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Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : THE SHANGRI-LA HOTEL, KUALA LUMPUR
Tarikh/Date : 07/08/89
Tajuk/Title : THE TENTH CONVENTION OF THE
MALAYSIAN ECONOMIC ASSOCIATION
Dato' Dr. Lin See Yan,
President of the Malaysian Economic
Association;
Distinguished Guests;
Ladies and Gentlemen.
I am pleased to be here this morning to officiate the
opening of the Tenth Convention of the Malaysian Economic
Association. The theme of this year's Convention:
"Malaysian Economy Beyond 1990: An International and
Domestic Perspective" is both timely and topical. Much has
been discussed in the media on this subject, and it has
become, in recent months, a prime reoccupation of the
Government, the private sector and other interested groups.
2. As we approach the decade of the nineties, we have,
perforce, to bring along with us a chain of economic events
which will influence what and how we do things tomorrow. On
the international front, the catastrophe of the global
debt crisis; collapse of commodity prices and worldwide
recession in the early years of the 1980s, and then again in
the mid-1980s, has catapulted industrial and developing
countries alike into situations wherein basic economic
adjustments must be made in order to survive. Likewise, the
floating exchange rates have provided opportunities for the
powerful nations to regulate their own and the economies of
other nations through the group of Seven. In terms of
economic growth itself, the major industrial countries were
very divergent in their output performance at the beginning
of the 1980s. While North America was struggling with
negative growth, Japan was forging ahead with real GNP
growth of well over 4%; Western Europe ranked roughly in
between. Today, the differentials in growth rates have
narrowed significantly. Japan continues to grow far more
strongly at around 5%, but at least the United States and
Europe are not trailing too far behind with their 3 to 4%
rates of expansion. All this is helping to restore greater
balance in the trade positions of the OECD countries, which
to some degree contribute towards greater stability in the
international environment.
3. But a disturbing trend is the assumption by the
advanced industrial nations, the new Seven Sisters, of the
role of regulators of the world's economy. Within the
developed countries themselves, interest groups are forming
effective blockades against imports of palm oil from
developing countries for example. On a broader scale,
regional trading blocs are also rapidly emerging. In North
America, we have the free-trade pact between Canada and the
United States. By 1992, a possible "Fortress Europe" may
emerge when the EEC forms a single European economic market
bolstered by some form of financial union. And Eastern
Europe might very well take a leaf from their western
neighbours and form another European economic bloc. This
trend towards polarisation will have far-reaching
implications on economic behaviour worldwide, and may effect
the economic survival of some.
4. There is also a proposal for some form of cooperation
among countries of the Pacific Rim. Nebulous at the moment,
it has nevertheless evoked a sharp reaction from the
Europeans, who warned that they will not tolerate the
formation of a trading bloc in the East. It would seem
that everyone is jittery about everyone else, and everyone
is denying that their particular bloc would become an
economic fortress. Still, the question must be asked; why
are these countries coming together to form richer and more
powerful economic entities? Is it to help the world or to
help themselves? When the European countries formed the EEC,
a lot of countries lost their traditional markets for
wool, mutton, beef, food grains and sugar. Can we believe
the protestations of all these spokesmen?
Ladies and gentlemen,
5. Let me now turn to issues closer to home. 1990 will
mark an important watershed in Malaysian history. By the
end of next year, we would have completed the 20-year
Outline Perspective Plan (OPP). This is a time for taking
stock of our achievements and failures, and to set new
directions for the decade ahead. It is precisely for this
reason that the National Economic Consultative Council
(NECC) was established to provide an avenue for Malaysians
from all walks of life to contribute to nation building; to
devise a unity of purpose in the thrust of policy directions
after 1990. Supplementing this forum are a host of
spontaneous conferences, seminars and dialogues, very much
like this one, organised to refine ideas and contribute
towards consensus making in an open positive way. Obviously
the Government cannot incorporate everyone's ideas. But it
will be better able to judge what and what not to do. On my
part, I would like to share with you today, my own thoughts
on some of the major challenges that lie ahead and on what
needs to be done to ensure continued growth and prosperity
for all Malaysians.
Ladies and gentlemen,
6. Without a doubt, the decade of the 1990s will herald a
new era for the Malaysian economy, with new challenges and
opportunities aplenty. The Mid-Term Review of the Fifth
Malaysia Plan reckons that the economy will continue to grow
strongly in 1989-90, after a surge in growth of close to 9%
in 1988. Latest indicators suggest that this growth trend
can be sustained, at least until the early years of the
1990s. Our optimism on the 1990s is founded on our current
performance.
