Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : THE SHANGRI-LA HOTEL, KUALA LUMPUR
Tarikh/Date : 17/11/87
Tajuk/Title : THE OPENING OF THE NINTH CONVENTION
OF THE PERSATUAN EKONOMI MALAYSIA
ON "STRATEGY FOR GROWTH: TOWARDS A
MORE COMPETITIVE ECONOMY"
Datuk Dr. Mokhzani Abdul Rahim,
President Persatuan Ekonomi Malaysia;
Distinguished Guests;
Ladies and Gentlemen,
I am pleased to be here today to officiate at the
opening of the Ninth Convention of the Persatuan Ekonomi
Malaysia. This year's theme: "Strategy for Growth: Towards
a More Competitive Economy" reflects a key objective of
public policy - an objective foremost on the minds of both
the Government and the private sector. I hope your
deliberations over the next few days will bring forth new
ideas to contribute positively to the Nation's efforts to
revive the Malaysian economy.
2. Over the past year, many conferences, seminars,
dialogues and panel discussions have been organised to
extract ideas and views from across a wide cross-section
of the population on what is needed to put the Malaysian
economy back on track. In an increasingly unstable
international trading environment, fresh ideas and new
approaches have not been easy to come by. For a commodity-
dependent country, like Malaysia, how should we respond when
writers like Peter Drucker see no future for raw material
producing countries because they have come "uncoupled" from
the industrial economies? Likewise, since we are looking
towards industrialisation to help solve our unemployment
problem, the same message is repeated - namely, industrial
production has also come "uncoupled" from employment, the
argument being that the more competitive industries today
are those that are technology and knowledge-driven, such
as electronics, genetic engineering, pharmaceuticals and
telecommunications. And, of course, the
impact of recent events in the world's stock exchanges bear
testimony to the sad observation that economic performance
these days is becoming less dependent on underlying
macro-economic fundamentals, and more on financial
transactions based on rapid and massive capital movements,
which are strongly linked to the vicissitudes of market
sentiments.
3. An underlying message which is worth our while to
consider is that structural world changes have overtaken us.
It is urgent that Malaysians put their act together to adapt
to these new demands and challenges.
Ladies and Gentlemen,
4. Today, we in Malaysia are beginning to see the benefits
of the painful adjustment programme undertaken in earnest
since 1983. We are now better off than we had been for some
time. This year, real GDP growth will be modest. The
Minister of Finance talks of 2% in 1987 and 4% next year.
But, because our international terms of trade have improved,
current incomes will increase faster. This year, national
income should be up 6%, after two years of absolute declines
in income: 8% in 1986 and 3% in 1985. As a result, consumer
and corporate demand can be expected to perform better. For
the first time since 1979, we are seeing a turnaround
in the current account of the balance of payments to a
surplus position. The external payments position will
continue to look good in the immediate years to come. Our
reserves have reached a level where we can afford to
pre-pay some of our external debt. For the first time, too,
the size of the Federal Government's external debt will
shrink. Only the budget deficit remains and with the
Government's steadfast commitment to trim spending and
winddown the role of the public sector, there is every
possibility that the Government will be able to achieve
its objective of balancing its current Budget by 1989.
5. However, against such achievements, several problems
remain. For one thing, the economic recovery thus far is too
narrowly based. Indeed, it is still far too dependent on
higher commodity prices and short-term expansion of the
export sector. The domestic sector has yet to respond
adequately to the stimulus. Although recent reports of
company performance indicate that many companies listed on
the Kuala Lumpur Stock Exchange are in the black, and in
some cases, earning good profits, we have yet to witness a
flood of spending on capital outlays.
6. Despite the pick-up in domestic private investment,
unemployment is expected to reach 9.1% of the labour force,
involving some 570,000 persons in 1987. This has prompted
some to suggest that the Government should reflate the
economy with large doses of counter-cyclical expansionary
spending. In other words, take the easy way out. Our
experience in the 1980s have shown that this is not the
proper approach. The Government cannot spend more without
taxing more. We cannot spend what we cannot afford.
Borrowing unduly raises the public debt, the servicing of
which will divert large sums from our current account, thus
penalising future generations with higher taxes, not to
mention the adverse impact on the Government's credit
worthiness, the economic distortions that are likely to
arise over the longer term, and equally important, the
"crowding-out" effects on private initiative.
7. Yet it is clear that unless money is expanded on some
local activities, jobs will not be created and domestic
economic activities will not be stimulated. It is for this
reason that the Government proposes to privatise several
major civil projects which can lead to substantial
construction activities. This way jobs will be created and
there will be a market for a lot of local products without
involving the Government in massive spending and increased
debt servicing.
