Nightly Business Report . Video #10 - Malaysia's Economic Slowdown

Video #10 - Malaysia's Economic Slowdown

Monday, January 09, 2006

BACKGROUND INFORMATION

Forty years ago, Southeast Asia was a subject of The Poverty of Nations. (This book offered an explanation of why some countries remain poor while others show economic progress.). It described Malaysia's capital, Kuala Lumpur, as being populated by poor, mainly subsistent farmers. No more. According to Africa News Service, "Malaysia's progress has been impressive, so much so that very few observers are brave enough to dismiss the Vision 2020 program, aimed at achieving developed nation status by 2020."

Malaysia's success since the 1960's has been used as a lesson for the rest of the developing world. In response to the 1998 currency crisis, it introduced selective controls, pegging the ringgit to the U.S. dollar and blamed the crisis on speculators. This enabled Malaysia to set itself apart from the rest of the region in its economic success. Moody's Investor Services recently upgraded the country's debt and Malaysian bonds are being sought by international investors.

One of the programs credited with Malaysia's success is also controversial. At the time of independence in 1957, Malaysia's ethnic Chinese minority (now 33% of the population) was the main force in its economy. Racial tension in the late 1960's erupted into riots. The response was the New Economic Policy, a program developed to address economic inequalities based on ethnic background. Its main objective was to ensure that ethnic Malays controlled at least 20% of the economy by 1990.

While the Malay ruling elite credits the policy with tempering racial tension and ensuring political stability, there is disagreement about its economic implications. Some analysts argue that Malaysia has not reached the levels of economic progress attained by Taiwan and South Korea. They blame this on policies resulting from affirmative action and say implementation of these policies has discouraged investment. These policies are also blamed for not encouraging entrepreneurship-- since businesses rely on government contracts. Another concern is cronyism, with critics claiming that the line between business and politics hardly exists. Nevertheless, Prime Minister Mahathir has responded that "economic disparity between races results in tensions that can lead to instability." He claims that the alternative consequences would have been far worse for the economy.

The Prime Minister cites the economic progress of the past 30 years as evidence against the charge that the New Economic Policy stunted economic growth. In the decade up to 1998, Malaysia's economy grew an average of 8% a year.

The Malaysian Institute of Economic Research's executive director Dr. Mohamed Ariff bin Abdul Kareem said recently that the ringgit is not facing any threats of devaluation. On April 18, 2002, he told a news conference that the stabilizing Japanese yen will not pressure the ringgit to be devalued." He added that the yen would have to weaken to 140 to the greenback for the government to review the ringgit peg. (Malaysia adopted a fixed exchange rate at RM 3.80 to the dollar at the height of the Asian economic crisis in September 1998 to insulate the ringgit from manipulation by currency traders).

Dr. Ariff added that oil price increases would have a double-edge impact on the Malaysian economy. He believes that it will benefit Malaysia in the short run because it exports high-grade oil and the increase will provide the government with higher revenues. In the long run, however, the rising price of oil will affect the economies of the U.S., Japan and Europe, hurting Malaysian trade with those countries.

Malaysia has been criticized for a lack of economic diversification. Mohamed Ariff has responded that a small economy has difficulty diversifying. He claims that the manufacturing sector, particularly the electronic sub-sector, is in itself diversified by high-tech manufacturing such as photonics and nano-technology.

According to Nor Sadnawary Sifuddin of the Business Times (Malaysia): "The electronics and electrical sector has drawn significant inflows of foreign direct investments (FDIs), has had fairly little tariff and non-tariff protection, and has grown to account for approximately 2.5 percent of global electronics production. It has been among the main engines of growth for the country and its strong external competitiveness was an important element in Malaysia's recovery from the Asian financial crisis, with the sector accounting for more than half of Malaysia's total exports."

However, economists believe that Malaysia will face intense global competition for scarce foreign capital and that it will have to strategically position itself in the face of a better global economic outlook this year.

SOURCES:

"Ringgit not facing any threats of devaluation" Business Times (Malaysia), April 19, 2002. Electronic Library: file:://A:\Malaysia%208.htm

Kolesnikov, Sonia, "Malaysian Economy to Grow 4.5 Percent," United Press International, April 18, 2002. Electronic Library: file://Malaysia%2010.htm

Mnyanda, Lukanyo, "Lessons in Progress We Can Learn From Malaysia," Africa News Service, April 16, 2002 Electric Library: file://A:\Malaysia%207.htm

Saifuddin, Nor Sadnawaty, "Need to intensify efforts to attract more FDIs," Business Times (Malaysia), February 18, 2002. Electric Library: file://A:Malaysia%204.htm

LESSON PLAN

GRADE LEVEL/SUBJECT: 10-12/Economics, International Relations, World History, International Baccalaureate Programs (IB), Current Events

PURPOSE:

To present activities to be used in a variety of classroom situations in order to enhance student understanding of the Asian economy and its significance globally.

OBJECTIVES:

Students will be able to:

Describe the economic history of Malaysia.
Compare the economy of Malaysia with that of other Asian nations.
Evaluate the consequences of the New Economic Policy in Malaysian society.
Analyze the relationship between Malaysia and the United States.