7. The current economic expansion has remained well on
track and market confidence has since improved further.
Demand for goods and services are robust, and reasonable
gains in employment and output have pushed levels of
resource utilisation higher than we had expected. Further,
there are signs that the unemployment rate has begun to fall
though at a pace slower than we would have liked. The
growth of the manufacturing sector continues to be sustained
at double digit rates; indeed, the average manufacturing
capacity utilisation rate has risen to levels which we have
not seen since the early 1980s.
8. It is well worth remembering at this stage that
although recession brought numerous economic problems, a
redeeming feature is the low inflation rate of roughly 1%.
The obvious reason was low demand for goods and services.
Now that growth has returned we are seeing higher inflation
figures. Demand is clearly on the up-trend as affluence
boosts the market for local as well as imported goods. Wage
demands will push up the inflation figures further. We have
a choice of either keeping inflation low by continuing to
restrain demands or if we prefer to enjoy an affluent
lifestyle then we must accept higher inflation. Whatever
happens we must never allow ourselves to be trapped in
a wage-price spiral. If we earn more either as wages or
profits we must save some at least in order to finance new
investments. This way growth will not be invariably
accompanied by the kind of high inflation rates which will
render our improved earnings meaningless. Here it is not
only the Government which must be prudent, the people as a
whole must develop a culture compatible with steady and
sustained prosperity.
9. Looking beyond the first half of 1990, the outlook
could still remain buoyant, so long as the major world
economic blocs do not turn too unfriendly, and try to
resolve their economic and political problems by taking it
out of the developing economies. The achievement of the goal
of balanced expansion and low inflation should still be
possible. Towards this end, you can expect public policy in
1989 to be supportive of continued stable growth. Financial
and regulatory measures will be taken to reduce the rate of
inflation while the focus of Government expenditure will be
on the provision of infrastructure needs of an expanding
economy. We will need to establish an environment in which
expectations of price changes in the Consumer Price Index or
CPI are small enough and gradual enough that they do not
materially influence the pricing decisions of enterprises.
The process of preventing unreasonable growth in CPI
requires some degree of public understanding of the role
they must play in keeping demand in line with potential
total supply. It is a fallacy to think that taxes and
regulations by the Government alone can do this. If there
is a demand the private sector can always get around any
regulation.
Ladies and gentlemen,
10. While the economic prospects will remain good, we
should not allow ourselves to be lulled into a false sense
of complacency. For one thing, these forecasts are premised
on a "soft-landing" scenario for the world economy, with the
major industrial economies acting with responsibility to
reduce their fiscal and trade imbalances, and effectively
co-ordinating their macro-economic policies to avoid another
bout of recession or inflation, or both. These things are
beyond our control. But, what is within our influence is
how Malaysian entrepreneurs identify and seize a growing
share of the ever increasing size of world trade over the
next few years.
11. Notwithstanding the increasing polarisation of the
world into major economic blocs dominated by the big powers,
the opportunities that exist for profitable ventures in both
exports and domestic value- added industries can still be
tremendous. The EEC's single European market by 1992
will afford a barrier-free market of 320-million people.
This assumes, of course, that the EEC is not bent on tearing
down internal trade barriers only to build them externally
against outside competitors. To guard against being shut
out of a possible "Fortress" Europe, we should start to
build our bridges and reinforce our alliances now. Here, I
am thinking specifically of promoting vigorous cross-flows
of investments. We will need to redouble our efforts to
foster the flow of European direct investment in our
manufacturing and tourism sectors. European investors must
be persuaded to produce here for their own markets. And
should opportunities arise, I would also encourage our own
entrepreneurs to set up plants or buy into enterprises
in Europe and elsewhere abroad, also with the purpose of
gaining a viable foothold in these markets and benefiting
from their policies. We have to be a fairly significant
force in the economic life of America and Europe, while
assiduously strengthening our ties in the East. To do all
these we must have a global outlook and we must put in place
the necessary economic foundations of our country.
