Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : RENAISSANCE HOTEL, KUALA LUMPUR
Tarikh/Date : 11/09/96
Tajuk/Title : THE 17TH FINANCIAL INSTITUTIONS'
ANNUAL DINNER
1. Terlebih dahulu saya ucapkan terima kasih
kepada pihak Persatuan Bank-Bank dalam Malaysia
kerana menjemput saya untuk hadir di Majlis Makan
Malam ke-17 Institusi-Institusi Kewangan pada malam
ini.
2. The Malaysian economy has grown from strength
to strength since it came out of the recession in
1985-86. Indeed, during this period, the economy
enjoyed the strongest cyclical upswing, with growth
in GDP averaging 8.9 percent per annum for the
period 1988-95, one of the highest rates of
sustained growth experienced by a developing
country. At this point in time, the economy is
still looking distinctly robust and expected to
register 8.3 percent growth for 1996. However, for
an economy which has undergone a prolonged period of
strong economic growth, the key question is how to
sustain this high growth and achieve the annual
growth target of at least eight percent that we have
set for ourselves in the next five years of the
Seventh Malaysia Plan. Given the attendant problems
of economic success, including the strong
competition for domestic resources, the challenge to
Malaysians is how to use our ingenuity to steer the
economy so as to maintain rapid and sustained growth
with price stability and a balance in the external
trade, while at the same time managing anything that
might threaten to derail the development process.
3. Over and over again I have emphasised the
importance of partnership and the complementary
roles of the Government and private sector in the
development process. The banking institutions form
a part of the private sector in this partnership.
The banking institutions play a major role in the
development process because of their responsibility
to encourage and mobilise savings. And based on
these savings, they provide credit to businessmen,
investors and entrepreneurs who need funds for
business activities involved in producing goods and
services to meet the expanding demand in the home
market as well as for export. In so doing, they
also provide employment and help to support a rising
standard of living for Malaysians. However, for the
banking institutions to be a strong partner to the
business sector and to play a more effective
facilitating role, they must themselves understand
the economic policies and creed of the nation.
4. Malaysia's strategy for economic development is
simple. The objective is to maintain low cost of
living through curbing inflation while increasing
incomes through higher productivity. In this way
the standard of living of Malaysians will improve
without Malaysia losing its competitive edge. With
continued competitiveness Malaysia will continue to
attract investment and increase its trade. In other
words Malaysia will continue to grow economically.
In view of the shortage of workers and in order to
increase their productivity and accordingly their
income, new high technology, high capital automated
manufacturing industries will be given priority.
5. This strategy calls for a complete
reorientation not only on the part of the planners
and those involved in promoting the Malaysian
industrialisation programme, but it involves a
change in the mindset of the bankers who will have
to provide the funds for these capital intensive
industries. Actually the adoption of this strategy
is unavoidable, that is if we wish to continue our
high growth objective.
6. There are some who believe that high growth
will lead to economic overheating whose symptoms are
high rates of inflation, upwards trend in wages and
deficits in the balance of payment. It is
worthwhile pointing out that high rates of growth in
Japan in the 60s and 70s, in many instances double
digit growth, did not result in deficits in the
balance of payments. Instead there was a steady
increase in surpluses in the balance of payment.
7. However as the yen was so cheap then, being
only worth 1/3 of an American cent or US$1.00 was
equal to 300 yen, the Japanese allowed wages and
prices to increase unchecked. The result was high
inflation in domestic prices. Thus by the time of
the Plaza Accord one rock melon was selling for
RM250 and one kilo of Kobe beef was selling for as
much as RM1,800. This high prices was all the more
remarkable because Japan used to be the cheapest
country to live in. In 1961 when I visited Japan
for the first time, hotel rooms in a four star hotel
was only RM60 and taxi fare was 40-60 Malaysian sen
per kilometre. The standard of living was also very
low.
8. Perhaps to improve the standard of living,
wages were allowed to go up rapidly, outstepping the
inflation rate. Under Prime Minister Ikeda the
Japanese targeted a standard of living measured by
ownership of three important household appliances.
The small car was also introduced to enable the
Japanese to own a motorcar or a small pick-up truck.
9. High wages and high cost of living in Yen did
not affect Japanese competitiveness. This was
because of the high productivity of the Japanese
work force and of course the low value of the Yen
relative to the currencies of Japan's trading
partners.
10. The oil shocks disrupted Japan for a short
while but as soon as prices steadied Japan
reorganised its production so as to reduce cost.
