Malaysian economy loses its shine

Malaysian economy loses its shine

KUALA LUMPUR (DPA): The Malaysian economy, after almost a decade of hurtling ahead rapidly, took a breather this year as the nation grappled with a plunge in exports, a yawning current account deficit, price pressures and a sharp labor shortage.

The 8.2 percent growth in gross domestic product (GDP) for 1996, down from last year's dizzy 9.5 percent, is expected to slip further to 8.0 percent next year, government projections indicate.

The slowdown, however, was welcomed by economists and investors who had feared the economy was overheating after nine straight years of more than 8 per cent growth since 1988.

"It's tapering, but it's not a tragedy," said Soong Siew Hoong, secretary of the Associated Chinese Chamber of Commerce and Industry.

P.H.S. Lim, Malaysian Investors' Association president, agreed. "Foreign institutional investors who once harbored fear of an overheating economy with high inflation and high interest rates should greatly welcome the Malaysian capital market now," he said.

Two major problems which hit the economy in 1996 were the sharp drop in manufactured exports, due mainly to the worldwide slump in electronics prices, and trying to narrow the gaping current account deficit in the balance of payments.

Manufactured exports, which formed 81 percent of overall exports, grew only by 5.8 percent against last year's 22.9 percent.

Unlike Singapore and South Korea which were particularly hard hit by the fall in electronics exports, Malaysia managed to escape relatively unscathed because of a corresponding plunge in imports that managed to improve the trade balance.

Gross exports plunged to a mere 4.1 percent growth from 1995's robust 20.2 percent. However, exports are projected to pick up to 9.4 percent next year.

Imports, meanwhile, shrunk from 24.6 percent to 1.8 percent, due to dampened industrial demand and a government call to curb unnecessary foreign purchases to help trim the current account deficit. Import growth is set to rise to 6.7 per cent in 1997.

Because of the parallel drops, the Finance Ministry sees the current account shortfall this year as narrowing to a lower 14.77 billion ringgit (US$5.90 billion) from 1995's record 18.69 billion ringgit deficit.

It is expected to narrow further in 1997 to 11.50 billion ringgit, or 4.4 per cent of gross national product (GNP).

Inflation was kept in check at 3.6 percent this year, up slightly from 1995's 3.4 percent but may improve to 3.5 percent in 1997.

Soong expects the slower economic growth to lessen the labor crunch in Malaysia which relies heavily on almost two million legal and illegal foreign workers, almost a quarter of the workforce.

"Hopefully, there'll be not so much jostling to get workers, especially as the economy moves toward more higher value-added products and services," Soong said, referring to the government's aim of phasing out cheap labor industries in the face of competition from countries like China and Indonesia.

Investors remain confident about Malaysia which Prime Minister Mahathir Mohamad has led for 15 years. New manufacturing projects totaling investments of 17.9 billion ringgit were approved up to July this year, up 37.3 percent from last year.

Mahathir, 71, retained a firm grip on his party after party polls i n October returned him unopposed for another three-year term, despite persistent talk that his ambitious deputy, Anwar Ibrahim, is impatient of waiting in the wings to replace the aging premier.

Mahathir, who has a vision of transforming Malaysia, once famous for its tin and rubber, into a developed nation by 2020, in November also unveiled a second 10-year industrial master plan to implement his dream.

The plan, spanning 1996-2005, maps out the development through incentives of selected core industries such as aerospace, wafer fabrication, chemicals, electronics and textiles that will lead the drive towards full industrialization.

Soong urged Malaysian companies, especially small and medium industries, to snap up these incentives to acquire technical know-how and t rain better skilled workers.

"Our greatest challenge ahead is not from Europe or the United States, but from the cheaper imports that will come from Southeast Asia," he said, referring to a regional free trade area pact to slash tariff s to below five per cent on various products by 2003.

"We've never had it as good as these past nine years," he said, adding: "We have to buck up now to survive. The good days are over."