12. We have to be realistic. Before any European or
American investors would want to set up their plants in
Malaysia, or for that matter, before the Japanese, the
Koreansand the Taiwanese can be convinced to relocate their
production bases here, they will want to see political and
financial stability, good infrastructure, productive labour,
and living conditions of a reasonably high standard. Indeed,
events in China lately clearly emphasised the rising
importance of political stability in the arithmetic of
potential investors. If what I have just enumerated
represents a checklist of the conditions for international
competitiveness, then Malaysia should measure up well. In
fact, a recently published report by the Geneva-based World
Economic Forum on international business competitiveness
ranks Malaysia rather high in the Asia-Pacific region.
Malaysia received good ratings for low inflation, reasonable
domestic investment, administrative decentralisation and
commitment to improving its infrastructure. Furthermore,
the recently completed Article IV IMF Consultations
Mission gave us the distinct credit for, and I quote,
"effective economic management". It ends its concluding
remarks by saying that their "discussions ..... have given
them full confidence that this will be equally true in the
future".
13. However, global competitiveness is a very dynamic
phenomenon. It goes beyond merely having natural resources,
skilled labour, ample domestic capital, good infrastructure
and political stability. More important is how Government,
business and labour cooperate and coordinate their efforts
towards promoting the national cost advantage.
Confrontation as a solution to the problem of human relation
has been proven to be not only ineffective but actually
destructive. The idea that only a show of strength can win
for labour better compensation is outmoded. Wages in
countries where such an approach is not possible have risen
far higher than in countries where labour unions are
powerful. It is imperative that a new modus vivendi be
developed between labour and management. Government too must
play a positive role in a triumvirate dedicated to national
development in the interest of all the three. Labour-
management councils within companies must be set up tasked
not only with workers' welfare but the well-being of the
whole organisation. It must always be remembered that an
organisation that fails can bring no benefit to labour or to
anyone else.
14. We are doing well today more because the depreciation
of the ringgit against the currencies of our trading
partners has made our products competitive. Had the ringgit
remained as strong as it was it is unlikely that we will
export as much as we do now, in terms of volume as well as
earnings. Fortunately the depreciation of the ringgit has
not affected our people too badly. This is because our
inflation rate was low especially during the recession.
Exchange rate changes are irrelevant as long as we can buy
the same amount of goods with the same amount of money.
Unfortunately the very prosperity brought about by the
ringgit's competitiveness will make its effective
devaluation felt by the people. With affluence we will want
to buy more of imported goods and we are going to find that
in terms of ringgit these goods are very expensive indeed.
Now we are going to feel the effect of the exchange rate
and imported inflation. The only way out is to be more
productive, the only true solution to remaining competitive.
We cannot rely on our weak ringgit forever.
Ladies and Gentlemen,
15. Now a word about the Newly Industrialising Countries,
or the Newly Industrialising Economies, or the little
dragons and the little tigers. It would seem that some of
us would like to be conferred with these titles invented and
spread by the western media.
16. When the term NIC was first used by the media it was
regarded as complimentary. It was literally a pat on the
back for under-developed countries which had managed to drag
themselves up by their bootstraps. Predictably many
countries would like to be so categorised -- it is good for
the national ego.
17. But the group of 7 rich countries soon latched on to
this term to put a brake to these 'Johnny come lately'. By
whatever means possible the developing countries must be
prevented from becoming developed. Japan had caught them
unaware. It became developed while the developed countries
were still thinking about people who could only say "Ah-so".
They, the developed countries, were not going to let
anyone else catch them napping again.
18. And so countries were categorised as NIC and had their
GSP privileges withdrawn, export quotas imposed, currencies
revalued upwards and their so-called 'human rights' records
scrutinised and invariably found wanting. 'Exploitation' of
labour was 'discovered' and 'exposed'. Even the burden of
helping other developing countries was pressed upon these
NICs.
19. The effect is to stunt the growth of these countries by
reducing their competitiveness and access to markets. The
chances are that these countries will languish in
their NIC status and never become fully developed.
20. Of course, Malaysia will one day reach the stage of
development of the so-called NIC. We cannot very well stop
growth just before that. In any case even before we reach
anywhere near this stage of development what is there to
prevent the rich countries from lowering the net and
catching us. Presently US$7,000 per capita is supposed to be
the cut-off point. But already some magazines have said
that with US$3,000 per capita, a country should already be
classified as an NIC. And with that all the pressures will
be brought to bear.
21. The question is why should there be this intermediate
classification, this categorisation as NIC? When the
rich countries were on their way up did anyone call them NIC
and then put obstacles in their way? What right have the
rich to arbitrarily take action against any country which is
progressing well? Who gave them the mandate? Is there some
international law or consensus that the rich are required to
enforce?
