Malaysia Brunei Malaysia at a Glance: 2001-02
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COUNTRY REPORT Malaysia Brunei Malaysia at a glance: 2001-02 OVERVIEW In the wake of the departure of the finance minister, Daim Zainuddin, in May and the takeover of the finance portfolio by the prime minister, Mahathir Mohamad, the pace of corporate restructuring has been stepped up, especially in those companies that had been shielded by Mr Daim. A one-year target has been set for the solution of the corporate debt problem. Meanwhile, the economic outlook continues to deteriorate, although the government is hoping that the economy will begin to grow again in the fourth quarter of this year. The Economist Intelligence Unit forecasts that real GDP growth will remain low in 2001 and 2002. Key changes from last month Political outlook • Accelerated corporate reform, growing repression and tightened control are part of the process by which the 76-year-old Dr Mahathir is re- asserting his control over Malaysia's politics and resisting pressure for his retirement. Economic policy outlook • Additional fiscal stimulus is increasingly likely to be provided by the 2002 budget, to be presented in late October. The government's 2001 real GDP growth target, currently at 5-6% for 2001, will be revised down. We forecast real GDP growth of just 0.5% in 2001. Economic forecast • Inflationary pressures are diminishing further. We have lowered our consumer price inflation forecast for 2002 to 1.7% from 1.9% previously, after an expected outcome of 1.5% in 2001. September 2001 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. 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ISSN 0269-6703 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. 1 Contents 3 Summary Malaysia 5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2001-02 8 Political outlook 9 Economic policy outlook 10 Economic forecast 14 The political scene 18 Economic policy 21 The domestic economy 21 Economic trends 25 Manufacturing 26 Oil and gas 26 Agriculture 27 Financial and other services 28 Foreign trade and payments Brunei 32 Political structure 33 Economic structure 33 Annual indicators 33 Quarterly indicators 34 Outlook for 2001-02 35 The political scene 36 Economic policy and the economy List of tables 10 Malaysia: forecast summary 11 Malaysia: international assumptions summary 12 Malaysia: gross domestic product by expenditure 21 Malaysia: real gross domestic product 23 Malaysia: gross domestic product by sector EIU Country Report September 2001 © The Economist Intelligence Unit Limited 2001 2 25 Malaysia: inflation indicators 25 Malaysia: production in the manufacturing sector 27 Malaysia: oil and gas production 27 Malaysia: production in the agricultural sector 28 Malaysia: performance of the services sector 29 Malaysia: foreign trade 31 Malaysia: current account List of figures 13 Malaysia: gross domestic product 13 Malaysia: Malaysian dollar real exchange rates 24 Malaysia: exports of electronic and electrical goods 26 Malaysia: manufacturing production 29 Malaysia: exports EIU Country Report September 2001 © The Economist Intelligence Unit Limited 2001 3 Summary September 2001 Malaysia Outlook for 2001-02 The pace of economic reform is accelerating, and political repression is growing as the 76-year-old prime minister, Mahathir Mohamad, reasserts his domin- ation of his country’s politics and the party that he has led for the past 20 years, the United Malays National Organisation (UMNO), the dominant com- ponent of the ruling 14-member Barisan Nasional (BN) coalition. Meanwhile, the deteriorating outlook for Malaysia’s economy spells trouble for the government. The Economist Intelligence Unit has progressively cut its forecast for real GDP growth in 2001 to 0.5%, with growth for 2002 reduced to 2.7%. The political scene The process of remoulding of UMNO and reshaping policy towards the opposition has accelerated in recent months. After the prime minister sacrificed his closest ally, the finance minister, Daim Zainuddin—who in 2000 organised controversial bail-outs of several companies run by his cronies— corporate restructuring has been stepped up. Dr Mahathir has taken over the finance portfolio. Arrests under the Internal Security Act (ISA) have increased and political controls have multiplied, while the government has continued to emphasise the threat of Islamic extremism and the negative implications of Islamic fundamentalism for Malaysia’s economic development and social harmony. The government is actively seeking the support of the ethnic Chinese electorate by offering an easing of the positive discrimination policies that favour the bumiputeras (ethnic Malays and other native inhabitants). Economic policy The government is considering more pump-priming measures as part of the 2002 budget. The Capital Market Masterplan has made a promising start. The government’s GDP growth target will be revised down. A total of M$29bn of corporate debt is likely to be restructured and an ambitious time-frame for debt restructuring has been set. The domestic economy GDP growth was only minimal in the second quarter, when private con- sumption growth turned negative and investment demand weakened sharply. Imports fell faster than exports. Third-quarter GDP is likely to have declined, quarter on quarter. The manufacturing sector is leading the downturn. The country’s heavy reliance on the electronics sector has been highlighted, as has its increasing dependence on foreign trade. Consumer price inflation dropped to 1.4% year on year in July 2001, and falls in producer prices suggest a further decline is likely. The rate of unemployment continued to rise in the second quarter, with manufacturing output falling by 8% year on year. The mining sector remained relatively stable. Palm oil output grew strongly in the second quarter, but there was a further deterioration in the rest of the agricultural sector. Services expansion helped to sustain overall economic growth. Loan growth has accelerated but non-performing loans have risen again. Exports EIU Country Report September 2001 © The Economist Intelligence Unit Limited 2001 4 declined sharply in the second quarter and there appears to be no improvement in sight. Foreign trade and The current-account surplus remained large in the second quarter, and the payments decline in international reserves was reversed. To date, there has been no serious downward pressure on the ringgit. Brunei Outlook for 2001-02 The royal family will continue to capture media attention and dominate the political landscape in Brunei, as legal actions against Prince Jefri Bolkiah’s bankrupt Amedeo Development Corporation continue. No dramatic recovery appears likely in the economy and the sultanate will come under increasing pressure to justify its economic policies. The political scene The assets of the bankrupt Amedeo Corporation have gone up for auction, and publicity surrounding the royal family has continued to dog the media-shy sultanate. In response, there has been an unavoidable increase in political openness. The sultan has announced a plan to crack down on corruption. The government remains committed to its “Islamicisation” policy. Economic policy and the Most industries recorded slow growth in 2000 and the first half of 2001. The economy Brunei International Financial Centre (BIFC) is beginning to attract some interest. New foreign investment regulations have been announced.