MATERIALS:

Background information provided.
Resources on Malaysia available at your school's Media Center and the Public Library System in your area.
Background information available through Internet "search engines."

ACTIVITIES:

May be assigned as group activities or as individual tasks. They may also be designed as preparation for related presentations either by individuals or groups.

Create charts and graphs to illustrate the history of the Malaysian economy.

Create charts and graphs to illustrate the economic relationship between the United States and Malaysia.
Write an editorial about the lessons developing nations can learn from the implementation of New Economic Policy in Malaysia.

Write an editorial about your evaluation of the New Economic Policy in Malaysia.

Assign Asian countries to cooperative learning groups. Have them create Venn diagrams comparing the Malaysian economy to that of the countries assigned.

Use the information in #5 to draw conclusions about the success of Malaysian economic policies as opposed to the countries compared to it.

EVALUATION:

Individual assignments should be graded by the teacher using established criteria.

Group activities, presentations and projects may be evaluated by teachers and students using the following criteria and scale:

Content Creativity Clarity

1 = Superior (A) 2 = Excellent (B) 3 = Good (C) 4 = Fair (D) 5 = Poor (F)

To print this lesson plan: If your browser does not print frames, try this -- click the right button on your mouse and select "Open Frame In New Window." Then use your browser's print function to print that page. Another option -- choose "Select All" from your browser's pull-down Edit menu. "Copy" the highlighted text and then "Paste" it into any text editor. You can then print it from the text editor. The Japanese Island of Okinawa is located in the East China Sea, in a subtropical zone of islands. Okinawa was known as the Ryukyu Kingdom, a trading nation with a distinct culture. For 400 years, starting during the late 1300's, this island nation was ruled by royalty and developed a flourishing trade with China, Japan, Korea and the East Indies. Consequently, Okinawans have their own distinctive music, a unique language, and their own steadfast traditions that began hundreds of years ago. Its inhabitants built a reputation as sugar cane growers, fishermen and weavers.

But throughout its history, Okinawa has been a pawn in global power politics. Ryukyu was first influenced by China and later annexed by Japan in 1879. Okinawa was the scene of ferocious fighting in the later stages of World War II and has served as a major base for the U.S. military ever since. 47,000 American troops are still stationed there.

The literature on Okinawa is divided on the subject of the U.S. military. Many articles blame accidents and crimes related to American GIs as an obstacle to the island's tourist industry. They claim that a diversified economy is not possible where prime real estate is used by the Pentagon. Others claim that islanders see the American presence as a trade-off. The heavy infusion of subsidies from Tokyo (to compensate for the bases) is welcome where the unemployment rate is 9% and the living standard is far below that of the mainland. These articles claim that when Okinawan Governor Masahide Ota challenged both Tokyo and Washington about the Marines' presence in Okinawa, he was voted out of office in late 1998. His successor, Keiichi Inamine, turned out to be a willing partner for Tokyo and Washington. As a result, on top of the $80 million set aside in 1998 to promote economic development in the region, local towns willing to accommodate U.S. troops and facilities can count on an additional $20 million annually through 2003. Additionally, in July of 2000, Okinawa beat out other Japanese cities to host the G7 economic summit (of the leaders of major industrial nations). This event brought considerable profits to local resorts, retailers and taxi drivers.

Critics claim that Okinawa would be far better off recovering its status as a prime resort destination, (it boasts some of the best coral reefs in the Pacific) and allowing foreign investment to make its economy self-sustaining. They assert that for every concession made to Tokyo, Okinawa should pressure for more money to make the economic transition it justly deserves.

There are other potential sources of income. The Japanese government says 457 Okinawans are at least 100 years old - 34.7 centenarians for every 100,000 islanders, the highest ratio in the world. The U.S.A has about 10 centenarians for every 100,000 people. On Okinawa, life expectancy is 81.2 years, the longest in the world. Statistics show that the average Okinawan woman lives to 86 years of age and the average man to 78. Recent studies show that Okinawans not only live longer, they also live better--with elderly suffering far lower rates of dementia than their U.S. counterparts and less than half the rate of hip fractures. Okinawan entrepreneurs believe these traits can be reproduced in other parts of the world. They will attempt to do so by marketing the mixture of diet and exercise that has kept Okinawans living longer and better.

?Chapter Four: The Economic History of Postwar Okinawa,? www.niraikanai.wwma.net/pages/base/chp4-1.html (Lengthy and detailed)

Ashitani, Tetsuo, ?Japan Marks 25th anniversary of Okinawa?s return,? Kyodo News International, Inc., November 21, 1997. (NewsBank Search)

Bremner, Brian, ?How Okinawa Can Outmaneuver Its Masters,?BusinessWeek Online, July, 11 2000. www.businessweek.com

Lee, May, ?Okinawa?s culture not well-known to outsiders,? CNN World News, November 3, 1995. www.cnn.com/WORLD/9511/okinawa/index.html

Wiseman, Paul, ?Fabric of a long life,? USA Today, January 3, 2002. (NewsBank Search)