22. The rich western liberals always talk about democracy.
They are always saying that developing countries are not
democratic. What is democratic about their arbitrary
decision to categorise other countries and take action
against them? Were these countries given a proper hearing?
Who determines the criteria?
23. We do not want to be an NIC because we think there
should be no such term. There should be no such
categorisation and there should be no such discrimination.
We do not need the title. Every country should be free to
grow economically and be as rich as the richest or richer
still. For so long as there is no unfair trading practices
countries should be left alone to develop.
24. Already Malaysia has been invited to conferences of the
NIC's, the near NIC's and the developed countries. We have
refused to attend. We see in this an attempt to categorise
us and to penalise us for our economic performance. We see
in the NIC a ruse to stifle our progress.
25. The problem is that many Malaysians are very anxious to
be called an NIC. If we accept the label then we must
accept the strictures that go with it. Why are we doing this
to ourselves?
26. Can I call upon fellow Malaysians to refuse the label
NIC. We are interested in growing but they can keep the
title and what goes with it.
27. We are going to protest about the unfairness of this
categorisation as NIC. It is bad enough that in the process
of solving their trading problems with Japan they have
doubled our foreign loans. Now they are trying to justify
future discrimination which would retard our growth and
condemn us to being less developed than we are capable of.
Ladies and gentlemen,
28. I hope I have made myself clear and helped reduce the
misunderstanding caused by my statement the other day. It
is not that we do not want economic growth any more. It is
just that we do not like categorisations and labels aimed at
limiting our future growth.
Ladies and Gentlemen,
29. Allow me now to venture a little into the issue of the
NEP, a subject which is, I am sure, of particular interest
to all of you, especially as 1990 approaches. There are
critics who denounce the NEP as a failure and hold it
responsible for all sorts of problems and difficulties
faced by the country in recent years. For reasons best
known only to themselves, these people have chosen to ignore
the very substantial achievements brought about by the NEP
in reducing poverty and correcting imbalances between the
races. Within a short span of less than 20 years the NEP
has succeeded in bringing down the incidence of poverty from
nearly 50% of all households in 1970 to less than 20% by
1988. Granted, much more needs to be done to free the
remaining 650,000 poor households from the grips of poverty.
But, it must be recognised that important progress has been
achieved, and this will provide us with a strong and solid
foundation on which to ensure significant progress in the
future.
30. At the same time, there are those who contend that the
NEP has come close enough to achieving its objectives and,
therefore, there is no more need for it. We have repeatedly
mentioned the important role of political stability in
promoting economic growth. The fact is that it is the NEP
which has made political stability possible after the race
riots of 1969. Such was the stability during the period of
the NEP that actually economic growth is higher during the
NEP years than before the NEP was formulated.
31. In Malaysia it would be fatal to ignore the economic
disparities between the races and consequently to do nothing
to correct these imbalances. Because we are stable now it
is easy to think that the stability is unrelated to the
NEP. The suggestions to drop the NEP altogether is the
result of this kind of shallow thinking. We have achieved
only 66% of the 30% target for wealth distribution to the
bumiputeras under the NEP. The expectations of the
bumiputeras have not been fulfilled. They may be at fault
themselves but other factors outside their control were also
responsible. It would be a mistake to dismiss their
perceptions as irrelevant to the future prosperity of this
country.
32. One of the reasons for the partial failure of the NEP
was its use as a convenience and not as a policy. Both
bumiputeras and non-bumiputeras regard the NEP not as an
instrument of social and economic engineering but as a
means to get rich quick. Thus while the bumiputeras invoked
the NEP in order to get licences and contracts from the
Government for themselves, their participation stopped
there. The licences were sold to non-bumiputeras and so were
the contracts. Having received a return on this sale they
had nothing more to do with the actual business. Instead,
they would demand for more licences and more contracts.
33. The non-bumiputeras for their part were only too happy
to be freed from bumiputera active participation once the
licences or the contracts were obtained. They were happy
merely to use bumiputera names and front men whose role were
very limited.
