Speechs in the year
Tarikh/Date 	:	23/08/83 

Saya mengucapkan berbanyak terima kasih kepada Ahli Jawatankuasa Penganjur
Majlis Makan Malam Tahunan Bersama Persatuan Bank dan Institusi-institusi
Kewangan Malaysia, kerana sudi menjemput saya dan isteri saya ke Majlis
Makan Malam ini.

2. Once again, I must thank you for this privilege to address the nation's
leading bankers and financiers. I find this annual venue a useful forum to
review our progress in the past year, and to express some layman's
observations on how the finances of the country should be managed in the
coming year. Some of you may recall that last year, I said that the major
industrial countries have inflicted upon themselves a stubborn recession,
a high rate of unemployment and a weak external payments
position. Although there have been some encouraging signs of recovery,
much of the signals have emanated from the United States. Most of Europe
is still stewing in its own juices. Even in the United States, there still
remains doubts on the sustainability of the recovery process in the face
of renewed increases in interest rates and weak capital
investment. Moreover, uncertainties on the outcome of the international
debt crisis threatens the very foundations of the American banking
system. Because of the continuing high real interest rates in the United
States, which has soaked up capital and drained money from Europe, and
even the developing countries to America, the recovery of the largest
economy in the world is at best, fragile. And between protectionism and
the unwillingness of Americans to travel abroad, the enhanced value of the
dollar is not doing anyone much good. World trade declined in 1982 for the
first time since 1975 and is expected to grow by only one per cent in
1983. As I said last year, we in Malaysia, which has one of the most open
economies in the world, will have to continue to brace our selves for a
tough economic battle. But we will be able to cope and even improve our

3. Indications are that the economy will perform better this year. We have
hit bottom and if we don't remain static, the only direction we can move
is up. On the domestic front, construction activity remains
bouyant. Petroleum production is up and LNG exports are on
schedule. Sentiment in the manufacturing sector has turned for the
better. I gather that our manufacturers are expecting a much better year
with good prospects for export growth. Commodity prices have recovered
reasonably well and indications are that the international terms of trade
is likely to move modestly in our favour for the first time since
1979. This index had fallen by 20 per cent between 1979 and 1982. Exports
are now expected to increase by 12 per cent this year, after a 4 per cent
gain in 1982. The overall external payments position should
improve. Barring unforeseen developments between now and the end of the
year, growth in GDP should be in the region of 5 -6 per cent in 1983 as a
whole. It was 4.8 per cent in 1982. Things are looking up. But we must
remain vigilant. The key to our success continues to lie in maintaining a
high rate of savings, prudent management of the Government's finances,
borrowing only to invest in projects to raise productive capacity,
especially for exports, and restoring external equilibrium.

Ladies and Gentlemen, 

4. In the last few years, we have gone through a remarkable phase of
development, in which the public sector has expanded rapidly through
determined efforts to meet the objectives of the New Economic Policy and
improve the well-being of all Malaysians. Given the uncertain
international environment, it is now timely for us to consolidate our
gains and to restructure our economy so that we will not be so dependent
upon the vagaries of the international business cycle. The international
economy is beyond our control. But, the destiny of our economy lies
largely with us. It was in the light of this perspective that we have
launched the campaign to maintain a clean, trustworthy and efficient
administration, in order to instill confidence and raise economic
productivity. We have also promoted the concepts of "Malaysia
Incorporated" and "Privatisation" as further steps towards greater
co-operation between the public and private sectors, again aimed at
greater efficiency and productivity. Although much misunderstood, the
concept of Malaysia Incorporated basically means that the public and
private sectors should work to complement and supplement each other's
efforts for the national good. Privatisation on the other hand means a
transfer of some of the functions of Government, particularly the services
and public utilities to the private sector. This process will of necessity
take time. While I recognise that a continuing public-private sector
dialogue is always useful, we cannot afford to dilly-dally. That is where
you the bankers and financiers come in. I would welcome, therefore, your
ideas on how the process of privatisation can be accelerated and
facilitated. The time has come when bankers can no longer afford to sit on
the sidelines and wait for opportunities to come knocking at their
doors. I believe that, with skilful direction and sound risk taking, the
banks and other financial institutions can make a helpful contribution to
our process of privatisation.

5. For too many years now, the public sector has been the major initiator
of projects and facilities in support of economic growth. The concept of
Government as a provider and the inherent bureaucratic nature of
Government invariably results in Government enterprises and facilities
becoming a drain on the public purse. In the meantime capital demands for
facilities has increased by leaps and bounds. Thus a new system of
telephone exchange requires ten thousand million ringgits where once only
$500,000/- was needed. Clearly the idea of Government subsidised services
cannot go on forever. Either we do without the improved services, in which
case growth will be retarded, or we pay for them. As Government is quite
incapable of separating welfare from commercial practices, the time has
come for the private sector to step in and play a greater role.

