ATimes: Malaysia still on a shaky economic platform
By Anil Netto
13/4/2002 10:54 pm Sat
Malaysia still on a shaky economic platform
By Anil Netto
PENANG - Malaysia's official economic growth forecast for this year
remains at 3.5 percent after a dismal performance last year, which saw
growth of just 0.4 percent.
The stock market has picked up after some restructuring of companies
and the departure of a few well-connected individuals who were seen as
weighing down on corporate confidence. All positive signs, but the
question remains: Have the reforms and restructuring been enough?
Although a modest recovery is expected, it is unlikely that countries
such as Malaysia will see anything like the sustained 8 percent growth
rates witnessed in the late 1980s and early 1990s. Given that the
United States is a major trading partner, much will depend on how the
US economy performs. America's recent economic performance may have
been surprisingly strong, but it is too early to say whether it can be
sustained at the present pace. There is even a possibility of a
recession there. One thing seems fairly certain: the US recovery is
unlikely to match the growth it achieved during Asia's recovery from
the 1997 financial crisis.
Of crucial significance to countries like Malaysia is the performance
in the US information technology sector, as the bulk of Malaysia's
electronic exports go to the US. Thus, gloom has greeted the
announcement of first-quarter figures of firms such as telecoms giant
Nortel Networks, which revealed first-quarter earnings below
expectations. "Customers were showing more resolve than originally
anticipated to minimize spending in the near term," said the Nortel
chief executive in a statement.
The bad news from Nortel came on the heels of IBM's admission that its
first-quarter revenue would fall 35 percent to about US$18.5 billion
from $21 billion a year ago. Such tech results are likely to dampen
optimism for an early recovery in IT (information technology)
export-dependent nations such as Malaysia. In addition, only modest
growth is expected in Europe, while Japan, another major trading
partner for Malaysia, is not likely to experience any turnaround for
the next couple of years.
While key macro-economic indicators appear to have bottomed out in
Malaysia, much will depend on whether there have been sufficient
corporate and structural reforms to bolster Malaysia's vulnerability
to any future shocks. Indeed, the sort of fiscal pump-priming Malaysia
has resorted to can only go so far to compensate for the sharp drop in
applications for new foreign direct investment. Much will depend on
the qualitative nature and the spin-off effects of the pump-priming
rather than the actual amount spent - mostly on infrastructure like
roads, schools and hospitals. With a fiscal deficit of 5.5 percent of
gross domestic product (GDP) last year, the room for more such fiscal
boosts appears limited.
Crucially, Malaysia has to bridge the technology gap if it wants to
continue to attract new high-end investment. But for decades its
students have not been encouraged to think critically or creatively.
Rather, education has focused on rote-learning and cramming for
examinations. At a time when the IT export markets have not fully
recovered, Malaysia badly needs to nurture its own home-grown brains
in a creative and free environment. Such local talent is needed to
develop its own indigenous tech industries and nudge its
commodities-based industries into further downstream processing.
But with curbs in universities on critical thinking, on student
activism and on academic freedom, and with other repressive laws still
in place, creative minds remain in bondage. The latest impediment on
independent thought is an "oath of loyalty" that academics and
undergraduates alike have to make to the authorities.
While economic planners have taken steps to boost domestic demand, not
enough has been done to revamp Malaysia's education system to provide
a solid base for a self-sustaining economy.
Despite the encouraging macro-economic fundamentals, another key
outstanding issue continues to nag analysts: the lack of transparency
and accountability in the restructuring of large firms, particularly
the politically well-connected ones.
A World Bank report noted somewhat tactfully that "Until now, the
corporate restructuring and corporate governance efforts have been
relatively successful in respect of small, mid-sized and even some
larger indebted enterprises, but progress on the large and politically
connected corporate groups has been elusive."
The government had taken steps to take over some of the larger, more
problematic cases: Malaysian Airline System Bhd (MAS), construction
giant United Engineers (Malaysia) Bhd, and light-rail transit operator
Project Usahasama Transit Ringan Automatik Sdn Bhd (Putra). Another
firm where investigations into allegations of mismanagement and
corruption have plodded along for years is the steel giant Perwaja,
which has racked up billions in outstanding debts and losses.
While restructuring may be under way in some of these firms, those
responsible for mismanagement or, worse, corruption, have rarely been
brought to book. Similarly, little is heard of the prominent
individuals and firms that have defaulted on bank loans (now
classified as non-performing loans) despite the excellent work done by
the state agencies tasked with sorting out the bad loans mess.
Though policy makers may deny it, the privatization policy is in a
shambles, with a series of privatized firms being subsidized,
restructured, or rescued by the government - leading to charges of
"privatization of profits and socialization of losses". In addition,
consumers have complained of higher prices for highway tolls and
So while the economy may grow modestly this year, its overall health
is likely to hinge on whether there is the political will to undertake
reforms in key areas, especially in corporate transparency, economic
accountability and education.