Oleh/By		:	DATO' SERI DR. MAHATHIR BIN MOHAMAD 
Tempat/Venue 	:	HOTEL SHANGRI-LA, KUALA LUMPUR 
Tarikh/Date 	: 	05/09/88 
Tajuk/Title  	:	MAJLIS MAKAN MALAM TAHUNAN 
			INSTITUSI-INSTITUSI KEWANGAN 
			YANG KE-10 




 Yang Berbahagia Tan Sri Basir Ismail,
     Pengerusi Jawatankuasa Penganjur;
Yang Berhormat Datuk Paduka Daim Zainuddin,
     Menteri Kewangan;
Yang Berbahagia Tan Sri Jaffar Hussein,
     Gabenor Bank Negara;
Dif-Dif Kehormat;
Tuan-tuan dan Puan-puan sekalian.
    Saya  mengucapkan terima kasih kepada Ahli Jawatankuasa
Penganjur Majlis  Makan  Malam  Tahunan  Institusi-Institusi
Kewangan  Malaysia  kerana menjemput saya dan isteri saya ke
Majlis ini.
2.   Ini adalah kali yang  ketujuh  saya  menghadiri  Majlis
Institusi  kewangan ini.   Pada majlis-majlis yang lalu saya
mengambil kesempatan untuk memberikan pandangan dan pendapat
saya mengenai keadaan ekonomi  serta  peranan  dan  prestasi
institusi-institusi kewangan di negara ini.  Seperti dahulu,
saya bercadang untuk meneruskan amalan tersebut dalam Majlis
pada malam ini.
Ladies and Gentlemen,
3.   When I spoke to you a year ago, the feeling of recovery
was already in the air.  And yet, barely six weeks later, we
were  faced  with  the  October 19 world stock market crash,
which changed the whole scenario.   However, having  already
gone  through  the  Pan Electric crash and the co-operatives
crises of 1985/86, we took the October  19  meltdown  within
our  stride  and with very little adverse effects.  In fact,
we ended the year with a record trade  surplus  and  a  5.2%
real growth rate.
4.   Looking  back  on  a  year of solid achievements, it is
with pleasure that I address you tonight in the midst  of  a
strong and hopefully, sustained economic recovery.  Aided by
a  long  overdue  rebound  in commodity prices, a steady but
definite increase in private fixed investment,  particularly
in  the  manufacturing  sector, we have been able to achieve
once again the strong growth of the late  1970s,  with  real
GDP  growth  in  the  first half of 1988 in the order of 9%,
together with little inflation.  Indeed, the second  quarter
growth rate was about 10.5%.
5.   The  pundits  will argue that we have achieved all this
with lots of luck, because Malaysia is a lucky country,  and
because  commodity  prices turned in our favour.  Let me say
that we all have our share of good luck,  and  bad  luck  as
well,  but our long-term prosperity is dependent not so much
on luck, but on the hard work and resilience of our  people,
and the sound but tough and frequently unpopular policies of
the  Government.    Those  of  you  who  are  more  adept in
economics would have noticed that the  recent  recovery  has
been  achieved  completely  without public sector expansion.
Indeed, growth has come mainly from the private sector at  a
time  when  the public sector is still going through a tough
and highly painful adjustment  towards  fiscal  balance  and
greater  financial  discipline.   It would seem that at long
last we have been able to make the  private  sector  provide
the  impetus for economic growth.  It just goes to show that
the private sector can do it when it has to.
6.   Throughout the recession of 1985/86, the Government had
to take many necessary, but as I said politically  unpopular
steps,  to  put the economy back onto a firm and competitive
footing.  Having seen our export incomes cut drastically  by
more  than $10 billion ringgit, with all our achievements in
social progress  over  the  last  decade  set  back  by  the
recession,  the Government boldly set out to address the key
issues of competition  and  efficiency.    We  slashed  many
programmes  of  subsidies  instituted in the 1970s.  We took
the unprecedented step  of  reducing  the  growth  in  civil
service  expenditures.    We  managed  a  fiscal  adjustment
programme that cut the deficit by more than  8%  of  GNP  in
three   years,  an  achievement  unprecedented  amongst  the
developing and developed world.  But, through  perseverance,
we  turned things around.  We restored our external payments
until we achieved the first current  account  surplus  in  a
decade.    We  stemmed  and overcame the threat of financial
disorder manifested by the  failure  of  the  deposit-taking
cooperatives  and irresponsible and even criminal management
of banks.  We have only just begun to see the fruits of  the
steps taken to encourage foreign investment, particularly in
the   manufacturing  field.    All  these  have  been  tough
medicine, but we should now begin to reap  the  benefits  of
financial prudence and fiscal discipline.
