Malaysia Economic Development

Question 1

What was the context behind Malaysia’s economic development in 1958-70 (2)

Answer 1

1. Newly independent
2. Racial clash 1969

Question 2

What were the government strategies from 1958-1970

Answer 2

Laissez faire ISI:
- pioneer industry protection
- non-discretionary intervention
- lack of expertise and long term development plan

Question 3

What was the global context behind economic development from 1971-80 (2)

Answer 3

1. Surge in oil prices
2. International recession, Prices fall for primary products

Question 4

What were the strategies of the Malaysian government from 1971 to 1980 (3)

Answer 4

NEP, restructuring, EOI
- state investment in agriculture
- state agencies, trust and policies to restructure bumiputera ownership of corporate sector and employment
- foreign investment and manufacturing

Question 5

What was the global and local economic (and political) context behind economic development from 1980 to 1986 (2)

Answer 5

1. International recession
2. Mahathir takes over

Question 6

What were the government strategies adopted by Malaysia from 1980 to 1986 (2 broad focuses, 3 specific policies and events)

Answer 6

Heavy industry and privatisation:
1. Central role for state agency (HICOM)
2. Foreign investment
3. Privatisation (1983)

Government led deregulation and depre to support EOI

Question 7

What was the domestic context behind economic developments from 1986 to pre AFC

Answer 7

Industrial deepening and widening

Question 8

What were the strategies adopted by the Malaysia government from 1986 to pre AFC (2)

Answer 8

• state agencies (infrastructural role), trust, policies to develop IT and human resource
• foreign investment and export orientation

Question 10

What were teh 2 contexts of Malaysia’s colonial economy

Answer 10

1. Ethnic division of labour
2. Light commodities processing

Question 11

What main ideology led to the ethic division of labour from the late 1800s

Answer 11

Penetration of capitalism
- influx of immigrants
- division of labour along racial lines

Question 13

What role did the Chinese and Indian immigrants play in colonial Malaysia

Answer 13

Chinese:
Tin miners, middlemen

Indians:
Rubber tappers and chettiars

Question 14

When was the societies ordinance passed, and what did it entail

Answer 14

1889
- different administrative frameworks placed upon different ethnic groups
- Chinese to control over Chinese
- rice cultivation area of Malays protected

Question 15

What time period was the NEP implemented

Answer 15

1971 - 90

Question 16

What was the split of wealth between foreigners, Chinese and Malays in the 1960s

Answer 16

63% foreign
35% other malaysians (predominantly Chinese)
2% Malays

Question 17

By ___, ___% of all households below the poverty line were ____

Answer 17

1970, 75%, Malay

Question 18

What were the rationales behind the implementation of the NEP (3)

Answer 18

• reducing poverty regardless of race
• eliminate identification of race with economic function
• increase local share of economy (boosting bumiputera corporate share)

Question 19

What was the target Malay share of the economy from NEP

Question 20

What was the target foreign share of the NEP

Answer 20

30%

Question 21

What 2 policy of the NEP was targetted at poverty eradication by supporting agriculture and rural development, what year were they implemented?

Answer 21

1. FELDA (federal land development authority)
   - 1956
   - land clearing and allocation schemes for rural areas
2. RISDA (rubber industry smallholders development authority)
   - finance Malay rubber smallholders for better yielding crops

Question 22

What policy was aimed at boosting the bumiputera corporate share in the early years of the NEP, when was it implemented

Answer 22

ICA (industrial coordination act) - 1975
- screened firms for NEP characteristics before giving license

Question 23

During the oil crisis of 1970s, how did the government continue to boost bumiputera share (and examples)

Answer 23

• state infrastructural agencies set up in 1980s to provide unlimited supplies of interest free finance
• encouraged bumiputera participation in commerce through joint ventures with foreign countries
• national trading corporation (PERNAS)

Question 24

How did the government boost foreign investment and manufacturing during the NEP (2 broad policies), how did this contribute to economic growth?

Answer 24

IIA (investment incentives act) - 1968
- incentivised foreign investment to provide capital, expertise, competition

Free trade zone (FTZ) act - 1971
- tariff free platforms for firms with 80% exports

• drove exports, shift to EOI

Question 25

What are 3 instances of economic nationalism

Answer 25

1. PNB purchase of controlling british enterprises (e.g. gurthrie corporation) - 1.2 billion ringgit 2. London tin -> Malaysian mining corporation 3. Petronas nationalising oil industry (1974) 4. Acquisition of Harrison’s and crossfield (1985) - all 3 largest plantations acquired

Question 26

What characterised the 1980s under Mahathir

Answer 26

Heavy industry and privatisation

Question 27

What corporation oversaw increased state led industrialisation in the 1980s, what did they do to help

Answer 27

HICOM (heavy industry coporation of Malaysia) - 1981 - subsidies and protection in domestic capital goods industry - boost bumiputera ownership (proton)

Question 28

What did Mahathir do in response to slow global growth in the 1980s (2)

Answer 28

- reduced business regulation to spur foreign investment and competition - CB devalued ringgit in 1985

Question 29

When did privatisation occur in Malaysia, what policy was launched in that year?