8. The Budget strategies outlined for 1988 and beyond are,
I believe, the right ones. They represent
a fine balance of what the Government should do, given its
reduced resources, and what we want the private sector to
do. We have already ensured that businessmen and
entrepreneurs have ready access to adequate funds, at
reasonable cost. With our limited resources, priority will
be given to fighting poverty and improving the living
conditions of the poor; to investing in basic economic
infrastructure; to ensuring that the Government plays its
part in assisting - as a matter of priority - the private
sector to grow and thereby, hasten the process of economic
recovery. We also want to see to it that our social services
are adequate and our national defences strengthened.
9. To succeed,there is no doubt that we need a dynamic and
competitive private sector. But, that is only a necessary
condition, not a sufficient condition. We also need an
expanding and stable world economy. We must recognise the
reality that our success will depend, just as much on our
own efforts as on the successful efforts to bring about
growing and open markets in the industrial world. That
responsibility lies mainly with the United States and its
principal trading partners, notably Japan and West Germany.
10. It has become a cliche that money talks. Over the past
year, the talks have been so noisy as to be deafening.
First the US dollar and interest rates rocketed up. Then
there was ascreeching fall. Then, the cries of "foul play"
on Wall Street following the Ivan Boesky scandals, not to
mention the "Big Bang" in London. More recently, we all
heard the stock markets, led by Wall Street, ripping through
the roof. This was followed by a screaming dive back through
the roof and down to somewhere below the basement. All this
while real business i.e. the production and marketing of
goods and service was all but forgotten. Good performance
and dividends are irrelevant when much more can be made
selling pieces of paper with imaginary values. The modern
commodities are money and shares, the purchase and sales of
which far exceed real world trade in goods and services
over any time period. When currencies become goods and are
so traded, something must be fundamentally wrong.
11. What is fundamentally wrong is that technology has
outstripped human capabilities to make use or take advantage
of these technologies without disturbing human environment.
Technologically the Strategic Defense Initiative is entirely
possible. But to attain this possibility all the resources
of a state has to be diverted to these weapons which ideally
should not be used if they are to serve their purpose. And
so we have the fantastic deficits in the US which without
doubt distorts the total industrial development not only of
the US but also the whole world.
Russia whose people are poor will now divert their resources
to keep up with the US. With so much money diverted to the
endless search and manufacture of increasingly more
effective and more costly weapons, all other areas must
be starved of money.
12. If there is going to be recovery, the mad race to
design and manufacture endlessly improved arms using ever
more sophisticated and ever more costly technology must
stop. Money must go back to the production of useful and
cheaper necessities or even luxury items, the production
of which will consume raw materials, create jobs and spread
wealth throughout the world. Sanity must return to the
business world and real profits must replace non-taxable
capital gains as the attraction of the stock markets. 'Big
Bangs', computers, automatic purchases and sales of shares
need to be re-studied so that wild swings in stock market
prices will be replaced by more sensible ups and downs.
13. The linkages in the world financial and stock markets
cannot be broken. Since small poor countries cannot
influence the market or the world's economy much, the major
economic powers must accept the responsibility of restoring
the world's economy. The confidence of the world has been
badly undermined by recent events but cool heads and strong
political leadership among the big powers can still restore
equilibrium.
Ladies and Gentlemen,
14. On our part, we must not lose hope. We have undertaken
the necessary adjustments and emerged leaner, but stronger
and hopefully, wiser. What is important is whether our
economic strategies are beginning to pay off in terms of the
more basic goals of growth and stability. In a number of
areas, developments in the past 6 months have been strongly
encouraging in that respect:
First, the evidence by now is clear that our balance of
payments has turned the vital corner, despite sluggish
real growth. This year's current surplus is
significant. We can look forward to another in 1988.
Second, this year's Budget deficit is smaller. Next
year's should be much smaller still. We are determined
to make real progress here.
Third, we have had little inflation and the chances are
good that we will be able to manage this aspect of our
lives within prudent bounds next year.
Fourth, the signs are getting clearer that private
domestic consumption is rising, slowly but surely. The
recent fall in stock market values will no doubt make
consumption spending more cautious. But, export growth
remains firm - the income effects of this continuing
trend is surely positive.
Fifth, manufacturing activity has picked up decisively
and the prospects for further business investment,
especially foreign direct investment, is improving. The
signals we are getting from foreign investors are
particularly encouraging. I wish I can say the same for
domestic re-investment and new investment.
Sixth, capital inflows have continued to be strong. So
much so that Bank Negara's reserves are up
significantly, despite debt prepayments by both the
Government and private sector enterprises. What is
particularly encouraging has been the persistence of
these capital inflows in the wake of the October 19th
Wall Street "collapse".
