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.