7.   To  me,  what has been most important has been the fact
that the rural incomes have begun to rise  once  again,  and
that  the  large  number of graduates we have been producing
are now beginning to find jobs again.   With rising  incomes
and   profits   for   business,  and  consequently  improved
revenues, the Government will be  able  to  afford    higher
operating   costs   and   certain  desirable  infrastructure
projects that have been shelved because of the recession.  I
am optimistic that the real GDP growth for 1988 will surpass
all earlier expectations, and that this  will  generate  its
own momentum well into 1989.
8.   The  time  has  come  for  us to dwell no longer on the
problems of the mid 1980s, but to look forward to  the  next
millenium,  the  twenty-first  century.   The possibility of
making Malaysia an industrialised nation is no longer a pipe
dream.   It can be a reality.   Indeed,  it  has  to  be  if
Malaysians  expect  to  have  a better life.   Production of
primary commodities can grow by so much and no  more.    But
there  is  really  no  limit to what we can manufacture.  As
expectations  rise  we  will  have   to   move   into   more
sophisticated and more value added products in order to earn
more.    Skills  and technology can be acquired if we really
want to.  The limiting factor is our will to work  hard  and
to compete.
9.   It  is  our  ambition  to be an industrialised country.
But we are not going to forget commodities.  We have done so
well with them and we can still do a lot.    However,  broad
trends  to  the  year  2000 are discernible, and it would be
useful to have a look at what the scenario can be by then.
Ladies and Gentlemen,
10.  As Malaysia begins  to  move  into  the  ranks  of  the
industrialising  countries,  it is relevant to ask what type
of manufactures we wish to produce.  Given the small size of
our labour force, and the  present  level  of  research  and
development,  we cannot compete with Japan, Korea and Taiwan
in the high end of technology and engineering.   We have  to
be  a  niche player, going for the high value-added products
that can be competitively made using  our  natural  resource
base  and  comparative advantages.   Even with rapid growth,
our total  production  will  not  be  a  threat  to  anyone.
Malaysia's annual export of manufactures is smaller than the
United   State's  annual  consumption  of  toys!    What  is
beginning to happen in the world market today  is  that  the
consumer  wishes  to  have  greater choice for basically the
same product.   The consumer would  like  one  made  to  his
choice   of  colour,  size  and  shape.    Given  the  right
incentives and encouragement, I am  sure  our  entrepreneurs
can  find the right products to fill the right market niche.
We only need to see how our manufactured exports  today  can
exceed  even  our  oil  exports, to realise the potential of
industry.  Increasingly, we are becoming part of the network
of manufacturing activities that spans  the  world,  with  a
single product being sourced from around the world before it
is assembled and sold in its final market.
11.  We  must  also  not  forget  that the world of the next
millenium will be increasingly  a  service-oriented  market.
It  has  been  estimated  that  travel,  food  and beverage,
medical and health  care,  and  personal  services  will  be
growing markets relative to consumer durables.  World travel
alone  is  estimated to grow annually by 3.5% up to the year
1995.   Tourism will certainly  be  a  major  force  of  the
future,  with  world  travel  accounting for at least 15% of
world trade in services by the mid-1990s.  Malaysia has  not
even  begun  to touch this market.  In 1987, Thailand earned
$4.8  billion  ringgit  from  3.4  million  visitors,  while
Malaysia's  intake  was  only  $1.8 billion ringgit from 3.3
million visitors.  The tourist and service sectors can be  a
major  provider of employment, and would allow us profitably
to preserve  and  display  our  rich  cultural  and  natural
heritage.
Ladies and Gentlemen,
12.  This  time last year, I stressed the role of bankers in
turning around those ventures which had  suffered  from  the
collapse  of  prices due to the recession.  "Bankrupting all
our entrepreneurs simply because the recession has  rendered
them  incapable  of  servicing  their  loans  will  not help
anyone; neither the borrower, nor the bank nor the  nation."
These words are still true today.
13.  I  have  often  been asked why is it that investment by
domestic entrepreneurs has not risen  as  fast  as  that  by
foreign  investors.  The answer is that many of the domestic
entrepreneurs  are  still  completely  tied  down  by  their
non-performing  loans,  and few banks are willing to lend to
them to embark on new ventures.  If this happens, how can we
encourage the growth of domestic entrepreneurs?  The  secret
of success of any business is that during the good days, you
must prepare for the storms, and during the storms, you must
prepare for good weather.  Still it is unrealistic to insist
that  the  farmer  should spend all his time during the good
weather to repair his roof.  Where will he then get the rice
to feed  himself  during  the  next  storm?    This  is  the
perennial  dilemma.  Bankers cannot live in a world of their
own.      Bankers  have  allowed  deposit  rates  to   fall.
