for support).
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mbt
written by mbt shoes , November 28, 2009
Malaysia can attract footloose money from the Gulf and maybe China into real estate and the stock market.
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written by sickput , November 27, 2009
At one time, UK was the sick man of europe. That was until Maggie Thatcher came into power.
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Malaysia need that someone NOW. report abuse
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nfg7ui
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