Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : THE SHANGRI-LA HOTEL, KUALA LUMPUR
Tarikh/Date : 06/11/89
Tajuk/Title : THE WORLD ECONOMIC FORUM NATIONAL
MEETING ON MALAYSIA
Distinguished Guests;
Ladies and Gentlemen,
.
It is a pleasure for me to address this National
Meeting on Malaysia organised by the World Economic Forum. I
am pleased to note that much interest has been generated
through meetings of these nature, culminating in a better
perspective of the Malaysian business environment. To those
of you from overseas, I bid you all a warm welcome,
particularly those visiting Malaysia for the first time. I
hope the beauty of our land and the friendliness of our
people will make you feel that the visit has been
worthwhile. The real test lies in the future -- on whether
you will be back again, to visit and to invest.
2. It is timely that another Forum on Malaysia be convened
since the last one was held in 1986. Timely, because
Malaysia had made great strides since 1986. The impact of
the self-imposed structural changes since 1983 have only
begun to bear fruit; and in the last two years, Malaysia had
joined the ranks of several Pacific Rim countries recording
high growth rates that were last seen in the early 1970s. A
seminar in Kuala Lumpur at this juncture, therefore, is
useful to keep alive the dialogue that had started three
years ago.
3. In the past few years, foreign investors have become
increasingly better informed of Malaysia's potential as a
business partner. Many have made significant progress in
establishing manufacturing bases here. These businessmen
and their investment testify to what this country can
offer. For them, the seminar will provide an update of
future policy direction, which no doubt will remain in
their favour. For the new entrepreneurs, a seminar of this
nature should provide the necessary information for them to
make the decision to invest.
Ladies and Gentlemen,
4. The potential of our economy needs little elaboration
for those associated with this region. Nevertheless, for
our new guests, let me briefly reflect some lessons of the
last ten years. First of all, the 1980s witnessed two
serious economic recessions. We emerged from them leaner
but stronger, with an economic structure that was
substantially different through deliberate policy changes.
This structural change was achieved to some extent at
the price of slower growth, which averaged annually at 5.4%
in sharp contrast to the 60's and 70's, when Malaysia as a
predominantly agricultural country enjoyed an enviable
growth record of 8% per annum largely through expansionary
Government budgeting. We learned the hard way that there is
no such thing as a "free lunch" -- you eventually pay for
your excesses. The sooner you realise this, the less severe
the cost of adjustment. But adjust you must. Fortunately for
us, we understood the danger signals and tightened our belts
early. The result is clear for all to see.
5. Second, over the long haul, the Government is neither a
sustainable nor an efficient source of stimulus to growth.
The reliable "engine" is private initiative. Government
should play the catalytic role in promoting and inducing
private sector activity. It should provide the basic
infrastructure facilities, and the stable political and
financial environment to nurture the growth of long term
real investments. The centre-piece of our adjustment policy
was the substantial retrenchment of public sector
expenditure, with a supportive monetary policy stance to
restore external competitiveness and stimulate private
capital spending. For us, this has been our winning
"recipe" and we intend to build on this to further encourage
more private spending on new productive capacity.
6. Third, although the emergence of increasingly
diversified agricultural and mining sectors had served
Malaysia well in the past three decades, our future lies in
a broadbased industrial sector, augmented by a modern and
competitive services industry, centred on tourism. The
manufacturing side has since developed into one of the
fastest growing sectors, not just dependent on the
electronics and textiles industries, but increasingly
becoming more broad-based and resource based, with
encouraging backward linkages with the rest of the economy.
7. Finally, the Government's early commitment to reduce
the twin deficits in the fiscal budget and external current
account, I believe, saw us through the worst of times when
for the first time in history, Malaysia recorded negative
growth in 1985.
8. Malaysia has come a long way since. The success of
early structural adjustment measures has enabled our economy
to consolidate and then grow from strength to strength.
While structural changes continue to take root, the economy
has become more resilient to external shocks. The
strategies adopted have begun to pay off in terms of
sustainable growth with stability. Developments in the past
two years bear testimony to this. The latest economic
indicators show that Malaysia is now poised for further
rapid growth in the next few years.
9. Economic growth is now rather vigorous. Real GDP
growth was 8.7% in 1988, the highest in this decade. This
year's growth is expected to be between 7 to 8%. In 1990,
growth will moderate to no less than 6.5%, which is
nevertheless still high by any standard in today's world.
10. The current expansion is rather broad-based.
Continuing agricultural expansion has wide ranging ripples
which spread the benefits far and wide. The manufacturing
sector expanded by 17.6% in 1988, though the rate will be
moderately lower in 1989. Following close behind are
construction, after a number of rather poor prior years, and
the services sector. Agriculture and mining have continued
to expand steadily.
