Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : THE INN ON THE PARK, LONDON
Tarikh/Date : 25/05/89
Tajuk/Title : THE DINNER IN CONJUNCTION WITH THE
OFFICIAL OPENING OF BANK
NEGARA MALAYSIA
My Lords;
Excellencies;
Distinguished Guests;
Ladies and Gentlemen,
I am pleased to be here with you tonight and to share
with you a significant moment with the opening of Bank
Negara or the Central Bank of Malaysia's Representative
Office in London.
2. The opening of Bank Negara's Representative Office here
is a momentous occasion for us and a source of great pride
to Malaysians. For here yet again is another symbol of
Malaysian progress and prosperity since our independence in
1957. It should also serve to further strengthen the close
ties between Britain and Malaysia. Indeed, thirty-two years
after independence, the relationship between our two
countries continues to grow from strength to strength.
In the manufacturing sector, for example, nearly 25 per cent
of the total foreign investment comes from British sources.
British interests are particularly sizeable, as it has
traditionally been, in the plantation, mining, trade and
services sectors. Clearly opportunities for even closer
British-Malaysia cooperation in trade and industry abound.
All that remains is for entrepreneurs to seize the
initiative to bring them to fruition.
3. The scope for cooperation, of course, extends beyond
the realms of trade and industry. Education is one example
that quickly comes to mind. Another is defence, where the
Memorandum of Understanding signed last year between
Britain and Malaysia introduced new
dimensions to an already beneficial economic collaboration
between our two countries. And today, yet another evidence
of tangible cooperation is expressed in the opening of the
Bank Negara's Representative Office in London.
Ladies and gentlemen,
4. At the time of our independence in 1957 the Malaysian
economy was very much export-oriented, based largely on
rubber and tin. The agriculture, forestry and fishing
sectors accounted for 40 per cent of our GDP then,
providing two-thirds of the total employment and two-thirds
of the country's export earnings. Rubber alone accounted for
60 per cent while tin 20 per cent of total export earnings.
However, the per capita income was a mere US$200.
5. Malaysia experienced rapid economic transformation
since 1957 with per capita incomes rising to nearly US$1,900
in 1988. To a large extent this is due to the effective
utilisation of the nation's vast natural resources. But
diversification into other crops as well as manufacturing
for exports have not only contributed to growth but rendered
the economy more resilient. We have now become big in the
export of palm oil, timber, pepper, cocoa, oil and gas as
well as numerous manufactured items. Living standards have
consequently improved significantly, with external reserves
maintained at comfortable levels. Domestic prices are
stable, while the budgetary and external payments position
on current account again showing comfortable surpluses after
a short period of recession.
6. The crucial turning point came in 1981-82, with the
onset of the global recession and the debt crisis. Despite a
more diversified economic base Malaysia, like Britain, was
not spared from the contractionary effects of the world
recession. In Britain, I understand, the recession of 1981-
82 witnessed unemployment reaching record levels, while the
inflation rate remained extremely high at over 20 per cent.
At the same time, industrial production and the Gross
Domestic Product slumped and company bankruptcies soared.
With the implementation of tough adjustment policies
designed to liberalise the economy in the midst of world
recession, the British economy began to improve in 1983
with inflation brought down to under 5 per cent within a
relatively short period. Adjustments in the Malaysian
economy have been equally painful and have produced equally
successful results.
7. During the initial down-turn the Malaysian Government
resorted heavily to traditional Keynesian measures to "ride
out the recession", under the impression (which later proved
false) that the world recession would be short-lived. While
fiscal pump-priming helped to return a respectable growth
averaging about 6.4 per cent annually in 1981-82 the
toll was heavy. Within a span of three years the Federal
Government's fiscal deficit deteriorated from 8 per cent of
GNP in 1979 to nearly 18 per cent in 1982. The prospects
were for a further worsening of the fiscal position, in view
of the deflation of world growth and trade. Equally
daunting was the corresponding deterioration in the balance
of payments. The current account deficit, which was only
about 1 per cent of GNP in 1980, surged to 14 per cent by
1982. In order to finance these deficits external debt
accelerated sharply from only US$4.5 billion in 1980 to
nearly US$10.5 billion by 1982, equivalent to 41 per cent of
GNP. Although still modest by international standards it was
far too high for Malaysia.
8. By the middle of 1982 it was clear that the rapid
increase in Government spending was not sustainable,
particularly as the global economy showed no sign of the
predicted cyclical recovery. Not only did the Government
move away from expansionary budgetting but it began to
rapidly reduce its spending. Subsidies were cut back and the
operation of public enterprises rationalised. Intake of
personnel into Government service was drastically curtailed.
9. Instead the Government promoted the private sector by
active cooperation and support through the 'Malaysia
Incorporated' concept. New incentives were provided while
bureaucratic impediments to business were removed. A
privatisation policy enabled the private sector
to take over a number of Government services, thus reducing
the burden on Government and improving the services.
