Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : TOKYO, JAPAN
Tarikh/Date : 28/11/97
Tajuk/Title : THE BUSINESS LEADERS DIALOGUE
1. Firstly, I would like to say how delighted I am to
be here today in Tokyo to address this gathering of
prominent members of the Japanese business community.
Japanese investors have always played an important role
in the economic development of Malaysia and for this we
are very grateful.
2. Malaysia has always been foreign investment-
friendly. The Government encourages foreign direct
investments (FDI) since the early 60's as we believe FDI
can and will always contribute much to the rapid
development of the Malaysian economy. This policy will
continue to play a key role in our effort to become a
fully industrialised society by 2020. Foreign Direct
Investments in manufacturing sector alone in Malaysia
has been on the increase and from 1991 to October 1997
FDI amounted to US$34.78 billion (based on average
exchange rate of one US$ to RM2.5). By country, Japan
was the largest with total approved investment of
US$7.39 billion (or 21.2 percent) . Other important
investors were USA (US$5.92 billion or 17.0 percent),
Taiwan (US$4.66 billion or 13.4 percent), Singapore
(US$3.93 billion or 11.3 percent), Korea (US$1.74
billion or 5.0 percent), and France (US$1.71 billion or
4.9 percent). These six countries together accounted
for US$25.35 billion or 72.8 percent of total approved
foreign investment. This high level of investment
reflects investors' confidence in Malaysia's economic
potential.
3. Malaysia has prospered through opening itself early
to direct foreign investments. Indeed the
industrialisation and rapid growth of Malaysia is
largely due to foreign investments.
4. When Malaysia became independent in 1957 it was a
producer and exporter of tin and rubber. To be honest,
Malaysia was quite rich due to this commodity-based
economy, much richer than most other colonies which at
that time were gaining independence. But rubber and tin
fluctuated in price to a great degree because they depend
on such factors as war and the motor industry in order to
create demand. Wars cannot be continuous and the motor
industry and its usage was still confined to the few rich
countries then. Besides substitutes for rubber and for
tin as packaging material began to erode the market for
these commodities.
5. In addition, as the markets are in the rich
industrialised countries of Europe and America (Japan
not having emerged yet) the prices of these two
commodities were determined solely by them. We the
producers and exporters had no say at all. Consequently,
the prices were often depressed and we had to sell more
and more of the two commodities in order to buy less and
less of the manufactured goods. The growing population
of Malaysia was finding difficulty in finding employment
and poverty was not becoming less.
6. To grow economically, Malaysia had to turn to the
manufacturing industry. Unfortunately, we had no
expertise, no capital and too small a domestic market.
To overcome these drawbacks, we decided fairly early in
comparison to other newly-independent countries to
invite foreign direct investments. It was common sense
and not international pressure which made us accept
foreign participation in our economy. Investments by
the Japanese mainly but also by other countries enabled
us to achieve our objective of becoming an
industrialised country with jobs for all our people and
earnings in foreign exchange mounting every year. By
1996, out of our total export of 70 billion U.S.
dollars, 80 percent was made up of manufactured goods.
7. We are therefore among the early proponents of open
economy and crossborder flows of capital. We needed no
encouragement and certainly no force to open up our
country. We believed in the good that could result from
foreign capital and the ease of capital flows across
borders.
8. No poor country can ever grow rapidly enough in
order to cope with a growing population and the need to
improve living standards without industrialisation.
Without foreign capital inflows, their knowhow and the
jobs they create, poor countries would stagnate and
wallow in poverty. Poverty only breeds poverty, while
wealth leads to greater wealth. To break the cycle of
poverty, poor countries must seek the involvement of
rich countries in their development. Eventually through
foreign direct investments the poor can become rich and
then be capable of propagating growth from within. Still
the need for foreign direct investments especially in
the production of goods and services remains and helps
to continue as well as accelerate the pace of growth.
9. As a corollary to foreign direct investment, world
trade is equally crucial. A country as small as
Malaysia with a population of only 20 million cannot
grow based on its domestic market. It must export to
the rest of the world if the earnings are to grow. World
trade is therefore very important to Malaysia as indeed
it is to almost every country. By providing a huge
market for exported goods, world trade make economies of
scale possible and ensures the viability of modern mass
production industries.
10. With the world market open to its products, the
industrialisation of Malaysia succeeded and even
surpassed expectation. Suddenly, along with other
developing countries of South East Asia, Malaysia
achieved what was described as an economic miracle. It
was labelled as one of the tigers and dragons of Asia
and was apparently set to become a fully developed
country in two or three decades.
11. But as you know, our progress has been halted and
even rolled back. Today there is turmoil in the economy
of Malaysia and in the other South East Asian countries.