The result was rapid recovery and a return to the
situation prior to the shock. The same happened
when the value of the Yen was forced up by the other
members of the Group of Seven. As soon as the
exchange rate stabilised the Japanese industries
became competitive again followed by good growth and
a continuing surplus in the balance of payment.
Recession set in only when the revaluation of the
Yen was continuous leaving the Japanese economy
breathless and their industries unable to adjust.
Even then the balance of payment remains high.
11. There is apparently no definite relation
between the balance of payment and the rate of
growth. Indeed even when there is inflation, and
revaluation of the currency, the balance of payment
can remain unaffected. It is worthwhile to remember
that when the Yen was revalued upwards the enormous
Japanese imports of raw material including fuel was
cheap. Even if the contribution of raw material and
energy makes up a small percentage of production
cost, it would still help Japanese products remain
competitive.
12. The point I am trying to make is that a deficit
in the balance of payment need not result from high
growth, nor is inflation a necessary accompaniment
of high growth. If we can hold down inflation and
improve productivity, and consequently our export
growth, we can counter the deficit in the balance of
payment.
13. Whether a country has high growth or not, there
can be inflation. There is no way a country can
really effectively counter imported inflation. We
can subsidise, as many countries do their fuel
prices, but what it mean is that the Government is
paying. In terms of the national economy there is
still inflation.
14. We have to accept increases in the price of
imports but the cost of essentials i.e. basic food
items, working man's clothing, low-cost housing and
public transport can be kept almost inflation free.
It is these essential items which affect the cost of
living of the average worker. For as long as their
prices remain stable wages need not go up in order
to maintain the same standard of living. If wages
remain steady then production cost need not go up
and our goods would remain competitive.
15. But it is not Government policy to keep wages
fixed for all times as we would the price of
essentials. We want the wages to go up so that the
standard of living of even the ordinary workers can
go up. It would be meaningless to attain developed
country status if the living standards of our
workers remain the same. But increases in wages
must be related to productivity, i.e. producing more
at the same unit cost or producing products with
higher value.
16. Obviously there must be a limit to what a
worker can produce through his own effort. To
increase productivity new investments in new methods
of production will have to be made to produce more
of the same or better value added products. Even if
productivity is the result of new investments the
increase in company earnings must be shared with
workers. This is only fair since any increase in
productivity due to the workers efforts will also be
shared by the owners.
17. The switch to high technology and high capital
industries is intended to reduce labour inputs as
well as increase the value of the products. In fact
even labour intensive industries are the response to
the need to increase productivity per worker as
compared to the old disorganised worker-producer
industries before the industrial age. The proposed
switch is really a normal progression for an
industrialising nation.
18. The question may be asked; can we do it? Can
our workers accept retraining and new
responsibilities, that of overseeing production
machinery instead of handling the products at the
various stages of production? Malaysian workers
can. They have already demonstrated how rapidly
they could acquire new skills. Given the right
prospects and incentive they will learn and learn
fast.
19. The problem will be in the readiness of
investors to switch to high-tech capital intensive
industries. As a corollary, will the financing
institution be up to supporting the switch?
20. Malaysia will continue to need direct foreign
investment. This will involve well-known companies
which bankers would be ever ready to lend money to.
They are usually good pay masters. And bankers will
be very confident of their technical knowhow and
their forward and backward linkages. They will have
the full backing of their parent companies. To lend
to them would require little banking savvy. Banks
can confidently lend blindfolded.
21. Unfortunately direct foreign investment will
not contribute as much to the economy and the
balance of payment equation as investment by local
investors. Although Malaysia's trade is big and we
are the 19th biggest trading nation in the world,
much of this trade is done by foreign-owned
industries. Their operation consist of importing
parts, adding value to them and then exporting them.
Obviously as exports grow, imports must also grow.
In addition most of the earnings are repatriated tax-
free. Very little is spent here, thus contributing
little to the national economy and the balance of
payment.
22. We do not grudge the foreign investors
maximising their return. We have benefited greatly
from their investment in this country, and we still
want them to come. We certainly will need them for
many of the high-tech industries that we are aiming
for. Indeed for the Multi-media Super Corridor we
are going to give them even more benefits, including
100 percent ownership and unrestricted employment of
foreign knowledge workers.
23. But in order to really benefit from our
industrialisation we need to have more local
entrepreneurs going into manufacturing for exports.
Naturally even if the local companies are well-known
they will not be in the same league as the huge
multinationals of the Fortune 500 category. They
are going to be relatively small and relatively
inexperienced. Yet if they are to succeed they have
to become big enough to produce quality products in
large volumes and market them at home and overseas.