6. It is assumed that the private sector will be more efficient than the
Government. But we all know that it is not necessarily so, particularly in
Malaysia. The Malaysian private sector is timid and expects to be mothered
by the Government. They are always demanding protection of one kind or
another. While it is true that in many instances they need protection,
such protection cannot be given forever.

7. Too much molly-coddling is deleterious. It will not contribute to
robust growth and to efficiency. Protection has resulted in Malaysian
enterprises being able to survive only at home. Abroad, where Government
protection is not available, they will perish. Thus Malaysian products,
other than the primary commodities, are seldom competitive abroad. We
seldom notice this because our comfortable earnings from the commodities
give us sufficient foreign exchange to purchase all the capital and
consumer goods that we love. It is only when the commodity markets
collapse that the importance of exports, particularly the export of
manufactured products, is realised. Of course manufactured goods too are
affected by economic depressions. But they can be more easily diversified
than commodities, and new products to meet new situations are much more

8. In the years ahead, we need to strengthen and broaden our economic base
to insulate us better from global instability. We need to revitalise
agriculture, promote food production, expand the range of industrial
activity, especially in industries based on our abundant natural
resources, modernise our construction methods, expand the service
industries, and consolidate the activities of Government in support of the
national drive to industrial maturity. Central to this growth strategy
must be a vigorous programme to significantly raise exports, both of goods
as well as services.

9. In the game of exports, Malaysians are again timid and prone to avoid
risks. For ages we have produced commodities for others to sell and make
profits. We have seemingly not awaken to the fact that while we will lose
when the market is depressed, the agents, dealers, brokers and assorted
intermediaries will continue to make money. It is time that we get more
adventurous and sally forth into the wide world to sell our goods
ourselves. We must do this not only with rubber, tin, palm oil and other
commodities but also with the new products that we must manufacture. And
we must do this on a scale that is meaningful in terms of foreign exchange
earnings. There will be risks, there will be a lot of burnt fingers, but
the fact is that unless we can make an impact, we will achieve nothing. I
shudder to think of the volume of rubber or tin that we will sell today if
the pioneers had been timid people who stuck to small holdings or gravel
mines. There is a place in the domestic scene for the small industries,
but if we want to export, we will have to be big. Let us not kid ourselves
into believing that the solution to our balance of payment problem lies in
the Sungei Besi backyard foundaries.

Ladies and Gentlemen, 

10. As the country's bankers and financiers, I need not remind you that
you are the custodians of the nation's savings, and that the
responsibility for channelling resources towards projects that raise the
productive capacity of the nation rests in your hands. Indeed, as the
economy recovers, the financing requirement can be substantial. The
system's funding capacity is not unlimited. It is imperative that as far
as possible non-productive speculative activities should not be supported,
nor should conspicuous consumption encouraged. Scarce funds should be
directed at building up productive capacity, especially in the export
industries. Equally important, small-scale enterprises, particularly those
which support the export industries, should have ready access to bank
credit on reasonable terms. Our financial institutions should cultivate
and nurture the growth of these small enterprises. Ironically, banks and
many others have a tendency to impose even stricter criteria on loans to
small businesses than on the large loans. Worse, undue emphasis continues
to be placed on collateral and guarantees, instead of the viability of
projects. The time has come for new approaches to finance the small man,
who often has no land and property; only sheer determination to better
himself. Banks and other financial institutions would do well to introduce
business start-up schemes to assist them, including the provision of
venture capital.

11. To assist in the development of industries in particular, the
Government is considering the possibility of permitting the commercial
banks to invest, within prudent limits, in the equity of industrial
enterprises. This proposal, if implemented, will have far reaching
consequences on the role of banks in industrial development. I am
conscious, of course, that the banks should assume a more definite role in
acting as a catalyst to broaden the nation's industrial base. But we need
to examine this proposal carefully before taking a decision on it. As you
all know, the merchant banks have been allowed to invest in the shares of
new industrial enterprises since February 1982. Unfortunately, none of
them have been active in this area. This is a disappointment. The
intention was for them to seek out new horizons in industrial development
and participate as venture capitalists, thereby bringing closer the
relationship between the providers of funds and industry. If nothing else,
such involvement would keep the bankers well and regularly informed of
what is going on. Given the continuing uncertain economic environment, the
importance of monitoring now seems greater than ever. As in medicine,
early diagnosis and treatment of incipient problems can be of enormous
help. I hope that when the Government allows the banks to take up equity,
they will take advantage of this policy. In the meantime they should be
developing the necessary expertise.

12. To conclude, Ladies and Gentlemen, there is undoubtedly a need for
continuing flexibility in our own banking system and in being ready to
modify existing arrangements, to support the present task of restructuring
the base of our manufacturing industries and to help develop our
competitiveness in the world market. The commodities have helped us to
survive, and even prosper, but the future lies in the export of
manufactured products, where we have the most in terms of comparative
advantage, that is resource -- based goods, where resources also include
human resource, the most vital resource of all.

13. Once again, I would like to thank all of you for inviting me to this
dinner and for the opportunity to address this distinguished gathering.

Thank you.