The tigers have stopped roaring and the dragons' fire-
breathing apparatus no longer belch fire through their
nostrils. There is no more talk of the 21st century as
the Asian Century.
12. Due to devaluation of its currency, in GDP terms,
Malaysia has lost approximately 40 billion U.S. dollars
in purchasing power. This means that the country is
poorer and the people who had hoped to rise above their
unfortunate situations now have no hope, not in their
lifetime at least to emerge and shake off their poverty.
Instead their poverty is greater and more have joined
their ranks from among those who had before lifted
themselves above the poverty line. Unless something
dramatic happens, Malaysia's growth which has been put
back 15 years will lag behind by that space of time in
terms of economic growth.
13. But apart from devaluation, Malaysia is also seeing
a grave and massive loss of capitalisation of its stock
market. The share prices have nose-dived and wiped out
60 percent of the capital amounting to approximately 100
billion U.S. dollars. Banks are faced with liquidity
problems as margin calls were not met by clients and
collaterals have to be sold at give-away prices.
14. True, despite all these, Malaysia's economy is said
to be still strong. Malaysia hopes never having to
resort to loans from the IMF. But the pressure on
Malaysia is very very great. The currency continues to
be attacked along with the stock market.
15. The sad thing is that all these troubles are due to
the very thing that Malaysia had always welcome -- cross
border flows of capital and world trade. Because we had
opened up and because we allowed our currency and shares
to be bought by foreigners and traded outside our
country, today we have to face the full force of
international currency manipulation and stock market
assaults.
16. The rules of currency trading have been devised by
the currency traders themselves and they give themselves
unbeatable advantages over their victims. There is no
way the target country can fight back.
17. I will not insult you with explaining the mechanics
of currency trading but I would like to point out how,
between manipulating currency values and assaulting the
stock market, the manipulators ensured they would profit
all the time.
18. Before an assault is to be mounted on a currency,
they would acquire large sums of that currency. When
they attack, the Central Bank would defend the currency
by raising interest rates. The traders would then lend
the currency they had earlier acquired at high interest
rates. The high interest imposed by the Central Banks
also depress share prices and the traders would engage
in short selling in order to profit from the fall in
share prices.
19. Clearly they profit from the currency depreciation,
the rise in interest rates and the fall in share prices.
It is a wonderful way of making huge profits and it is
all within the rules of the free market system and world
trade.
20. The unfortunate thing is that countries and people
lose a lot of wealth in a very short space of time,
wealth which they had worked hard to acquire over many
many years. Worse than that, the loss of wealth by the
nations and the people is far greater than the profits
made by the manipulators. In the case of Malaysia, for
example, while the GDP loss is estimated at 40 billion
U.S. dollars, the profit made by the manipulators cannot
be more than five billion U.S. dollars. There is a
disappearance of some 35 billion U.S. dollars worth of
wealth and purchasing power.
21. Now if we add up the losses sustained by all the
countries of South East Asia and North East Asia due to
devaluation, the total loss runs into hundreds of
billions yearly. On the other hand, the gains by the
manipulators are small and once only. There is thus a
great deal of waste of wealth in order to give the
traders their profits. In a zero sum gain what the
loser lose is gained by the winner. In the case of
currency trading the loser loses very much more than the
gain made by the winner.
22. It would seem that unfettered world trade can
destroy as much as it can build. World trade i.e. the
trade in goods and services has created wealth for
everyone throughout the world. Jobs, contracts, freight,
insurance, transportation, port handling -- all these
and more accrue from world trade. But who and how many
people benefit from currency trading and stock market
manipulations - a very few indeed. They create no
substantial employment, use no tangible services,
produce and consume no goods and benefit the world not
at all -- indeed as has been pointed out currency
trading and stock market manipulations result in a
shrinkage of wealth, real wealth. The trade in services
and goods creates wealth and reduces poverty, but the
trade in currency and portfolio investments across
borders diminish wealth and increase poverty. Wherever
the currency traders go they leave a trail of poverty
and destabilised economies in their wake.
23. It is said that the trade in currency is 20 times
bigger than world trade in services and goods. Imagine
if world trade in goods and services is 20 times bigger
than it is now, how much wealth it can create and how
successful would be poverty eradication. The world
would be literally 20 times richer and poverty worldwide
would have been totally eradicated. But currency
trading which makes up about 95 percent of world trade
has increased poverty instead.
24. I have taken this opportunity to talk about the
damage caused by currency trading in order to
differentiate and highlight the benefits of cross-
border flows of funds for productive activities.