We cannot succeed if we are timid and unwilling to
take big risks.
24. Locally-owned industries producing for export
is one of the most important answer to the balance
of payment deficit. We have seen in the East many
countries which had almost no export track before,
bloom into big industrialised countries, with huge
exports and surpluses in the balance of payment.
Their strategies differ. While Japan believes in
the step by step approach, others believe in going
big with a bang. Suddenly, almost out of nowhere
they appear in the international market place as
powerful corporations with a huge variety of
products of good quality and reasonably priced.
25. We can choose to progress step by step or we
can adopt the big bang strategy. But whatever
approach we choose, there will be risks.
26. While there may be local entrepreneurs willing
enough to take risks, will there be bankers to share
the risks? Obviously if bankers won't, then one of
the most powerful strategies to overcome the balance
of payment will fail.
27. Malaysian bankers have always been very
reluctant to take risks. Almost invariably they
would want to have collaterals or guarantees of some
sort. Perhaps this is prudent banking. Perhaps
that is why Malaysian banks show such good profits.
But if the Malaysian economy is not doing so well
prudence alone will not help the bottom-line. It is
in the interest of the banking fraternity to help
the economy prosper and eventually reap rich returns
from it.
28. Malaysian banks have played a role in
prospering this country. But they cannot be
regarded as the catalyst. At the risk of being
accused of self-praise, I would like to claim that
it is Government policy and drive which has
contributed most to the present economic achievement
of Malaysia.
29. Malaysian banks cannot forever be camp
followers. The time has come for them to take the
lead. We know that when Japan's economy was growing
by leaps and bounds, the interest rate in Japan was
very low, around three percent. Banks took equity
in Japanese industrial entrepreneurs. Their
representatives sat on the boards. Indeed the banks
were often owned by the big industrial corporations.
Earnings were invariably ploughed back for expansion
and diversification.
30. I am not suggesting that as part of the Look
East policy we adopt in toto the Japanese model.
But surely there must be lessons to be learnt from
the operation of the Japanese banks during the rapid
post-war recovery of Japanese industry and commerce.
As far as I know Malaysian banks do not take equity
in business projects, much less in companies.
31. For economic expansion capital is absolutely
necessary. Fortunately for us Malaysian saving
habits are good. This of course is partly due to
low inflation and a strong currency. Banks must
encourage savings and make more capital available to
the investors. They must take risk. Venture
capital is difficult to come by in Malaysia. The
small entrepreneurs have no credibility. The big
ones are too big a risk.
32. If we are going to grow and grow in such a way
as to increase our own wealth, including of course
overcoming our balance of payment deficit, we have
to expand local investment in industries
manufacturing for export. There will be risks.
Someone will have to take the risk. If it is not
the bank, then it must be the investor or the
Government. We cannot expect banks to take all the
risk but we can reasonably expect them to share the
risk with the investor and the Government.
33. Lately we have been seeing a new phenomenon
involving Malaysian businesses. At the urging of
the Government, Malaysian companies have been
investing abroad. This must cause at least some
outflow of Malaysian capital. But we hope that the
prosperity that our investments will bring to other
countries will help create new markets for Malaysian
products. This was what happened when the Japanese
invested in Malaysia. We have now become such a
good market for Japan that the biggest trade deficit
we have is with that country.
34. We would prefer that our investors borrow from
the banks in the countries they invest. But there
must be occasions when they may need to borrow from
Malaysian banks. If Malaysian banks are chary of
lending for local manufacturing enterprises, how
much more reluctant will they be to lend for
business activities in foreign countries. For the
small entrepreneur there is perhaps no hope at all.
It would be a pity because some of these investments
in foreign countries can result in the sourcing of
numerous items from Malaysia i.e. they will help our
exports.
35. We are concerned about outflows of our money.
But foreign investments by Malaysians have long-term
objectives, although immediate benefits can accrue
to our country in many instances. Bankers must find
ways and means to help. Prudence, yes. But bankers
who want to be certain always, who will take no risk
at all will become pure money-lenders or chettiars.
I don't think you want to be that. I do hope you
will play a role. We cannot get for you unlimited
banking licences in other countries.
36. At the beginning I had emphasised the
importance of partnership and complementarity
between the Government and the private sectors in
the development process. I stressed that the
banking institutions form a part of this
partnership. I pointed out that the banking
institution play a major role in the development
process.
37. Times have changed. We are the victim of our
own success. We have to change strategies and
methods. The Government has decided to change. I
think the Malaysian investors are prepared to
change. The question is, are the banks prepared to
change? I leave this question with you.
|
|