11. On the demand side, rising real investments in recent
years have generated a momentum all its own. This year, we
are confident that private investment will increase by 19%
in real terms. That is quite an achievement. Yet, not so
long ago, many had written us off as a poor bet. Foreign
equity approved by MIDA rose by 168% in 1988, and in the
first nine months of 1989, by a further 80%. Reflecting
this optimism, domestic investment has been playing a
significant role, especially investments by the small and
medium scale industries.
12. Rapid economic expansion will no doubt exert some
pressure on prices. Inflation is expected to be higher, but
at no more than 4% in 1989. It was 2.5% last year. Although
this is low by international standards, it nevertheless
warrants close Government attention. In this context, the
primary role of monetary policy will continue to maintain
stable financial conditions, conducive to long term price
stability.
13. On the external side, the recent weakening of commodity
prices has been partly compensated by continuing high
exports of manufactured goods. However, rapidly rising
imports, mainly of investment and intermediate goods, meant
that the trade surplus would moderate significantly. Of
some concern is the growing services deficit, which would
"eat up" most of the surplus expected this year in the trade
account. The higher invisibles payments reflect the larger
freight and insurance bill from high imports, and the larger
payments of profit and dividends arising from a buoyant
economy. While it is comforting that the current account
still shows a modest surplus, we are nevertheless determined
to address the problem of the growing invisibles deficit.
Central to this is the promotion of tourism. 1990 is Visit
Malaysia Year. More will be done to promote inbound
tourism. The unexploited tourism potential is still very
big and indications are that tourism and related industries
will have high growth rates in the 90's.
14. The capital account of the balance of payments remains
strong. Overall, reflecting strong capital inflows, our
international reserves should rise above US$7.5 billion by
the end of the year. The overall external position should
remain comfortable this year.
15. Good external debt management has resulted in a decline
in our national external debt to just about US$16 billion by
the end of 1989. This reduction is due largely to the
continuing prepayment of our debt since 1987. The impact
of these prepayments would have been even more
significant if not for the increase in the ringgit value of
this debt following the sharp revaluation of key currencies
in recent years. Consequently, the debt service ratio will
fall below 12% by the end of 1989, and below 10% in 1990.
16. It is in the fiscal area that the adjustment policies
in the past five years have made the most direct impact.
The Federal Government's current budget has rebounded firmly
since last year to record a surplus position, albeit still
small surpluses. This turnaround appeared a year ahead of
schedule.
17. Finally, unemployment has begun to show clear signs of
moderating, as indicated by reports of labour shortages
in the agriculture and construction sectors. Much of the
unemployment is structural in nature and will require some
time to resolve.
Ladies and Gentlemen,
18. In the past couple of years, investment opportunities
in Malaysia have increased in scope and value, especially in
the manufacturing sector. The political, social and
economic environments are stable and the infrastructural
facilities, good. Over this period, many investors from many
nations have taken advantage of our offer as a profit centre
and a competitive springboard to export from. We want more
to come as we have the capacity to welcome more to bring
with them their technology and marketing expertise to
combine with Malaysian resources and labour to yield high
profits for mutual benefit. To complement this role, we can
now offer new tax and other incentives for foreign
multinational companies to establish their operational
headquarters for the Asia-Pacific region in Malaysia. We are
committed to make Malaysia an attractive and less costly
place to conduct business. Furthermore, the quality of life
in Malaysia is high, and the cost of living relatively low.
19. There is a third area which needs to be addressed --
large invisible deficit. The trade account would need to
generate a surplus of about US$4 billion annually just to
meet the services deficit in the current account.
Malaysia's strong appetite for foreign services reflects
partly the need to support the production and export of
goods and partly the rising incomes and living standards.
While this traditional services deficit is likely to remain
a prominent feature in Malaysia's balance of payments in the
1990's, we have all the necessary ingredients to step-up
efforts in promoting a new role as a competitive services
provider to complement its role as a reliable producer of
goods.
20. We are determined to bring about greater import
substitution of services from abroad as well as the export
of services. This strategy will take many forms. We are
rapidly expanding our shipping and airline fleets, and
insurance services, including upgrading and expanding our
key ports of call, both air and sea, in order to offer more
efficient transportation related services. This is an area
where we are competitive in the international markets.
Similarly, in the area of communications, we have invested
substantially in recent years to provide domestic and
international links that are modern and in keeping with the
state of the art. We have privatised our telecommunications
operation resulting in increased efficiency and rising
productivity. You will find our telecommunication links
second to none in Asia.
21. Then there is a whole host of financial, brokerage and
professional services which are increasingly being
internationalised. Those of you who have business links
with us will know that our financial services, such as
banking, insurance and brokerage, are modern and highly
professional. Once separated from Singapore, our own
stock exchange will be the only exchange in the world which
offers a solid range of good plantation stocks. What is more
important is that access to our exchange is free, much like
London, New York and Tokyo. In Asia, the Kuala Lumpur Stock
Exchange is one of the larger exchanges which encourages
international participation; a market which is liquid; a
market that is getting more and more professional with the
recent corporatisation of the stockbroking industry. We
actively encourage reputable foreign stockbroking companies
to take equity in joint ventures with local concerns.
