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."