COUNTRY REPORT Malaysia Brunei The full publishing schedule for Country Reports is now available on our web site at http://www.eiu.com/schedule. 3rd quarter 1999 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. 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ISSN 0269-6703 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Contents 3 Summary Malaysia 5 Political structure 6 Economic structure 7 Outlook for 1999-2000 13 Review 13 The political scene 18 Economic policy and the economy 24 Banking and finance 31 Agriculture 33 Industry 37 Energy 39 Transport and communications 42 Employment, wages and prices 43 Foreign trade and payments Brunei 45 Political structure 46 Economic structure 47 Outlook for 1999-2000 48 Review 48 The political scene 52 The economy 56 Quarterly indicators and trade data List of tables 9 Malaysia: economic results and forecasts 13 Malaysia: forecast summary 52 Brunei: gross domestic product 56 Malaysia: quarterly indicators of economic activity 57 Brunei: quarterly indicators of economic activity 57 Malaysia: trade with major trading partners 59 Brunei: foreign trade 59 Brunei: direction of trade EIU Country Report 3rd quarter 1999 © The Economist Intelligence Unit Limited 1999 2 List of tables 13 Malaysia: gross domestic product 13 Malaysia: Malaysian dollar real exchange rates 19 Malaysia: loans extended by banking system 20 Malaysia: interest rates 21 Malaysia: non-performing loans 31 Malaysia: palm oil production 34 Malaysia: industrial production 36 Malaysia: consumption indicators 37 Malaysia: oil production 43 Malaysia: foreign trade, 1999 EIU Country Report 3rd quarter 1999 © The Economist Intelligence Unit Limited 1999 3 July 28th 1999 Summary 3rd quarter 1999 Malaysia Outlook for 1999-2000: The ruling coalition will win the next general elec- tion, whenever it is called, as the opposition alliance looks ideologically un- stable. The coalition’s rivals should gain ground, however. The prime minister, Mahathir Mohamad, will remain in office for now, but there could be a contest to succeed him. GDP is forecast to grow at a much faster rate than previously expected, led by rising industrial production, increased exports and slightly greater private consumption. Investment levels will be subdued. Inflation and interest rates will remain low, but the current account will again be in surplus. The political scene: With the next general election imminent, four opposi- tion parties have joined forces to challenge the ruling coalition. Important policy disagreements will keep them from becoming a potent force, however, and the government has been keen to exploit their differences. A new secretary- general has been appointed at UMNO, which may be suffering a crisis of confi- dence. The former deputy prime minister, Anwar Ibrahim, has again been put on trial, this time for allegedly committing illegal sex acts. Economic policy and the economy: The economy contracted by 1.3% in the first quarter of 1999, owing to declining output and demand. The trade ac- count remained solidly in surplus, however, as imports again fell. Official data showed the recession was abating, although constraints on public spending and reduced bank lending have raised concerns. Interest rates have continued to fall. A government bond offering was oversubscribed, but only after an at- tractive rate was offered. Foreign investment has declined as companies have questioned government policy. Many of the targets in the government’s five- year plan have been lowered. Banking and finance: Lending slowed, but the non-performing loan (NPL) ratio, after rising early in the year, began to decline. Danaharta, the NPL acqui- sition agency, completed its purchase of bad loans and began offering assets for sale. Danamodal, the recapitalisation agency, is also keen to dispose of its ac- quisitions. An important bank merger has been completed. The stockmarket’s surge has been fuelled by local buying. Regulators have increased oversight of the banking system. The issue of Malaysian shares formerly traded on Singapore’s over-the-counter market remains contentious. Agriculture: Demand for palm oil has been subdued. Rubber imports have been curtailed. A dioxin scare provoked a brief ban on European imports. The Nipah virus appears to be under control. Industry: Manufacturing output has begun to grow again on improving ex- ternal and internal demand. Investment in the electronics sector has increased over 1998 levels. Progress on the government’s high-tech zone has continued to lag. Lax enforcement of intellectual property laws remains a problem. Car sales continued to rise. EIU Country Report 3rd quarter 1999 © The Economist Intelligence Unit Limited 1999 4 Energy: Tenaga is reviving a shelved generating project following increased demand for electricity and a return to profitability. The Bakun dam scheme will proceed. Petronas insists it will not increase output of crude oil. Transport and communications: Kuala Lumpur’s light rail network has continued to evolve. Construction on a monorail has resumed. The national airline has gone deeper into the red. Indebted telecommunications companies may be forced into mergers. Employment, wages and prices: Fewer workers are being laid off by com- panies. The government has rejected a proposal for a retrenchment fund and a minimum wage. Inflation is moderating. Foreign trade and payments: The trade surplus remained substantial through to May, driven by stronger sales of electronic goods. Export revenue was sharply higher year on year. Imports began to rise in April. Brunei Outlook for 1999-2000: Rising world oil prices will help the government's finances, which are heavily dependent on receipts from the hydrocarbon sec- tor. The regional economic recovery—and higher energy prices—have also im- proved Brunei's broader economic prospects, and the government is now forecasting growth in GDP of between 0% and 1% in 1999. The recession, however, exposed deep problems in Brunei's economic structure, and the gov- ernment has pledged to pursue banking and financial sector reforms and to in- crease opportunities for private-sector participation in government enterprises. Review: The government intends to introduce more business-friendly policies in a bid to increase foreign investment. A plan that would allow foreigners for the first time to own land in Brunei appears to be a part of this programme. Despite some signs of openness, the government continues the strict enforce- ment of religious laws, and has warned of "deviationist" forces within the Islamic religion. A major controversy over religious food laws has highlighted the importance the government still places on Islamic orthodoxy. Brunei's economy grew by about 1% in 1998, according to the IMF. Lower oil prices cut government tax revenue sharply, leading to a large budget deficit. The government financed this easily with proceeds from its overseas investments. The government continues to develop its plan to become a major regional trade and services centre. Editor: Leo Abruzzese All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023 Next report: Our next Country Report will be published in November EIU Country Report 3rd quarter 1999 © The Economist Intelligence Unit Limited 1999 Malaysia 5 Malaysia Political structure Official name Federation of Malaysia Form of state Federated constitutional monarchy The executive The king appoints a prime minister and, on the prime minister’s advice, a cabinet Head of state The Yang di-Pertuan Agong (king or supreme sovereign) elected by the Conference of Rulers from one of the nine hereditary rulers National legislature Bicameral federal parliament.