Finally, the ringgit continues to remain stable in the
face of low interest rates. Of equal importance, of
course, has been continuing evidence of restraint and
discipline on costs and wages in much of Malaysian
business, especially the Government and the banking
sector.
15. While all this is well and good, risks and problems are
also apparent. Indeed, all is not safely and securely home.
As I mentioned earlier, unemployment is too uncomfortably
high. Outside selective parts of the manufacturing industry
and to a lesser extent agriculture, the statistics suggest
continuing sluggishness and poor productivity growth. We
will need to do much better.
Ladies and Gentlemen,
16. In terms of strategy, we should persevere with our
present package of policies aimed at nurturing a more
competitive order so that the economy can generate growth on
its own momentum. A more competitive order will help revive
private sector activity. Although private business activity
is expected to surpass its lacklustre performance of recent
years, I cannot but repeat how crucial it is for the private
sector to become the dynamic growth centre for the rest of
this decade. The decline in private investment, other than
in oil and gas, is disturbing. Between 1981 and 1986,
available statistics show that non-oil and gas private
investment outlays have been declining at an average annual
rate of nearly 2%. The contribution of private investment
to GDP growth was negative over the same period. In the
case of the public sector, its contribution to growth had
been a positive 2 percentage points. This sluggishness
in private sector investment must be reversed. Without a
healthy growth in investment, GDP growth will not be
sustainable. That is why we must do all we can to encourage
private investment.
17. So far, the Government's strategy for the private
sector had been directed mainly at the provision of adequate
incentives, including reducing the rates
on corporate tax, electricity and communication charges,
liberalising the guidelines governing equity participation
in export-oriented industries, and deregulation to reduce
cumbersome rules and procedures. If the economy is allowed
simply to grow on its own momentum over the medium term,
depending mainly on the fortunes of the international
trading environment, real GDP growth is unlikely to exceed
3% per annum by 1990. However, if the private sector puts
its act together to take full advantage of the Government's
incentives on investment and its privatisation programme,
real GDP growth could realistically gain by an additional
1-2 percentage points. The present sitution calls for
daring, innovative and imaginative entrepreneurs. The
lessons of history tell us that the take-off to sustained
growth in any society requires the existence, initiative and
reasonable skill of some group which is prepared to take
risks and venture into new enterprises. Indeed, the real
remedies lie deep in human attitudes and behaviour. Granted,
it cannot change overnight. But, as the current values and
behaviour must have developed from a more primitive
beginning, so can the process of value changes take of ffrom
the present ones. It remains for us to cultivate the right
kind of changes.
Ladies and Gentlemen,
18. Our nation is blessed with abundant natural resources,
which need either to be exploited raw or with varying degree
of added value in order to yield handsome returns. But I
note that businessmen have been turning more and more to the
financial markets with its promise of quick and substantial
returns. A financial market is only real and viable if it
is backed by sound economic activity with growth of assets
and dividends. Capital gains without real economic growth
is like a growing skyscraper without foundation. Sooner or
later it is going to crash down. As you are aware it has
crashed on a worldwide unprecedented scale. Instead of
waiting for the market to recover, businessmen should go
back to doing business, to producing goods and services and
marketing them at a profit. The stock market should be used
to raise capital for these enterprises.
19. If you must speculate, do so on a reasonable scale.
There must be some relationship between prices and the
performance of the enterprises. Computers should not totally
displace humans in the buying and selling of shares. The
old study and probe into the basic foundations of the
companies must return as the basis for decisions to sell or
buy. If there must be speculation, it should be sane and
healthy.
20. I am told that wages and salaries in selected industries
within the manufacturing sector had risen on an average by
about 10% in the period 1981-85.However,for the same period,
productivity in these manufacturing concerns only rose at an
estimated 3.5% annually, resulting in a 6.5% increase a year
in our unit cost. Workers wages in this country are
relatively higher than among our major competitors in the
region. Since it is neither wise nor possible for wages to
be reduced in order to bring down unit cost, the only thing
that can be done is to increase productivity.
21. While hard conscientious work by workers can definitely
improve productivity, managers must also look
into the system of working and the use of aids in order to
improve productivity. Unnecessary and careless spending is
another cause of high unit cost. In other words while
workers play a role in determining the level of
productivity, managers and other executives cannot be
completely excused for poor productivity in any enterprise.
It is imperative that Malaysian managers look critically
at themselves as much as at their workers.
Ladies and Gentlemen,
22. With these words, I wish you success in your
deliberations and I now have much pleasure in declaring
open the Ninth Convention of the Persatuan Ekonomi Malaysia.
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