Answer 29

1983 - “Malaysia incorporated” launched - inject competitive elements of private ownership into public sectors

Question 30

From 1980 to 1985, what percentage of the public sector was accounted for by public enterprises?

Answer 30

65%

Question 31

How did the inefficient public enterprises become privatised (4)

Answer 31

- sale of state owned companies - private financing of state projects - contracting out services to private firms - introduction of competition into areas of state monopoly

Question 33

By 1992, how many state enterprises had been privatised

Answer 33

13

Question 35

Which was prioritised in the 1990s, equity or industrialisation?

Answer 35

Industrialisation

Question 36

What percentage of exports in 1990 was manufacturing

Answer 36

60%

Question 37

Which 2 policies outlined Mahathir’s attention towards deepening Malaysia’s technology base

Answer 37

1986: promotion of investments act (PIA) - new incentives to foreign capital involved in r&d 1990: action plan for industrial technology development - development of high tech industries and human capital

Question 38

Which 2 active steps were taken to develop skilled human capital under Mahathir

Answer 38

1. Human resource development act (HRDA) 2. Human resource development council (HRDC)

Question 39

How did mahathir’s government promote widening localisation of firms

Answer 39

- support of locally owned firms (Proton, sapura) - MTDC (Malaysian technology development corporation) - 1993: invested in 8 local firms to help with advancement in tech

Question 40

How successful was the NEP? (And in which 4 aspects)

Answer 40

Many of the policy’s stated goals had been met - income inequality and nationalisation - formation of Malay middle class - poverty - diversification - economic growth

Question 41

What was the reduction in the poverty rates during the NEP

Answer 41

40.3% to 15%

Question 42

Bye what percentage did the main GDP contribution of the 3 main export commodities fall by from 1970 to 1990

Answer 42

54% to 44%

Question 43

What were the 2 limitations to government strategies

Answer 43

1. Concentration of wealth 2. Negative impact on national unity

Question 44

How was there the issue of concentration of wealth during the NEP

Answer 44

- preferential treatment — privatisation decisions and selective patronage meant wealth was instead distributed away from non-bumiputera to an oligopoly of bumiputera entrepreneurs linked to politicians (horizontal disparities became vertical)

Question 45

What were the negative implications on national unity from NEP

Answer 45

- attempt to resolve ethnic economic differences further entrenched them (due to privilege of buminputera) - regional differences form industrialisation - peninsula West Coast with higher concentration of manufacturing industries - led to different political weightage

Question 46

What was the environment of financial liberalisation during the NEP (loans, property and stock market etc)

Answer 46

- dereg in the form of domestic credit and loans (sometimes government sponsored to boost Bumi equity share) - overheated property and stock market - low exposure to foreign currency

Question 47

From 1987 to 88, what percentage of commercial bank loans were non-performing

Answer 47

30%

Question 48

What was mahathir’s response to the NPLs in 1989 onwards

Answer 48

- tightened regulation and audit scrutiny by bank Negara (sufficient cash reserves etc) - but did not last long as Mahathir continued to seek growth through easy credit

Question 49

When did Malaysia experience a stock market meltdown, by how many points

Answer 49

1996-97, 600 bp

Question 50

What was the main issue with Malaysia in the AFC

Answer 50

Domestic lending -> Overheating property and stock markets - exacerbated by MnAs - increased risk - large CA deficit — vulnerable to speculation and internal stock market volatility

Question 51

What percentage of loans in Malaysia pre-afc were property loans

Answer 51

45-55%

Question 52

What was the government’s response to the AFC - ringgit defense - controls/regulations on speculation - NPLs - banking sector

Answer 52

- bank Negara tried to defend the ringgit but gave up in August selective capital controls - limit speculation - fixed exchange rate to USD - overseas investments required approval - trading curbs on KL composite index Government investment arm bought NPLs to prevent firms from defaulting Restricted banks lending to controlling stakeholders

Question 53

How did the AFC hit Malaysia - overnight rate - Ratings - KLSE and ringgit

Answer 53

- overnight rate increased from 7% to 40% to combat inflation due to depre of ringgit - ratings went to junk - KLSE and ringgit fell by 50%

Question 54

Impact of government policies during AFC

Answer 54

- decreased confidence in banking sector due to intervention - overall, stabilised the economy and restored investor confidence

Question 55

What was Malaysia’s GDP growth post AFC

Answer 55

6.9% in 1999, 8.9% in 2000

Question 56

What was Malaysia’s FDI growth post AFC

Answer 56

8.4B in 1998 to 9.3B in 1999