MID-TERM REVIEW OF THE EIGHTH MALAYSIA PLAN 2001–2005 RUKUNEGARA DECLARATION OUR NATION, MALAYSIA, being dedicated to achieving a greater unity of all her peoples; to maintaining a democratic way of life; to creating a just society in which the wealth of the nation shall be equitably shared; to ensuring a liberal approach to her rich and diverse cultural traditions; to building a progressive society which shall be oriented to modern science and technology; WE, her peoples, pledge our united efforts to attain these ends guided by these principles: Belief in God Loyalty to King and Country Upholding the Constitution Rule of Law Good Behaviour and Morality PRIME MINISTER MALAYSIA Foreword The Mid-Term Review of the Eighth Malaysia Plan marks another milestone in our journey towards national development. The Eighth Malaysia Plan, launched in 2001 as the first phase of the Third Outline Perspective Plan (2001-2010), translates into action the National Vision Policy that aims at enhancing competitiveness and strengthening economic resilience. The last three years were extremely challenging in view of the adverse global situation and its attendant effects on economic growth. Although the Malaysian economy grew at a lower rate than was targeted, it achieved creditable growth given its openness and high exposure to electronics exports and particularly in comparison with the performance of other economies in the region. More importantly, growth occurred in an environment of stable prices, low unemployment rate and strong surplus in the current account of the balance of payments. The economic base has become broader with increased contribution from the promoted services sectors and the shift of the manufacturing sector into high technology and knowledge-intensive activities. Although the fiscal deficit increased due to counter-cyclical measures introduced by the Government, it remained within prudent limits. We also made good progress towards creating a more equitable society in terms of poverty eradication, income distribution, and Bumiputera employment in strategic and modern economic sectors. v The experience of the past three years underscores the importance of being constantly prepared to face challenges that come our way. The rapid globalisation of the world economy together with the emergence of other players on the global scene makes it imperative to strengthen the nation by increasing its resilience, competitiveness and innovative capability. Greater efforts will have to be made to reduce the cost of doing business, raise productivity and increase the knowledge content of products, services and internal processes. We must make the acquisition of knowledge a life-long pursuit and develop our indigenous technological and innovative capabilities. This is necessary for the Malaysian economy to deal better with the changing global economic landscape and accelerate its transformation to a high technology and knowledge-based economy. While pursuing higher economic growth, we must also ensure that the ethical and moral basis of our actions is not eroded. Any diminution of our value system will negate the economic gains and render our success hollow. We need to reinforce and practise values that demonstrate our abiding concern for fellow members of society, particularly those who are disadvantaged and in the greatest need. Civic consciousness must entail consideration and protection of the environment. National development cannot be the sole responsibility of the Government, more so in a society of free enterprise and parliamentary democracy like ours. The Government can only set the broad parameters of national policy and make available the necessary funds for the public sector to discharge its responsibilities and implement its programmes. The private sector as a key component of society has a crucial role in providing the economic dynamism so that growth targets are met. The private sector should take advantage of the incentives provided by the Government to expand existing investments and pioneer into niche areas and new sources of growth. In the face of increased competition, the private sector has to relentlessly enhance its competitiveness, become more resourceful and innovative, and benchmark itself against the best performers to benefit from the dynamics in the global market place. Individual Malaysians have also a major role to play. We must all realise that the country’s rapid development and the billions of ringgit in investments by the Government and private sector have raised the quality of and accessibility to infrastructure and amenities that we now enjoy. Public property should be properly used and well maintained. Malaysians must accept that a higher quality of public services must come with a price. Paying