22. We also have a thriving commodities exchange, in both
physical and futures. We successfully manage the only palm
oil exchange in the world. This exchange is professionally
run and regulated by an independent Commission very much
like in the United States. This exchange is being developed
into a regional commodities exchange, with contracts trading
in rubber, tin and palm oil. Soon, this list will be
expanded to include other commodities and the feasibility of
financial futures is being evaluated. In Asia, Malaysia's
capital market is one of the more developed. We had a head
start and a long list of measures are being implemented to
widen and deepen this market to be one of Asia's finest.
23. Very few know this; we have the only secondary market
in Asia for long-term mortgage bonds. It is still an infant
but viable market. Soon, a professional rating company
would be established and we hope to do so with assistance
from a reputable international rating company. Many
exciting things will happen in our capital market in the
next few years. I just wanted you to be aware of these
developments so that you can be sure that our strategy to
promote foreign investment goes beyond the mere physical
investment of plant and machinery. In this modern world, we
realise the importance of an efficient, modern and
competitive financial and capital market sector to better
serve foreign investors. In the final analysis, we are
offering a package deal -- a deal that goes beyond the
physicalact of investment.
24. We have also embarked on an ambitious arrangement to
promote tourism into a leading growth sector. The
Government is committed to this effort. This area poses a
positive challenge in the years ahead for Malaysia, as
the tourism industry world-wide is expected to boom in the
next 20 years. Although Malaysians spend large amounts
sightseeing abroad, the tourism strategy is not directed at
reducing leakages in the form of foreign travel, but rather
in increasing our capacity to attract and absorb more and
more foreign tourists to spend in Malaysia. In this
respect, Malaysia is beginning to exploit this potential.
25. The necessary steps have already been taken to develop
tourism. The promotion of tourism is set in the context of
a balanced promotion to attract domestic travellers,
regional tourists and long distance tourists. Decisions have
been taken to improve the appropriate infrastructure for
travel between Malaysia and its neighbours, as well as to
provide quality accommodation and recreation facilities in
Malaysia.
26. In developing tourism facilities and products, Malaysia
will go alone if necessary, but sees clear benefits
in joint-ventures. Our package of incentives on tourism is
possibly one of the most attractive in the world and
certainly no less favourable than those offered to the
manufacturing sector.
27. To further boost the tourist industry the Langkawi
Islands have been made a tax-free area. This means not only
availability of tax-free goods for tourists but investors
may import various construction materials, vehicles and
other goods at prices substantially lower than in the
general customs area. The island of Labuan is to be made a
tax haven where foreign companies will be accorded the same
facilities as the well-known tax havens elsewhere.
28. The importance in the development of the services
sector is reflected in recent pressures for a multilateral
framework to govern services, as is the case with goods.
Such an internationally agreed framework is viewed as
necessary to act as a bulwark against protectionism,
bilateralism and unfair competition. For Malaysia, we are
actively involved in the multilateral trade negotiations
following the Punta Del Este and the Montreal Declaration.
However, while we are aware of the benefits to be
accrued from the liberalisation of services, we are also
conscious of the priority that would be given to strengthen
the domestic services sector.
29. In this respect, while we would welcome foreign
multinationals to participate in our services sector, it is
desirable that there is a firm recognition and mutual
understanding of our national development needs and
aspirations. In developing its services sector, Malaysia
will not protect the inefficient activities; and if
the liberalisation of services will yield clear net social
and economic benefits, Malaysia will go along with it.
Ladies and Gentlemen,
30. Malaysia now provides a package of exceedingly
attractive investment incentives in both the manufacturing
and selected services sectors. These incentives are
complemented by the prerequisite infrastructure support,
including efficient and expanding money and capital markets.
These will be combined with a disciplined workforce. We will
also not use our exchange rate just to give Malaysia the
competitive edge. Our exchange rate is determined in the
market place. We feel that our present rate is correct for
us. We will try to ensure that it is stable, but this
task is not an easy one, given the volitility of the major
rates. Our competitive edge will come from our comparative
advantage in natural resources and our productive labour
force. We encourage flexibility in wage determination and a
wage structure which encourages productivity, in order
to remain competitive internationally. What is important is
the continuing need to inculcate a healthy work ethic and a
positive attitude to nurture the growth of rising
productivity. Only in this way can Malaysia maintain its
competitiveness, independent of movements in the exchange
rate.
31. We approach 1990 on a note of confidence. As a growing
economy, we are convinced that the region provides the
centre of growth in the next decade. We stand ready to move
forward to the next stage of economic development. And, we
do so not alone, but through the forging of realistic
partnerships. I hope you too will take the position that
there is a good range of business possibilities in Malaysia.
There is ample room for all who are interested. As
pragmatic bankers, businessmen and investors, I am sure you
know precisely what you are looking for in Malaysia.
I hope you can find them so that we can work together for
our mutual benefit.
Thank you.
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