KUALA LUMPUR, Malaysia, Jan. 30 (UPI) -- The Malaysian economy remained resilient last year despite facing a challenging environment, and further growth is on the cards, a top government official said.
Malaysia must become more competitive to compete with China's manufacturing might, said Dato' Mustapa Mohamed, executive director of the National Economic Action Council. The ringgit peg system will not be changed, and the economy should improve, Mohamed said in an interview with United Press International.
The NEAC was created at the high of the Asian crisis as a consultative body to the Malaysian Cabinet to deal with the economic crisis. It reports directly to the prime minister. Its current role is advising on short-term policies.
Following are extracts of the interview:
Q: Malaysia seems to have managed to avoid recession in 2001, with the government forecasting a growth in gross domestic product of 0.5 percent to 1 percent (fourth-quarter data will be released in February). To what do you attribute the resilience of the economy?
A: The latest indications showed that we were able to maintain positive growth for the whole year. This was mainly due to the fairly good performance of the economy in the first half of the year. But this resilience can also be attributed to domestic demand and certain sectors in the domestic economy. Agriculture production was quite good, construction was not robust, but was steady, and tourism grew despite the very low (arrival) figures in December. In fact, there was a pick up in tourism in December, with almost 1 million arrivals again.
Q: Last year there was some pump priming, with a total $1.92 billion of spending announced. How much was actually spent?
A: There were two packages announced, one in March for $789 million and one in September for $1.13 billion. Of the $789 million, only a very small amount, 10 percent was spent. That's because most of those projects were for building constructions (schools, universities and accommodations for armed forces). Unfortunately, the land acquisition for some of these projects took a little longer than we expected. However, much of this money will be spend this year. Disbursing for the second package was much higher, with about 62 percent of the $1.13 billion already spent. And a substantial percentage will also have been spent this month.
Q: Prospects for 2002 are good, with some economists forecasting a recovery to 5 percent growth. The government's forecast is more cautious, why?
A: For 2002 we're forecasting 3 percent. We are very cautious because the world out there is still uncertain. Anything beyond 3 percent will be a bonus for us, but mixed signals are coming from the United States with the ups and down in unemployment data and industrial production, and Japan is not doing very well. Therefore 3 percent is a reasonable estimate.
Q: In term of the timing of a Malaysian recovery, what do you expect?
A: There are indications that the worst is over. There has been a deceleration in the rate of decline of some indices, notable in industrial production and in exports. These are some positive signs. We also expect tourism to pick up this year Manufacturing is quite steady and retrenchments have stabilized. The overall figure of job losses doubled in 2001 to 40,000, but we see this figure stabilizing this year. There won't be as many retrenchments. I would say the remaining issue in 2002 is the restructuring of some major enterprises, and the plight of some medium-sized enterprises. On that score we think there is going to be further progress this year. By the end of the year, most of the major restructuring that need to be done will have been completed and that will place Malaysia on a much stronger footing for 2003.
Q: So, you are even more optimistic for 2003?
A: The banking problems are being resolved, the non-performing loans are stabilizing at 8 percent of total loans and there are signs of an economic recovery. So if the corporate restructuring is completed as planned by this end year, Malaysia should be able to achieve higher growth in 2003. How much? I can't say now.
Q: How is Malaysia preparing for the competitive threat of China?
A: It's a challenge we need to grapple with. Bottom-line, we need to improve our productivity and find ourselves some niches. We have to reposition ourselves. The entry of China into the WTO has made life more challenging, but this opening is not going to happen overnight, and this gives some breathing space for our manufacturers to adjust. They will need to adjust to be able to survive, but they have proven their ability to do so in the past. For example, textiles were very strong 20 years ago, but some of these have been phased out, and we've had to move to higher quality. I think high-tech industry is one area where we can compete quite well against China.
Q: When you say 'we have to reposition ourselves' is there a push within the government to brainstorm on those issues, along the lines the Singaporean government is currently doing, by setting special economic review committees to explore future opportunities?
A: We have been doing this, also in a structured way. It just had not been publicized. Lots of brainstorming sessions are being held, not only about China, but also about the region.
Q: There have been some calls that Malaysia is still too dependent on external demand, and should develop a viable domestic economy to counter the fluctuation of international demand?
A: Yes, at the moment we are over-dependent on the external sector. As a matter of strategy we have to reduce this dependence. Obviously, the importance of the external sector and exports will remain very high, but there is a case for reducing our very heavy reliance of the external sector by finding new growth opportunities, like tourism. We have to identify some new sources of growth to strengthen the domestic economy, so that our reliance on the external sector is reduced.
Q: The tourism industry has been affected by the events of Sept. 11, and the recent numerous arrests of alleged terrorists in the region, including Malaysia, could this be another blow for the local industry?
A: What is important is that we are on top of the situation. We have taken early action, and therefore the security situation in Malaysia is very much under control. Malaysia is safe and peaceful, and there should not be any concerns about security.
Q: Going onto the currency, the ringgit has been pegged to the U.S. dollar (3.80 ringgit for $1) since 1998. Recently, Prime Minister Mahathir Mohamad indicated that the peg could be changed if China was to devalue the yuan, especially if the yen weakens further against the U.S. dollar toward the 150 level. Do you see any reason beyond a yuan devaluation for changing the peg?
A: The peg has worked very well, and has done a lot of good to the Malaysian economy, allowing us to implement numerous reforms. As a result, the Malaysian economy is on a stronger footing. Our reserves are strong, and there has not been any pressure on the ringgit. Our position is very clear. We monitor developments very closely. But if changes (in currency levels) are only flashes in the pan, then it is not going to affect our policy on the peg. We have said many times, it's got to be sustained (the change in parities) and it's got to be way out of line. If the movements are minor and if they are only for a short period of time, then there is no reason to revisit the peg policy.
