The economic crisis of the Malaysian economy in the mid-eighties has been quite unprecedented. Various economic as well as political developments have contributed to the present situation, though two factors have loomed larger than others. On the one hand, the severity of the unfavourable external environment has been emphasized by all observers. In this book, the editors have been scraped the idea from several important man in the economic foundation. There are 16 economists that have contributed their idea in developing the Malaysian economy in the eighties.
They are Tan Sri Thong Yaw Hong, Sahathavan Meyanatham, Murthi Semudram, Khor Kok Peng, Dato’ Jaafar Hussien, Ismail Mohd Salleh, Ali Abu Hassan, Aris Othman, Muku G. Asher, Yip Yaat Hoong, Mokhtar Tamin, G Naidu, Yoh Poh Kon, R. Thillainathan, Khalid Ibrahim and Sukor Kassim. These names are very famous in the mid eighties for their contribution towards Malaysian economic growth. The book is divided into 4 critical parts of economy in Malaysia. The first part is about ‘The External Environment’ that gave impact towards Malaysian economy.
The second part is about ‘Government Initiatives and Responses’. This part is very critical as the economy brings a lot of changes in the political structure of Malaysia. With the changes of Prime Minister in 1981, the economic structure also takes place to change. In the third part, the editor slightly change the topic to ‘The Case for Deregulation’ and the last part, the most important event in Malaysian economy were being discussed that are ‘Whiter the New Economic Policy (NEP)’. FIRST PART – The External Environment There are several external environments that affect the Malaysian economy.
The first factor is the balance of payments issues. In that era, the balance of payments has been a key topic of discussion among economic planners as well as academicians. In 1981, this topic was a natural development following the sharp reversal of the traditional favourable merchandise. One of the priorities of national policies in that era has been the attention devoted to the balance of payments problem and its implication. In 1982-83, the realisation that the large current account deficit was not sustainable and that early action was necessary to prevent Malaysia meeting the fate of ountries in Latin America where their government collapse as they cannot manage their economy well. This situation led the government to take resolute measures to combat the twin deficits in the fiscal account and the balance of payments. Tan Sri Thong Yaw Hong stated that “the balance of payments deficit fell to 5. 2% of GNP that cause the economy of the country strained out” Moreover, S. Meyanathan stated that “the year 1980 was associated with low growth, increase inflation current account deficits in the balance of payments and unemployment’s”.
By 1981, the Organisation for Economic Cooperation and Development (OECD) countries were in recession. Although the supply of side responses in the United States and other big countries, the economic recession still occur as the structure of world economy need to be change. As example, during the second oil shock of 1979-1980, Malaysia was already a net exporter of oil, and this shown that at that time, Malaysia have to restructured it oil selling by changing the structure of the economy.
This step is taken to increase back the oil selling of the Malaysian oil. Apart from the adjustment outlined above, the volatile condition in international currency markets despite the strengthening of the U. S dollar exerted periodic pressures on the ringgit, which entailed heavy intervention by the central bank. As a result of the slowdown, monetary pressures were also evident. Currency creation in Malaysia involves the exchange of foreign assets for local assets, thus linking the balance of payments with money supply (currency and commercial bank deposits).
The research made by Khor Kok Peng seems legit when he stated that Malaysian external debt in the year of 1980 was one of the highest. In determining external debt, we have to take 3 components that are: (a) the federal government’s debt; (b) debt guaranteed by the federal government; and (c) private sector debt. All three components of the debt have risen at a remarkably rapid rate between 1980 and 1984. SECOND PART – Government Initiatives and Responses In this part, we will discuss about the initiatives of the government and their responses for the external economy environment of Malaysia.
In the 1980’s, the federal government has taken measures to significantly reduce its budget deficit, mainly by pruning development expenditure as well as containing the growth of operating expenditure. This programme has resulted in considerable human and social costs, which could have at least been partly avoided if the there had been less borrowing and less spending on non-viable projects in the past. The problem of external debt and capital flows also involves the private sector, In this regard; the government also monitor the external borrowing of private companies and take steps to discourage foreign loans.
The financial authorities also had conducted a study of the extent of the problem and also the causes of capital flight. In the initiatives of lowering the external debt of Malaysia, Dato Jaafar Hussien also mentioned that role of monetary policy is very crucial in the situation of Malaysian economy. He said that banking policy, credit policy, interest rate policy and exchange rate policy should be revised to gain more profit and stabilized back the Malaysian economy.
Different from what Dato Jaafar Hussien stated, Mukul G. Asher and Jomo K. S stated that Malaysian tax policies should be review back. In their review, the stated that it is very important for the government reviewing some taxes for the public as it will increase the rate of Malaysian economy. The Malaysian government has implemented personal income tax, company income tax, excise tax, sales tax, motor vehicle tax, and export and import duties. These taxes should increase the rate of growth of Malaysian economy as it is one of the ways for Malaysian government to circulate the money within countries. THIRD PART – The Case for Deregulation
Despite notable achievements, the Malaysian experience with regulations has had its disappointments. Regulation has frequently resulted in protection of the status qua. Prices are often fixed, entry is frequently blocked, and industry becomes incentive to opportunities for progress. It is admits such sentiments that the subject of deregulation is addressed. And the time is perhaps ripe for us to come together to reflect upon this issue. After all, innovations and reforms are manifestations of a dynamic economy in progress. In a market economy, regulation exists to control the transaction in that economy.
To become efficient, all the regulation should be one way with the economy progress. In the theory of economy, the economy should be free and no cheating. But the reality in this world is the economic system is full with bureaucracy and corruption. That why the regulation were invented in the economy aspect where it will control the economic flow. But sometimes deregulation also needed to stabilize back the economy. The deregulation is need when there are some regulation was not allied with the new economic system. Sometimes the deregulation is to remove some regulation that too old to use.
In the view of the government, decision to reduce its role in the nation’s economic development in consideration of its deficit position, an industrial environment attractive to both foreign and domestic investment in the manufacturing sector must be engineered. Government have taken some action in relaxation of equity requirements. This is the example for the deregulations of some aspects in economic system. FOURTH PART – Witter the National Economic Policy (NEP) Since 1970, the approach to national development has taken major shift in the form of the New Economic Policy.
In this policy, the goals were too aimed of poverty eradication, restructuring of society and economic growth. As the first two goals had been achieved, the last goals were still in behind although there were a lot of effort that had been put by the government to increase the economic growth. The basic NEP challenge is in the removing the poverty in Malaysia. In the 1980’s, the percentage of poverty in Malaysia were at 30% of Malaysian citizens were in poor condition. With NEP, the government stated that this percentage will be decreased if the mentality of Malaysian were not associating poverty and agriculture.
At that time, poverty always linked up with agriculture sector. But the truth is the agriculture sector were the main core of Malaysian economy at that time. At this situation, government has taken a lot of initiatives to reduce the poverty of Malaysian citizens. One of the actions is the Poverty Reduction Programmes. Lots of plan were being introduced by the government such as upgrading the physical infrastructures, basics needs such as education and many more and the action from the government has been the key indicator for the Malaysian economy.
After the programmes, the poverty decreased by 15% in the early 90’s. CONCLUSION In the early 80’s, the government were trying their best to developed Malaysian economy system. A lot of initiatives and programmes were introduced by the Malaysian government and the results were successful. The Malaysian economy was going smoothly and a lot of achievements were achieved. But still it needs a lot of encouragement and spirits from Malaysian citizens to make the plan successful and the government has succeeded in implementing most of the plans for improving Malaysian economy.