for such a service would not vi in any way burden anyone as income has risen faster than the rate of inflation, which is low. In fact, by paying for the services they utilise, Malaysians will be able to enjoy an even better quality of service without straining public resources for their installation and operation. The last two decades of development, witnessed the tremendous rate of transformation. I am convinced that our success is not due to any fortuitous act but the result of the collective efforts of all those entrusted with the responsibility of planning and managing the nation’s economy. To them and the people of Malaysia who have demonstrated the highest sense of responsibility even during very trying times, I would like to express my gratitude. I am in no doubt that if the same commitment continues to be displayed by all, we will make the grade whatever the challenges may be. I want to record my appreciation as well as that of the Government to the National Development Planning Committee chaired by the Chief Secretary to the Government, the Economic Planning Unit and others who have contributed to the planning process for having worked diligently to produce the Mid-Term Review. DR. MAHATHIR BIN MOHAMAD Prime Minister, Malaysia Putrajaya 30 October 2003 vii CONTENTS Page CHAPTER 1 - RESTORING ECONOMIC DYNAMISM I. INTRODUCTION 3 II. RESPONDING TO DEVELOPMENTS DURING THE REVIEW PERIOD 3 III. KEY CHALLENGES 5 Dealing with the Changing Dynamics in Global Competition 6 Minimising the Risks of Volatility 7 IV. THE WAY FORWARD 8 Reinforcing Macroeconomic Fundamentals 10 Bolstering Economic Resilience 12 Enhancing Competitiveness 13 Reactivating Private Investment 14 Venturing into New Sources of Growth 15 Accelerating Transformation to High Technology 17 and Knowledge-based Economy Increasing Supply of Quality Human Resource 18 Moving Towards a More Equitable Society 19 Promoting an Exemplary Value System 20 Enhancing International Cooperation for Prosperity 21 V. CONCLUSION 22 CHAPTER 2 - MACROECONOMIC PERSPECTIVE I. INTRODUCTION 25 II. PROGRESS, 2001-2003 26 Aggregate Demand 26 Total Factor Productivity 30 Sectoral Output 31 Balance of Payments 36 Price Development 38 Resource Balance 39 Terms of Trade 41 Knowledge-Based Economy 41 ix Page III. PROSPECTS, 2004-2005 43 The World Economy 43 The Malaysian Economy 45 Macroeconomic Strategies 45 Aggregate Demand 46 Total Factor Productivity 49 Sectoral Output 49 Balance of Payments 53 Price Development 53 Resource Balance 54 Terms of Trade 54 IV. CONCLUSION 54 CHAPTER 3 – DISTRIBUTION I. INTRODUCTION 59 II. PROGRESS, 2001-2003 60 Poverty Eradication 60 Income Distribution 63 Restructuring of Ownership of the Corporate Sector 65 Employment Restructuring 68 Development of the Bumiputera Commercial and Industrial 71 Community Balanced Regional Development 75 III. PROSPECTS, 2004-2005 78 Poverty Eradication 78 Income Distribution 80 Restructuring of Ownership of the Corporate Sector 81 Employment Restructuring 83 Development of the Bumiputera Commercial and Industrial 84 Community Balanced Regional Development 85 IV. CONCLUSION 88 x Page CHAPTER 4 - POPULATION, EMPLOYMENT AND HUMAN RESOURCE DEVELOPMENT I. INTRODUCTION 91 II. PROGRESS, 2001-2003 92 Population 92 Labour Force 94 Employment by Sector 96 Employment by Occupation 97 Wages and Productivity 100 Human Resource Development 102 Education Programmes 102 Skills Training Programmes 110 Enhancing the Employability and Marketability 114 of the Labour Force III. PROSPECTS, 2004-2005 115 Human Resource Policy Thrusts 115 Enhancing the Employability of Human Resource 116 Increasing the Supply and Enhancing the Quality 117 of S&T Human Resource Internalising Positive Values 117 Institutionalising Lifelong Learning 117 Population 118 Labour Force 119 Employment by Sector 119 Employment by Occupation 120 Wages and Productivity 122 Human Resource Development 123 Education Programmes 123 Skills Training Programmes 127 IV. ALLOCATION 129 V. CONCLUSION 130 xi Page CHAPTER 5 - PUBLIC SECTOR PROGRAMME AND PRIVATISATION I. INTRODUCTION 133 II. PROGRESS, 2001-2003 134 Consolidated Public Sector Account 134 Federal Government Development Expenditure 136 Development Expenditure by Sector 137 Rural Development 141 Development Expenditure by State 141 Operating Expenditure 142 Sources of Revenue 143 Non-Financial Public Enterprises 144 PRIVATISATION PROGRAMME 146 Programme Achievement 146 Gains from Privatisation 148 Bumiputera Participation 150 Implementation Strategies 152 III. PROSPECTS, 2004-2005 153 Consolidated Public Sector Account 153 Federal Government Development Allocation 153 Development Allocation by Sector 154 Rural Development 157 Development Allocation by State 158 Operating Expenditure 158 Sources of Revenue 159