Malaysia is trying to manage the difficult economic
situation that it is faced with now. We think we may be
able to manage but we need new foreign long-term
productive investments even more urgently. We had
looked at the proposed Asian Fund but now that it is
going to be an extension of the IMF it has become much
less attractive. If we need that kind of aid we might
as well resort to an IMF bail-out. But such a bail-out
does not guarantee our economic recovery. What is
certain is that it will restrict our freedom to design
and initiate new ways of stimulating foreign direct
investments in our country and the implementation of new
economic policies and strategies. Malaysia has always
been innovative and that is why we have progressed.
Restriction on us will limit the introduction of
innovations in our economies management.
25. Normally a fall in the value of the currency would
lead to inflation as wages rise in order to regain
purchasing power. As is well-known imports constitute a
significant portion of goods and services consumed
locally. These imported items will appreciate in terms
of the devalued currency. Again this will negate the
positive effect of devaluation.
26. If there is any gain at all in terms of cost of
production due to devaluation, it is likely to be
temporary. In time whatever cost reduction would be
negated as wages rise and goods and services go up along
with it. If inflation does not run wild the best that
can be expected is a return to the original cost levels.
27. In Malaysia however, the local cost and prices have
not gone up until now. Wages are still at the old
levels even though in foreign currency terms their
purchasing power had decreased. Workers have not
demanded for wage increases simply because they are
still able to buy the same goods and services that they
were able to buy before the devaluation. It is the
intention of the Malaysian Government to keep wages at
the old level through a campaign against waste, against
unnecessary luxuries and through belt tightening. The
consumption of non-essentials, especially imported ones
will be reduced to the minimum. The campaign has
received the support of all strata of the people
including the unions and the workers. As a country with
a relatively small and disciplined population it is
possible for the Government to monitor receipts and
expenditures closely to ensure that imported inflation
will be minimised. The people have pledged their full
cooperation towards a program to make Malaysia more
competitive globally.
28. What does this mean for foreign investors? It
means that they can produce goods and services in
Malaysia actually at a much lower costs than before.
They would either earn more profit or become more
competitive in the world market. As you know investors
have always found Malaysia a good manufacturing centre
because of its efficiency and lower cost. Now the cost
will be even much lower.
29. At the same time Malaysia will continue to provide
the efficient handling of investors' needs. Bureaucratic
processes would be reduced to the barest minimum. All
the old tax incentives and privileges will be
continued.A business-friendly Government will make
itself readily available even at the highest level to
resolve any problem that may arise.
30. For some time now Malaysia has been promoting high-
tech industries and discouraging labour intensive
industries. This is because we are short of workers and
have to allow foreign workers to come in. We want to
reduce dependence on foreign workers while increasing
the income of our better trained citizens through hi-
tech industries.
31. However we have decided to call a halt to this
policy. We will now allow for labour intensive
industries dependent on foreign labour if the industries
are for export. We now have about 1.7 million foreign
workers. We will allow a gradual increase if export-
oriented industries require a bigger work force.
32. A number of hotels in Malaysia are Japanese-owned.
We notice that Japanese visitors prefer to stay in
Japanese-owned hotels. They also prefer Japanese
tourist guides and operators. We are quite prepared to
allow more Japanese tourist operators if they can bring
in additional tourists or prolong their stay in
Malaysia.
33. Apart from these, we are willing to listen to and
consider other ideas that you may have for increasing
Japanese investments in Malaysia.
34. At this moment despite the so-called currency
turmoil and lowered growth, there is still full
employment for Malaysians in Malaysia. We are thus able
to reshape the economy without too much cost to our
people. Traditionally our people are very disciplined
and easily trained. They are not prone to wild action
which may undermine our economy. They are also fully
supportive of the Government they had elected with a
huge majority. In fact the attack on Malaysian currency
and certain action directed against the country's
leaders have only strengthen their unity and support for
the Government. Even opposition members are quite
supportive.
35. This renders the country politically stable and the
Government fully effective. New policies and approaches
proposed by the Government will not disrupt the
equanimity of the people.
36. We are certain that the steps we have taken and our
invitation for more foreign investments will be welcome
by them. Indeed all our people will be ready to provide
your investors with the best service. You will find
living and working in Malaysia inexpensive and pleasant.
37. I would like to invite all of you to visit Malaysia
and check whether what I say is true. You will find
that there is no haze in Malaysia and with the agreement
of Indonesia we can assure you that there will be no
haze in future in Malaysia. You will find our
bureaucrats attentive and ready to consider all your
needs. And you will find Malaysians as friendly and
hospitable as ever.
38. So do come to Malaysia to invest and to enjoy its
salubrious climate. And now it would cost you even
less in terms of Yen, for the Yen has also appreciated
against our Ringgit.
Welcome to Malaysia. Welcome to invest in Malaysia.
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