Consequently,  the  burden  on the borrower should not be so
heavy.  This is not because the market does not  favour  the
saver,  but  because the market recognises the strong inflow
of liquidity from  our  bouyant  exports,  thereby  enabling
bankers  to help nurture and support our breadwinners during
times of difficulties.    This  help  must  be  forthcoming.
Banks must pass on these benefits to their borrowers.
14.  The time has now come for the banks to be proactive, to
be  forward  looking in their approach.  One key lesson from
the  recession   is   that   bankers   need   to   be   more
businessmen-like,  and  the  businessmen need to behave more
like bankers.  By this, I mean that banks have got  to  know
the  business  of  their  customers  better,  and should now
evolve procedures and mechanisms to help  them  get  out  of
their  difficulties.  To a large extent, Malaysian banks may
have to adopt the more innovative part of the  German  model
of   banking,  where  the  bankers  use  their  professional
expertise during the reconstruction period  to  finance  and
rebuild  German industry.   We do not expect banks to become
property developers and manufacturers  in  competition  with
private entrepreneurs, but I am sure that they would welcome
the    banks   financial   and   managerial   expertise   in
rehabilitating abandoned  housing  projects,  factories  and
estates.
15.  It  is  clear  from the lessons of our recent past that
traditional  methods  of  lending  have  not  prevented  the
escalation  of  non-performing loans.  Tough times need bold
action.  The bankers and insurers will have to be more  bold
and  innovative  to  support  the  pioneering efforts of our
entrepreneurs in new markets with new products.  Whilst  the
essence of banking should continue to be prudence, financial
institutions  should  adequately address the realities - the
realities of business.  Prudence may be the staying power of
banking  but  prudence  should  not  be  exercised  to   the
exclusion  of  everything else.  All businesses must involve
risk and bankers must accept that the lenders must  share  a
little  of  that  risk.    In  this  context, I commend, for
example,  the  recent  banking  payments  agreement   signed
between the Central Banks of Malaysia and Iran, which allows
Malaysian businessmen to worry more about selling than about
financing  and  collection  problems.    Let me take another
example.  Despite our good record of successes in the estate
field, we have yet to develop  crop  insurance  policies  to
help  facilitate  increased agricultural food production and
encourage intensive cultivation of  new  crops.    Venturing
into   agriculture   involves  highly  unpredictable  risks,
especially from natural calamities and disease.  Enterprises
can effectively absorb the production and commercial  risks.
But  they  need  protection  from risks which they are quite
helpless to prevent.  Financial services must be fostered to
meet new demands through new products.
Ladies and Gentlemen,
16.  The  Malaysian  industry  should  be  restructured   by
emphasising   supply  to  both  the  domestic  and  external
markets.  With the increasing spectre of protectionism,  our
strategy  should  be  the  redirection  of  our resources to
search for new markets and to develop  new  products.    The
assistance  and  support  of the financial community in this
endeavour is, as  always,  critical.    The  private  sector
should  not  hesitate  to  operate  on  low margins with the
purpose of gaining a  greater  market  share.    It  is  not
expected that the financiers should extend 'kamikaze' loans.
With resources of over $200 billion ringgit available in the
financial  system,  a  figure that is nearly three times the
size of the  country's  gross  national  product,  there  is
tremendous scope for bankers and financiers to channel these
resources into worthwhile productive investment.
Ladies and Gentlemen,
17.  Like  the  business  community,  you  have  undoubtedly
undergone trying times and like the businessmen you finance,
those times had been cushioned, largely by  the  Government.
The  time  will  come  when  that cushion will be withdrawn.
Like the businessmen, you are now  undergoing  a  period  of
consolidation  and recuperation.   Like some of your clients
who are resorting to the  $500  million  ringgit  Enterprise
Rehabilitation  Fund, some of you are undergoing a period of
rehabilitation while there may well be  others  in  need  of
restructuring.  As we approach the end of the old era, banks
and  businessmen  alike  should  stifle  the instinctive and
overwhelming impulse to  request  for  Government  help  the
moment  they  get  into  trouble.    Just as recuperation is
dependent a lot on the patient's will  to  get  better,  the
success  of rehabilitation is heavily dependent on those who
really want to help themselves.
18.  As in the past,  I  risk  outstaying  your  hospitality
tonight  by  lecturing you on your own business.  But then I
am a politician and a politician gets lectured to or advised
on his work all the time.  I am sure that bankers too have a
lot of advice for me, only some I do not get to hear.  So  I
hope  you    do    not mind my lecturing you at least once a
year.  In the spirit of Malaysia  Incorporated  we  have  to
work  closely together to make our homeland not only livable
but also prosperous.  And there is no doubt that bankers and
politicians have a lot to do with whether we are  prosperous
or  not.    There is no harm then in our advising each other
openly.  I wish you happy lending.