10. Foreign investments were boosted by the provision of
new incentives and the removal of various unattractive
conditions. New industrial zones were prepared and
bureaucratic procedures made more simple.
11. The adjustments were as tough as they were painful.
But through perseverance the Government succeeded in turning
things around. The facts speak for themselves: by the end
of 1985 the Federal budget deficit had been reduced from 18
percent to 6 per cent of GNP and the balance
of payments deficit from 14 per cent
to 2 per cent of GNP.
12. For an economy so accustomed to receiving strong
Government stimulus to sustain growth, the sharp fiscal
retrenchment had severe deflationary effects on the economy.
And when the commodity prices collapsed across the board
with the Composite Commodity Index falling by 10 per cent in
1985 and by another 24 per cent the following year, the
economy went into a tailspin. The economic growth turned
negative for the first time since independence. We thought
that diversification or 'not putting all our eggs in one
basket' was a good strategy but no one expected all the
baskets to fall crashing at the same time.
13. I am proud to say that despite
the roof caving in over our heads we remained
committed to our structural adjustment programme.
The economy has been on the recovery path since 1986 and by
the end of 1988 growth had accelerated to more than 8 per
cent in real terms, a record not achieved since 1979. To
some extent the strong recovery was stimulated by a pick-up
in world demand as well as higher commodity prices. A
surplus in the balance of payments on current account
of more than US$2.5 billion or 8.5 per cent of GNP was
recorded in 1987. The current account of the Federal
Government also showed a small surplus of about US$50
million in 1988, a full year ahead of projection.
14. While 1988 wan an excellent year
for the Malaysian economy, expansion
of the economy is expected to be sustained in 1989, when GDP
is expected to achieve 7 per cent growth. Investments, both
local and foreign, are projected to remain strong. Foreign
capital inflows have continued to increase as economic
fundamentals remain up-beat and infrastructural facilities
and support services remain excellent. Indications are that
Malaysia will become increasingly more attractive to foreign
investors because of various positive elements in her
favour.
15. Admittedly the structural adjustment process is by no
means over. The process of transforming the economy from
one that is highly dependent on Government
spending to one that relies more
on private sector initiative and enterprise will
necessarily take time. But the stage has been set for the
private sector to move ahead in terms of larger investment
outlays. Fiscal policy is in place to ensure that the
Government provides support to private investment through
adequate and efficient infrastructure and attractive
incentives, while the thrust of monetary policy is towards
preserving price stability and creating a financial
environment that is conducive to entrepreneurship.
Ladies and Gentlemen,
16. In order for Malaysia to continue to grow and develop
in the future we need not only internal
discipline and initiative but also external markets.
Indeed, we all need external markets or more accurately
international trade in order to grow, particularly in
the shrinking interdependent world of today.
17. We are at the moment trying to assure ourselves that
the unification of the European markets will not affect us
adversely. It would be nice if we have to deal with only
one uniform set of rules when trading with Europe, possibly
in one language. But powerful trading blocs have a way of
dealing heavy-handedly with weak trading partners. Recently
one such bloc drew a list of 30 countries which had
committed some misdemeanour or other. Malaysia is in
this list, having obstructed import of 300,000 sterling
worth of apples a year. We have been warned that we will be
punished if we do not mend our ways. That that country
itself is practising all the crimes it is accusing others of
is irrelevent. In international trade wealth and power is
what counts.
18. Consequently you must excuse us if we continuously harp
on the possibility of Fortress Europe resulting from the
unification of the European markets. Our fear is very real.
Our market is so small that we will not be able to retaliate
in any way.
19. For many centuries we were the
captive markets of European powers.
Now that we have obediently accepted European free trade
principles and we have benefitted a little from them, we
find that the erstwhile protagonists are intending to switch
to close systems. We are forced to ask ourselves whether in
fact there is no such thing as neo-colonialism or
neoimperialism. Terms like NICs are invented in order to
have an excuse to suppress growth in a developing economy.
20. However, Ladies and gentlemen, let us get away from
these depressing thoughts. What is important tonight
is that with the setting-up of Bank Negara's
Representative Office in London, Malaysia would be in a
better position to monitor more closely economic trends and
developments so as to enable us to adapt our own strategies
accordingly. As you have seen, the Malaysian economy has
gone through a significant transformation over the last
three decades in response to the changing needs in the world
economy and in response to technological advancement. We
see ourselves as a dynamic economy able to respond to these
changes.
21. I understand that with the operations of the London
Representative Office and the New York Representative Office
set up in 1987, the Central Bank is physically present in
the international financial markets round the clock - on a
24-hour basis. Apparently, central bankers do not sleep! On
my part, I am able to sleep soundly these,
days, knowing that Bank Negara does not sleep!
22. On that note, ladies and gentlemen, let me wish you a
pleasant evening.
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