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Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : LONDON, UNITED KINGDOM
Tarikh/Date : 26/09/95
Tajuk/Title : THE DIALOGUE ON "THE MALAYSIAN
ECONOMY AND CAPITAL MARKET"
About a month ago, Malaysia celebrated its 38th year of
independence. We have come a long way since the days when
the plantation and mining sectors formed the cornerstones of
our economy. Today, Malaysia's economic achievements are
comparable to those of many countries in East Asia.
2. For seven years, we have experienced economic growth of
more than 8.5 percent. GDP growth for this year was 9.9
percent for the first quarter and 9.3 percent for the
second. It is clear that our economic growth has outpaced
the economies within the ASEAN region. This rapid growth is
achieved with inflation rates averaging only 3.2 percent.
3. Things are going well in Malaysia. But many are saying
that it cannot possibly last. Growth must be followed by
overheating. And the economy will soon nose-dive. I may be
wrong but I think we can manage our economy better than
most. Not everything is fortuitous in Malaysia.
4. Right from the time when Malaysia gained independence
in 1957, the Government had adopted a pro-business attitude.
Instead of nationalising private holdings, a favourite with
most newly independent countries, Malaysia actually
encouraged private investments, including those by
foreigners. Very early on, incentives were provided for
private investors. Being business friendly has become a
part of the national culture. It is not surprising
therefore that huge investment proposals are received every
year, and the economic growth has always been high. The
expansion in 1996 is expected to continue to be broad-based,
coming from the manufacturing, construction and service
sectors.
5. With higher incomes and ample employment opportunities,
the incidence of poverty in Malaysia declined to 8.8
percent. Along with this affluence comes the need to
inculcate the savings habit among the general population,
which would not only help meet the nation's financial
requirements but also assist in maintaining low inflation
rates. Still our savings rate of 34 percent, although
relatively high, falls short of our investment requirements.
6. The growth of the Malaysian economy has been largely
investment driven. By international standards, the level of
investment has been high as mirrored by its ratio to Gross
National Product (GNP) of 40.5 percent in 1994. I strongly
believe that as far as investment inflow to Malaysia is
concerned, the relationship between investors and the
community should be a symbiotic one. Once you have decided
to do business in Malaysia, your interest and welfare
becomes the concern to the Government. If you do well, we
would be happy; if you do not, we would like to know whether
we can do anything to help.
7. This is in line with the Malaysia Incorporated Policy
which was formulated in the early 80's. Briefly, this
policy encourages public-private sector cooperation for the
benefit of the nation. At the ministerial levels, annual
dialogues lasting several days are held with the private
sector, which enables them to make constructive
contributions to the formulation of Government policies as
well as help better understand the social aspirations of the
country. To explain the workings of the Malaysia
Incorporated concept, the Government has recently published
a book, "Malaysia Incorporated" which will be distributed
today to all guests.
8. Malaysia's privatisation scheme is an off-shoot of this
policy. Todate, 109 agencies and Government companies have
been privatised, involving various sectors, including
infrastructure, energy supply and telecommunications. The
privatisation strategy has generated new and innovative
ideas, resulting in greater efficiency of services and
acceleration of our economic development. The capitalisation
of he stock market has been much boosted by the listing of
the privatised utilities. This is a winning formula and
we pan to continue our efforts.
9. To a large extent, policies and measures to meet the
challenges of a high growth economy are already in place.
These will be further strengthened as Malaysia enters the
Seventh Malaysia Plan Period beginning 1996 until the year
2000. This plan will accelerate the building of the
necessary physical and financial infrastructure as well as
support services.
10. A case in point is Malaysia's aim to convert Labuan
into one of the world's largest International Offshore
Financial Centres (IOFC). Since its inception as an IOFC in
October 1990, 44 offshore banking licences have been issued
by the Central Bank. Of these, 37 were given to foreign
banks, reflecting the interest of the international banking
community in Labuan.
11. In addition the Government has set up a fund to promote
Labuan IOFC and has also drawn up a master plan for its
development. We are also looking into the setting up of an
International Stock Exchange and Monetary Exchange in
Labuan, further expanding the scope of financial and capital
market services that the island offers.
12. I am happy to inform you that the Malaysian Capital
Market registered impressive growth in the last few years,
in tandem with the country's high economic growth. We are
at the threshold of developing into a regional capital
market centre.
13. This we plan to do with a streamlined regulatory and
administrative framework and conducive market environment.