34. It is true that there were bumiputeras who actively
participated but these were the exception rather than the
rule. The net result is a continuing serious weakness among
the bumiputeras in business, particularly in project
implementation and management. Their poor performances have
caused massive losses to the Government brought about by
delays and sometimes total failures to carry out contracts
and other commitments. After nearly 20 years of the NEP they
have neither credibility nor acceptance even among other
bumiputeras. The private sector shun them. The wealth that
some of them acquired and which many flaunt vanished under
the slightest threat. The recent recession made nearly all
of them bankrupt and those that are not are heavily in debt.
35. The NEP has been interpreted by both the bumiputeras
and the non-bumiputeras as an exercise in pure wealth
distribution. But wealth in the hands of those unable to
manage it does not last. The more important thing is the
build up of management skill in business. With management
skill even limited wealth can be made to last and to grow.
Without it wealth is soon dissipated. This is what happened
with bumiputera individuals during the NEP.
36. If we are going to solve the disparity problem in the
future, both bumiputeras and non-bumiputeras must help in
making bumiputeras better businessmen. The bumiputeras must
participate and the non-bumiputeras must insist that they,
the bumiputeras, participate meaningfully in the management
of companies and projects after they have obtained the
licences or the contracts. Indeed, even if they do not get
the Government contracts or licences for the companies they
should be employed and put to work to contribute
meaningfully to their keep.
37. The Government too will insist on evidence that
bumiputeras are making knowledgeable and positive
contributions before helping them with licences and
contracts. It is not necessary for bumiputeras to harp
on being 100% bumiputeras. Even if they make up only a
minority in a business but their contribution is positive,
the Government will look with favour.
38. While the goal of the 30% share of the economy for
bumiputeras is important, it is much more important for them
to have the skill to manage their new wealth. This, to my
mind, is the area that all must focus on in the post 1990
period.
39. Restructuring is premised on growth, and growth must
depend on a dynamic private sector. The Government has
provided the necessary preconditions and stimuli; and will
continue to do so. Much of what is necessary is already
in place but the size of private investment needed annually
is massive. This year's expenditure on private investment
will reach $17.5 billion of which $4.4 billion or 25%
represent investment in the manufacturing sector. This
annual flow of new fixed private capital spending will need
to grow, consistent with GNP growth. Our priority must be
to see to it that such flows do in fact take place in the
form of both foreign and domestic investment outlays. Unless
we succeed, our economic cake will not grow sufficiently
to make restructuring significant. It is important that
the objective to restructure society must be seen in the
right context.
40. It is with this in mind that the Government has
introduced various measures to liberalise and deregulate its
management of the economy. We aim to create an attractive
investment climate. Already the results are palpable.
There is now a big surge in the number of applications from
foreign and local investors to expand their capacity and to
invest their capital into new projects, especially in the
manufacturing sector.
Ladies and gentlemen,
41. At this juncture, it is rather premature to talk about
the exact form and substance of a successor to the NEP.
Such an important decision affecting the future of all
Malaysians will, of necessity, take time. Consensus making
is never easy. We must all be ready to contribute as much
as possible in order to draw attention to our needs. An
integrated and balanced economic policy after 1990 is still
possible.
42. The post 1990 economic policy will continue to ensure
that private initiative can firmly assume the role of the
principal engine of growth now that the role of the
Government will be downgraded. This will mean that the
Government will continue to adopt a liberal approach in
implementing its development policies and particularly its
policies on equity ownership. I believe that this approach
will enable the economy to generate the growth in employment
and incomes that are so essential towards achieving the
objectives of reducing poverty and restructuring the
society. The size of the cake must be made to grow bigger
and bigger so that we have more to distribute. Our ultimate
objective remains the fostering of national unity through
balanced and dynamic growth.
43. Still, it will be unrealistic to rely entirely on the
market mechanism as the sole avenue for redressing the
social inequalities in the economy. A certain degree of
Government intervention will continue to be necessary to
deal with these problems. The Government will therefore
intervene where necessary by using its resources to assist
the less fortunate sections of the society, in particular
the poverty groups. Indeed, we will need to hedge against
the vagaries of market forces with some compassion and
humanity. The future of multi-racial harmony and national
unity in this country will still depend much on the
Government' s role in creating a "caring society". Enough
care to protect the rights of the weak without depriving the
risk takers of their earnings, has to be upheld.
Ladies and gentlemen,
44. On that note, I wish you every success in your
deliberations and look forward to sharing your new ideas and
insights, and to receiving your suggestions towards the
formulation of the national agenda for 1990 and beyond. I
now have great pleasure in declaring open the Tenth Annual
Convention of the Malaysian Economic Association.
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