Malaysia's new economic blueprint to steady growth

Malaysia's new economic blueprint to steady growth

By Chen May Yee

KUALA LUMPUR (AFP): Malaysia's new economic blue-print to be
unveiled this week is expected to apply gentle brakes to surging
growth while pushing the service sector and an inadequate labor
force to catch up.

The five-year Seventh Malaysia Plan is likely to target annual
growth of eight percent, down from the torrid 8.8 percent of the
previous plan, analysts said.

The plan, which will guide socio-economic development from
1996 to 2000, is to be presented to parliament by Prime Minister
Mahathir Mohamad on Monday.

Rapid growth, a widening current account deficit and upward
pressure on inflation marked the Sixth Malaysia Plan, and the new
plan will have to tackle these problems, analysts said.

The slower growth target will call for big structural changes,
focussing on increasing productivity with a more skilled labor
force and better technology, they said.

"In trying to fine-tune (the economy) ... the formula for
sustained growth will no longer be more capital and labor, now it
is productivity," said Mustafa Mohd Nor, chief economist at Arab-
Malaysian Securities.

"Exports must grow, services must go up, productivity must go
up to reduce the cost of doing business," Mustafa said.

With the economy at full-employment, the only way to alleviate
Malaysia's chronic labor shortage will be to upgrade training and
education, economists said.

"The labor market is quite tight, not only in terms of
quantity but quality," said Kevin Chew, an economist with Baring
Research.

Unemployment was down to 2.8 percent last year from 2.9
percent in 1994 and three percent a year earlier.

The government has already moved to revamp its educational
system, including switching emphasis from arts and science
subjects to technical and vocational studies.

Technical training institutes are also being upgraded and
foreign universities have been given the green light to set up
branch campuses here.

While previous plans banked on Malaysia's attraction as a
relatively low-cost manufacturing center, the country was now in
limbo with rising inflation, analysts said.

"We are no longer low-cost enough anymore to compete with
Vietnam (or) China," said Tan Teng Boo, managing director of
investment consultancy Capital Dynamics.

"On the other hand, we are not skilled enough to handle high-
tech industries, wafer plants, etcetera," Tan said.

While pushing for more high-tech sectors, authorities are also
concentrating on services, including upgrading ports and freight
and insurance charges to protect its deteriorating current
account.

The current account deficit hit a record 17.8 billion ringgit
(US$7.12 billion) last year and is projected to narrow to 17
billion ringgit this year.

The government might also look at exporting utilities like
electricity to pad up its services account, especially with the
huge Bakun hydroelectric dam in Sarawak set to begin operations
in 2003, Mustafa said.

One area where the government might need some time to slow
growth is construction.

Deputy Prime Minister Anwar Ibrahim last month forecast the
country would issue 200 billion ringgit worth of construction
contracts under the Seventh Malaysia Plan, compared to 112
billion ringgit under the previous plan.

Anwar had defended the continued strong growth as necessary to
expand infrastructure capacities to reduce bottlenecks in the
system.
"That is still a big sum of funds ... so they must be involved in
big projects," Mustafa said, but added that once most projects
are completed in 1997 and 1998, construction growth was likely to
taper off.

With slower overall growth, inflationary pressures are also
set to ease, with the consumer price index expected to be capped
below five percent, analysts said.