We have recently introduced an 18-point liberalisation
package that aims to provide a competitive environment
to attract foreign financial institutions to site their
regional base in Malaysia. Some pertinent aspects of this
package include:-
- greater participation by the Employees Provident Fund
(EPF) in developing the capital market. (The EPF with
well over 100 billion ringgit, roughly 25 billion
pound is the biggest fund in Malaysia);
- a new unit trust that is open to all Malaysians;
- allowing qualified stockbroking houses to operate unit
trust funds;
- introduction of a graduated commission system to
reduce brokerage charges and allowing foreign fund
management firms to manage 100 percent of their funds
locally;
- listing of infrastructure projects; and
- setting up another rating agency to meet the growing
demands of the Private Debt Securities (PDS) market.
14. In fact, the PDS, with its financial papers, such as
bonds, warrant and notes, have grown over the years to
become an important alternative source of funds. For the
first half of this year, RM22.7 billion was raised from the
domestic PDS market. Asset-backed securities, which will
broaden the investment base and concurrently enhance the
efficiency of pricing and trading of PDS, will be launched
before the end of October this year.
15. The Kuala Lumpur Options and Financial Futures
Exchange (KLOFFE) and Malaysia Monetary Exchange (MME) are
expected to be operational by year's end. KLOFFE will offer
stock options and stock index futures while the MME will
offer interest rate futures. The recent developments in
derivatives trading highlight the need to educate investors
on this new instrument and also ensure that financial
institutions have stringent internal controls.
16. Meanwhile, in the financial industry, commercial banks
are expected to continue charting growths with the
introduction of new banking facilities and tapping new areas
like asset management.
17. Malaysia has an established securities market in the
form of the Kuala Lumpur Stock Exchange (KLSE). In terms of
market capitalisation the KLSE is ranked fourteenth in the
world and third in the Asia-Pacific region. In the ASEAN
region, the KLSE is the largest bourse ahead of Singapore
and Bangkok. Indeed the Singapore market would be
negligible without their over the counter trading in
Malaysian shares.
18. Recognising its vital role in mobilising funds, the
KLSE has intensified its efforts to provide a more conducive
market place and bring itself to a greater level of
sophistication and professionalism in line with the
globalisation of securities trading.
19. Priority areas of action for the KLSE include upgrading
market infrastructure and offering diverse market
instruments, instilling greater professionalism amongst
stockbroking companies, listing them, intensifying market
promotion activities and developing further its human
resources.
20. Some of the KLSE efforts todate include:-
- accelerated implementation of the Central Depository
System (CDS). End 1996 is targetted for all companies
to begin "scripless trading". This will result in more
efficient and convenient share settlement. KLSE will
by then shorten its settlement cycle from five to
three days, in line with international trends;
- the KLSE has recently introduced trading in small lots
of 200 units for certain companies. This will attract
more investors to the market and increase saleability
of expensive shares;
- in its effort to provide a wider choice of trading
instruments in the market, call warrants were recently
introduced and traded on KLSE. The exchange will
continue evaluating new financial instruments to be
introduced to the market;
- the KLSE is working closely with the Securities
Commission towards formalising and enhancing
securities lending activities in the market. In line
with this, the authorities are also looking into
making short-selling less restrictive;
- with the objective of increasing investor
participation in the local bourse, guidelines are
being drawn up by the authorities to enable close-
ended funds to be listed on the KLSE; and
- to enable broking houses to expand their activities,
those qualifying will now be allowed to operate unit
trusts funds. In addition, as the ceiling on the
listing of stockbroking companies has now been
lifted, more broking houses are expected to be listed
on the KLSE.
21. Malaysia's greatest advantage as a profitable investment
centre is its political stability. The ruling coalition has
been voted to power by the people in regular democratic
election repeatedly. Consequently one does not see the kind
of abrupt policy changes and reversals that take place with
radical changes of Governments. The policy towards foreign
private investments, for example, has not changed. If at
all, conditions are repeatedly made more attractive.
22. Since investments usually have long gestation periods
the constancy of policies over long periods must be good for
investors, both domestic and foreign. That the people
endorse this constancy of policies is made amply clear by
the National Coalition winning with the biggest majority
ever in the General Election held in April this year.
23. The business-friendly Government is aware that investor
interest and confidence in the market, as well as financial
stability, are of paramount importance for the success of
any capital market. In this respect, regulations must be
balanced to give confidence to the market without being so
excessive as to hinder development.
24. In Malaysia, the relevant authorities and industry
players are working together to further develop the
financial market. Everyone is welcome to profit from one of
South East Asia's most dynamic and stable economy and
financial centres.
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