Malaysia people first Case Study

SINDIKAT 5M.Ridwan - 29112555Machadi Dhana – 29112303M. Khadafi – 29112324Pedro Putu Wirya – 29112565Seto Kusparyanti – 29112306Yuliani Dewi - 29112321

Case study

Malaysia : People First ?

Malaysia : People First ?

Profile Malaysia is divided into two main regions :

peninsular Malaysia, extending southward from China and Thailand, and East Malaysia, across the China Sea from the mainland on the island of Borneo.

In 2009, the population of Malaysia was 28.3 million people ; and there are three largest ethnic groups, the native Malays 50.4 %, Chinese 23.7 %, and Indian 7.1 %.

Malaysia's per capita income was $14.700 Malaysia gained independence from Britain

colony in 1957

Economic Condition

In Malaysia’s colonial era, the economy was dominated by the primary sector; agriculture, forestry, fishing, tin and rubber.

To free from erratic commodity prices set in international market, the new Malaysian state focused on diversifying the economy.

The country adopted an import substitution industrialization (ISI) strategy, promoting domestic production to substitute for manufactured imports.

Economic Condition ... continue

Overall, the 1960s saw moderate increases in wages for capital-intensive industries, but unemployment remained high and domestic demand meager.

However, the share of business owned by native Malay (bumiputera)was only 24 %, while Chinese and foreign ownership shares amounted to 27.2 % and 63.4 %.

Non-bumiputra groups felt that the government was limiting their economic opportunities, while the bumiputra were not convinced their interests were being adequately protected.

Economic Condition ... continue

In 1971 the Free Trade Zone Act set up special low-tariff zones to encourage companies to manufacture for export.

Price discrimination, quotas, fiscal incentives, administrative support, and government-linked corporations (GLCs) were deployed to promote economic activity and “balance” the economy.

The GLCs produced “bloated bureaucracy, high costs, low productivity and limited innovation.

Politic Situation and Crisis

The Policy of Prime Minister Najib Razak which is presented on March 30, 2010 :

– Raising per capital income from $ 6,634 to over $ 15,000 by 2020

– Measures to improve human capital, reduce migration and privatize inefficient government-linked corporations (GLCs)

– The dismantling of the new economic policy (NEP)

NEP : an affirmative action program for native Malays that had alleviated racial tensions and reduced inter-racial income inequality over the previous 40 years.

The Situation Economy and Politic concerning the New Economic Policy (NEP)

● The economy was in the midst of a deep recession and investment had plunged from 45 % of GDP to 19 %

● The ruling political coalition, the Barisan Nasional (BN), united three of the largest political parties – UMNO, MCA and MIC

● The opposition coalition, PKR, DAP and PAS was a close contender for the ruling coalition.

● In the March 2008 election BN had not won two-thirds of the seats required to pass constitutional amendments.

● In March 1996, the Thai Government had been forced to purchased $4 billion in real estate developers' debt.

● In January 1997, the collapse of several major Korean and Thai firms warned of danger.

● By November 1997, Indonesia, Korea, the Philippines, and Thailand turned to the International Monetary Fund (IMF).

● On July 14, 1997, the central bank, Bank Negara Malaysia (BNM) stopped defending the currency and helplessly watched as the ringgit depreciated from RM 2.5 against the U.S. Dollar to a record low of RM 4.88.

Asian Crisis

The Global Financial Crisis

- Between the last quarter of 2007 and the first quarter of 2009 GDP declined 7.8%- Early November 2008, first fiscal stimulus package abou 1% of GDP announced. Comprised public works, education programs, pro business initiatives, reduction in employees' contributions to the pension fund- End of 2009, grown again leaving the yearned GDP decline at 1.7%- The significant contributor for that situation :* Reduction of inventories (2.5% drop in GDP)* Overall investment contributed and additional 1.2%* Real private investment decline by 21.8%* Public investment increased by 12.9%* Real exports declined by 12% * Imports fell by 13.1%- March 2009, second stabilization package approximately 9% of GDP announced Approximately 40% to loan guarantees, included infrastructure projects, worker training programs, recruitment of public sector employees and exemptions for interest on housing loans and income tax for laid – off workers.

● In facing the crisis, Malaysia had done some financial reform to recover the crisis :

- In July 1999, BNM announced a bank consolidation program with the objective of increasing the efficiency of the banking sector.

- In May 2000, Dr. Zeti, was appointed as the seventh governor of BNM, she set out to fortify Malaysia's battered reserves and deepen the reform the financial system to reduce exposure to future contagion.

● Despite Malaysia had done financial reform, the investment collapse

Recovery

Najibnomics – Najib's New Economic Model (NEM)

The objective :- To make the economy more market friendly- Ensure ethnic harmony to increase the income of poor households.

Steps : Eliminated subsidies on basic commodities except for low income families Build the sector that has comparative advantage with higher value-added

activities Attract and maintain foreign investment by holding majority stakes in most

enterprises exclude “strategic” industries (banking, telco, energy) Easing insurance regulation Lowering the minimum quota for Malay ownership in publicly traded

companies from 30% to 12.5% Liberalized 27 minor sub-sectors, exempting them from the minimum

required bumiputera equity of 30%.

Appendix : Islamic Banking

- Emerge since the late 1970s- Prohibit the use of riba (usury), interpreted to proscribe all forms of interest- Emphasize employing resources with productive intentions- In Malaysia, the Islamic Banking Act (IBA) in April 7, 1983 provides BNM with powers to supervise and regulate Islamic Banks. - On July 1 1983, Bank Islam Malaysia Berhad (BIMB) the first Islamic bank establish in the country- By 2007, Malaysia Islamic banking assets reached $65.6 billion with average annual growth rate of 18 – 20%. - The difference with conventional* Mudharabah-profit sharing, involves a capital provider (depositor), bank, and an entrepreneur or other investment opportunity* The capital provider through the bank provides funds for investment projects* The returns of the projects are split between the depositor* Bank at a pre-specified profit sharing ratio.* All losses are borne by the capital provider* There's a different steps to execute the same transaction.