More on Malaysia

Our recent interview with the Malaysian Ambassador to the Philippines, His Excellency Dato Seri Dr. Ibrahim Saad, proved really interesting for me. The Ambassador spoke with so much candor, yes, but I was intrigued because, being an Asian country like us, Malaysia has soared to great heights, bouncing back from the great Asian crisis to become a dominant player not only in the region but in the global arena. It is now the world’s largest Islamic banking and financial center.

Dr. Ibrahim Saad said that Malaysia has allowed itself to be liberalized, not shackled by old laws which at the time they were enacted may have proven necessary and beneficial. The government is dynamic and sensitive to global changes in the market.

Going back about 15 years ago, during the height of the Asian financial crisis, the Malaysian ringgit was the subject of speculative short-selling, which caused to ringgit to fall from RM2.50 to $1 to RM4.80 to $1, and this happened so rapidly, like in a week’s time, that their central bank had to react quickly. They imposed a ban on short-selling which stemmed the decline of the ringgit. Before the Asian crisis, the ringgit was freely traded internationally. The central bank stepped in to prevent the outflow of the ringgit in the open market and imposed capital controls. To this day, the ringgit is still not traded internationally, though there are indications that this too may be relaxed in the near future.

That Asian crisis saw huge declines in GDPs of virtually all Asian countries. In 1998, Malaysia’s GDP contracted by 7.5 percent, but the government was bent on rejuvenating the economy and did so through massive government spending. By 1998, their GDP grew by 5.6 percent. They were well on the way to economic recovery through their strong exports of electronics and electrical products. This country recovered faster from the Asian crisis than its neighbors and Malaysia ranks as one of the world’s largest exporters of semiconductors and electrical goods. 

Here at home, economists have taken the current administration to task with their policy of underspending, which has resulted in a contraction of our local economy. Yes, massive government spending specially in infrastructure could result in huge budget deficits which would require a good balancing act from our local DBM, but it needs to be done.

How else did they achieve rapid growth? They privatized their inefficient state-owned enterprises. As private companies, their utilization of resources was optimized.

They attracted foreign funds which revitalized their local bourses and the local money market. Many local businesses could now generate funds to carry out infrastructure development in areas like power generation and telecommunications. Some of the big projects that came out of this period were the iconic Petronas Towers and the new international airport in Kuala Lumpur.

However, the country’s rapid growth proved too difficult to sustain, so government again had to impose new controls in order to moderate the growth. Foreign ownership of local assets was further tightened. Then the local banks were directed to cap their exposure in real estate loans to 20 percdnt. This move again proved to be astute, as the country’s current account deficit narrowed significantly.

By 2005, the Malaysian government decided to remove the ban on short-selling of the ringgit in order to create a more flexible capital market. The fixed exchange rate was also abandoned this year in favor of a managed floating system, much like ours here at home. Malaysia followed China’s example, and it is said that barely an hour after China announced its move, Malaysia announced theirs. The ringgit strengthened within a week of dropping the fixed exchange rate.

Now, according to Ambassador Dr. Ibrahim Saad, the government has also relaxed their rules on foreign ownership of local assets and invites our local businessmen to invest in real estate in his country. I asked him how the nationalists and the locals in general have reacted to this. To be sure, he said, the move was met with much resistance in the beginning, and the general sentiment was all local lands should be for Malaysians only. But then, he says, “nobody can really steal your land away from you. When they leave, are they going to put the land in their suitcase and take it away?” To protect their marginalized citizens, however, the government is building low-cost houses which are off-limits to foreign ownership.

Malaysia is indeed moving towards progressive liberalization. More and more sectors of the economy are being liberalized and the government is moving towards repealing the old laws that monitored foreign shareholding in Malaysian companies.

Like the Philippines, Malaysia is rich in natural resources, and the most valuable resource that they export is petroleum. This and natural gas have contributed much to their economy. It is said that at today’s production rates, Malaysia can produce oil up to 18 years and gas for 35 years.

Palm oil is also one of their top exports, together with natural rubber. These too continue to lead the country’s export sector. Dr. Ibrahim Saad said that the emergence of the African palm oil industry is largely due to the Malaysian palm oil. Malaysian businessmen have been asking him about palm oil in the Philippines, and in a couple of weeks, Malaysia’s minister of palm oil is coming over to check out the Mindanao area for this commodity. Sounds interesting and promising indeed. Rubber, which was once a dominant export, has been replaced by palm oil as its leading agricultural export.

Malaysia’s agriculture sector remains strong, but it is interesting to note that 59 percent of Malaysia remains forested. Yes, they have a big timber industry, but the government is strictly implementing a sustainable management of their forestry resources. I wonder how much of our land is still considered forested.

In their effort to invite foreign investments, their business environment has become easy and flexible, particularly in their investor protection and easing of restrictions and requirements in hiring expatriates. Dr. Ibrahim Saad says that due to their rapid expansion, they are having serious labor shortages so that about a million foreign workers are now in Malaysia and the government is in the process of regularizing another million.

In the area of free trade, the country has existing bilateral free trade agreements with Japan, Pakistan, New Zealand, and perhaps soon Hong Kong and the European Union, with negotiations underway for similar agreements with Australia, Chile and India.

Mabuhay!!! Be proud to be a Filipino.

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