Home 2009:11 Stagnant, shaky and startling economy

Stagnant, shaky and startling economy

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Malaysia’s economy has been stagnating for the past decade in the wake of the 1998 Asian financial crisis, observes Martin Jalleh.

2009 was a year that Malaysians were forced to face the bare facts that Bolehland’s economy was in bad shape, the battle against corruption had borne no fruits whatsoever, while the brain drain statistics of skilled labour were mind-boggling!
Stagnation: In December 2009 Second Finance Minister Husni Ahmad Hanadzlah revealed the following shocking facts:

•    Malaysia’s economy has been stagnating for the past decade in the wake of the 1998 Asian financial crisis;
•    It is now trailing badly behind its neighbours like Indonesia in the race for foreign investment;
•    It’s export-dependent economy has been hit hard by the global recession, contracting by a forecast 3.0 percent  in 2009, jeopardising the country’s ambitions of becoming a developed nation by 2020;
•    Malaysia is trapped in a low-value-added, low-wage and low-productivity structure;
•    Among its peers China, India, Vietnam, Indonesia, Philippines and Thailand, Malaysia’s economic growth over the past three years was second-lowest;
•    It has lost its competitive edge to remain as the leader of the pack in many sectors of the economy. Its private investment has been steadily in decline;
•    While Singapore and Korea’s nominal per capita GDP grew within the last three decades by 9 and 12 times respectively, Malaysia grew only by a factor of four;
•    The services sector is underdeveloped, private investment is half the levels before the 1997-98 Asian crisis, and the manufacturing sector is suffering from lack of investment;

In October 2009 International Trade and Industry Minister, Mustapa Mohamed admitted that the Thai auto industry had surpassed Malaysia’s despite entering the game at a later stage.

Malaysia fell three places from 21st to 24th ranking in the World Economic Forum (WEF)’s Global Competitiveness Report (GCR) 2009-2010 and dropped two places in the World Bank’s Doing Business 2010: Reforming Through Difficult Times from 21st to 23rd placing.
Corruption: Anti-graft watchdog Transparency International (TI) highlighted the following in its global Corruption Perceptions Index (CPI) 2009:

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•    Malaysia was seen to be more corrupt than ever; the country plunged nine places from 2008’s CPI ranking of 47th to 56th position last year;
•    Malaysia ranked 56 out of 180 countries in the world with a corruption index score of 4.5  (2008 – 5.1) out of 10, with 10 being the least corrupt – the lowest score in 15 years;
•    Malaysia’s all-time low puts it on par with Namibia, Samoa, Slovakia and Latvia;
•    The plunge was serious not only when compared to the country’s perceived past performances but, more importantly, in relation to other countries worldwide and especially those within the Asean region.
Paul Low, president of the local branch of TI said Malaysia’s all-time low ranking was due to:

•    the government’s lack of political will in enforcing tight anti-graft measures;
•    intense scrutiny surrounding public scandals exposing public funds siphoned off , e.g. from the long drawn-out RM12.5 billion Port Klang Free Zone (PKFZ)project scandal;   
•    public perception of double standards and selective prosecution by the MACC, which is seen to be catching “small fish” and focusing on BN’s rival political parties;
•    the Auditor General’s annual report which highlights extraordinary public procurement abuses, but no action appears to have been taken
Migration: In December 2009, Parliament was provided with the following brain drain realities by Deputy Foreign Minister Kohilan Pillay:

•    A total of 304,358 Malaysians left the country between March 2008 and August 2009 for better education, career and business prospects;
•    This works out to some 630 Malaysians leaving the country every day – a big leap from the 139,696 Malaysians who migrated to other countries in 2007;
•    The number of Malaysians who surrendered their citizenship almost doubled in 2009 – some 3,800 Malaysians gave up their citizenship compared to 2,000 the previous year;
•    “Kohilan has the knack to criticize the Penang state government for not being able to guarantee 1,000 electrical engineers but said nothing about the federal government’s role in pushing away more than 300,000 highly skilled Malaysians with its racist policies, tolerance of corrupt practices, incompetency and inefficiency.” – Khoo Kay Peng, corporate consultant and independent political analyst

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Actions: In an attempt to transform Malaysia into an innovative economy, Najib:

•    dropped the 30 per cent bumiputera equity requirement in companies listed amongst the 27 service sub-sectors, the cornerstone of the New Economic Policy (NEP)
•    required all Malaysian companies seeking listing to offer 50 per centof their public offering to bumiputra investors, which would work out to 12.5 per cent of the total stake;
•    retained the 30 per cent Malay ownership requirement for “strategic industries,” which includes telecommunications, water, ports and energy, home to some of Malaysia’s largest companies;
•    replaced the Foreign Investment Committee (FIC) which failed to produce the desired results of increasing the bumiputra equity, with an investment instrument called Ekuiti Nasional Bhd which would have an initial capital of RM500mil and which would be enlarged to RM10bil depending on the needs of identified entrepreneurs;
•    remained committed to raising Malay corporate ownership to 30 per cent from a 2004 estimate of 19 per cent;
•    declared that the government is committed and serious in undertaking a total innovation to a more advanced economy – with the slogan “Innovative Leadership for 1United, Innovative Malaysia”. (More slogans!)
Reactions: While many praised Najib for his selective liberalising of the economy, others had their reservations:

•    “The PM should end the 50-year NEP as it had stunted Malaysia’s economic growth and prevented the nation from becoming a high-income country.” – Lim Kit Siang;
•    10 civil society groups (on Najib’s 100th day in office) urged the premier to focus on democratic reforms in his next 100 days. They said there is an important link between economic progress and political progress;
•    “Without a living foundation in the basics you might sense an air of unreality around our talk of reinventing ourselves, coming up with a “new economic model and liberalising our economy.”- Tengku Razaleigh;
•    “What Najib has done is to change the way the game is being played…Malays are still being protected and given things on a silver platter.” James Chin, political science professor, Monash University in Malaysia;
•    “Some of these sectors were already quite open even before the liberalisation. Take computer and related services as an example, it was already quite liberalised since the implementation of MSC status.” – Khoo Kay Peng;
•    It is a commendable baby step forward. There are hundreds of sub-service sectors classified and we certainly look forward to further liberalisation of ownership constraints, especially those imposed on Malaysians themselves.” – Tony Pua, DAP MP

Martin Jalleh is a well known political and social commentator.

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