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Country Study:
Malaysia
Overview
• In 1948, the British-ruled colonies on Malay Peninsula
formed a Federation of Malaya, which became
independent in 1952
• Malaysia was formed in 1963 when Singapore and
Eastern states of Malaysia joined the Federation
• In 1965, Singapore was forced to leave the Federation
Overview (cont.)
• Under the 22-year leadership of the Prime Minister
Mahathir (1981-2003), Malaysia reduced its
dependence on raw material exports
• Malaysia diversified into manufacturing service
sector and tourism
• Malaysia’s population is 25.7 million, working age
population being 63.6%
Overview (cont.)
• Population growth rate is relatively higher (1.73%),
infant-mortality rate is 16 per 1000 live births
• Ethnicity is an important element in Malaysia’s
development
• Malays constitute 50%, Overseas Chinese 24%,
Indians 7%
Overview (cont.)
• Malaysia is primarily a Muslim country 60.4%,
Buddhist 19%, Christians 9% and Hindu 6.3%
• Government expenditures on Education are high
6.2% of GDP
• Government represents ‘Constitutional Monarchy’.
United Malay National Organization has played an
important role country’s economic development
Development Model
• Role of state is very important in Malaysia’s
economic growth
• Per Capita Income of Malaysia is $15,000. Growth
rates have been uneven. During 1980-1990, growthrates averaged at around 8%. However, recently,
Malaysia is growing at around 6%
• Gini Index of 46.1 is among the highest in South East
Asia
Development Model (cont.)
• Malaysia’s agriculture sector contributes 13% to the
GDP
• Manufacturing sector has grown in the areas of
medical technology, Pharmaceuticals, and computer
parts
• Spill over effects of Singapore’s growth
• Malaysia’s major exports are rubber, palm oil,
logging, electronics, and petroleum products
Development Model (cont.)
• Malaysia attracts significant amount of foreign direct
investment in its manufacturing sector ($92 billion)
• External debt stands at $54 billion
• “Growth vs Equity” has remained an important trade
off in Malaysia’s economic development
Development Model (cont.)
• Government has made deliberate efforts in National
Economic Policy (NEP) and in National Development
Plan (NDP) to improve the lot of Bhumiputras
(Indigenous Malays)
• Foreign firms and domestic businesses are
encouraged to form partnerships with Bhumiputras
• Low levels of income and educational achievement
combined with lack of entrepreneurial skills of
Bhumiputras has hampered economic growth
Development Model (cont.)
• Ethnic tensions against rich, entrepreneurial Chinese
• Steps to achieve equality come in the way of faster
economic growth
• Realizing the issues with government policy of
encouraging Bhumiputras participation, recent
policies aim at higher growth rates
Asian Financial Crisis and Aftermath
• High inflation rate, and unequal distribution of
income have remained the major development issues
in Malaysia
• Malaysia was not as much affected by Asian
Financial Crisis as Thailand, Indonesia, and South
Korea were affected
• Malaysia followed a cautious path with liberalization
and foreign investment
Asian Financial Crisis and Aftermath (cont.)
• During the crisis, Malaysia took an unpopular step of
capital controls, but it moderated the effect on
currency depreciation
• In 2005, Malaysia “unpegged” the Ringgit to dollar
and the currency appreciated by 6%
Current Problems and Progress
• Economic well-being of Bhumiputras
• Inequalities of income and poverty
• Current recession in global market
- government is trying to reduce the dependence on
exports and generate domestic demand in Ninth
Five Year Plan
• General inflationary pressures (6%)
Current Problems and Progress (cont.)
• Concentrated efforts to attract foreign investment in
manufacturing hub such as Penang
• Nepotism but steady leadership
• Corruption
• Territorial issues with neighboring states – Thailand,
Indonesia, Singapore