Malaysia Brunei at a Glance: 2000-01
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COUNTRY REPORT Malaysia Brunei At a glance: 2000-01 OVERVIEW Political divisions in Malaysia have widened since the November 1999 general elections. The prime minister, Dr Mahathir Mohamad, is having little success in bolstering the moderate, progressive Islamic credentials of the United Malays National Organisation (UMNO), the dominant party of the coalition. The deepening split in the Malay ethnic community could result in political and racial polarisation and undermine Malaysia's stability. Economic growth is slowing but also becoming more stable. Year on year GDP growth of 11.9% in the first quarter was followed by 8.8% in the second quarter. Real GDP growth will continue to be heavily dependent on private consumption and capital investment, and is forecast to reach 8.6% this year, slowing to 7.3% in 2001. Key changes from last month Political outlook • Dr Mahathir looks more likely to crack down on the increasingly popular opposition Parti Islam sa-Malaysia (PAS), a move which could easily prove counter-productive. Economic policy outlook • The budget for 2001, to be revealed towards the end of October, is likely to contain incentives to stimulate investment and consolidate the impressive economic recovery. Economic forecast • A pick-up in foreign investment applications around the middle of the year and a sharp rise in capital investment recorded in the second-quarter GDP figures suggests that our GDP growth forecast of 8.6% this year and 7.3% for 2001 may be conservative. September 2000 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. 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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 1 Contents 3 Summary Malaysia 5 Political structure 6 Economic structure 6 Annual indicators 7 Quarterly indicators 8 Outlook for 2000-01 8 Political outlook 9 Economic policy outlook 10 Economic forecast 13 The political scene 17 Economic policy 21 The domestic economy 21 Economic trends 24 Oil and gas 25 Industry 27 Agriculture 28 Financial and other services 31 Infrastructure 33 Foreign trade and payments Brunei 35 Political structure 36 Economic struture 36 Annual indicators 36 Quarterly indicators 37 Outlook for 2000-2001 39 The political scene 42 Economic policy and the economy EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 2 List of tables 11 Malaysia: international assumptions summary 12 Malaysia: forecast summary 19 Malaysia: performance of the ringgit 20 Malaysia: applications received for establishment of manufacturing projects 22 Malaysia: real gross domestic product 25 Malaysia: industrial production 28 Malaysia: loan approvals, disbursements & loans outstanding 34 Malaysia: current account List of figures 12 Malaysia: gross domestic product 12 Malaysia: Malaysian dollar real exchange rates 18 Malaysia: credit card balances 22 Malaysia: quarterly gross domestic product 23 Malaysia: consumer and producer prices 25 Malaysia: industrial and manufacturing production 26 Malaysia: sales of passenger cars 28 Malaysia: loans extended by banking system 29 Malaysia: non-performing loans EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 3 Summary September 2000 Malaysia Outlook for 2000-01 Dr Mahathir Mohamad, the prime minister, may be planning a crackdown on the increasingly popular opposition Parti Islam sa-Malaysia (PAS), the main gainer from the November 1999 general elections, which could prove counter- productive. The deepening split in the main ethnic community could result in political and racial polarisation and undermine Malaysia’s stability. Since the previous Country Report, we have raised our real GDP growth forecast for 2000 from 8.3% to 8.6% but lowered the outlook for 2001 slightly from 7.4% to 7.3%. The decline in the current-account surplus, which reached 16% of GDP in 1999, will be faster than previously forecast, dropping to 9% in 2000 and 4% in 2001, compared with previous forecasts of 11.6% and 7.5%. The political scene Political divisions in Malaysia have widened since the November 1999 general elections, in which almost half of the ethnic Malay voters supported opposition parties but the ruling Barisan Nasional (BN) coalition, nonetheless, retained its two-thirds majority in parliament. Dr Mahathir has had little success in bolstering the moderate, progressive Islamic credentials of the United Malays National Organisation (UMNO), the dominant party of the coalition. Economic policy The government is intending to consolidate the impressive economic recovery and will continue the expansionary monetary and fiscal policies. There is unlikely to be a change in the pegged exchange-rate regime in the near term. Important strategy documents are being prepared, such as the Eighth Malaysia Plan (2001-05) and a knowledge-economy masterplan, which will set out the longer-term economic course. The domestic economy Foreign investment applications picked up sharply around the middle of the year. GDP expanded by 8.8% year on year in second-quarter 2000 after growing by 11.9% in the preceding quarter. Investment growth accelerated sharply. Petronas posted an 85% increase, to M$12.6bn (US$3.3bn), in net profit for the 12 months to end-March 2000. Manufacturing production remained buoyant, rising 25.2% year on year in the April-June period. Electrical and electronic products were Malaysia’s largest export category, taking 57.8% of total exports during the first six months of the year, increasing 20.3% year on year, slightly ahead of total export revenue growth of 19.5% during the period. National carmaker, Proton, will not be allowed to be taken over by a foreign car manufacturer. The Association of South-East Asian Nations (ASEAN) will permit Malaysia to defer scheduled duty reductions on motor vehicles from 2003 to 2005. The glut of crude palm oil is getting worse. The government is working on a plan to streamline natural rubber production. Bank lending growth has remained low but the government is sticking to its year-end target date for EIU Country Report September 2000 © The Economist Intelligence Unit Limited 2000 4 consolidation of the banking sector. The Kuala Lumpur Stock Exchange (KLSE) has been hit by a bout of profit-taking; regulatory changes, such as shortening of the settlement period and easing of chain listing requirements, have been announced. The foreign shareholding in Malaysian Airline Systems (MAS) may be raised. Foreign trade and Malaysia’s trade surplus has begun to decline as imports continue to accelerate payments and export growth slows. Capital goods imports rose 50.7% year on year in June. A sharp widening of the income deficit reduced the current-account surplus in the fourth quarter of 1999. Brunei Outlook for 2000-01 The sultanate faces a delicate balancing act: how to reduce the overdependence on oil and gas-financed government spending, while maintaining firm control over Brunei’s citizens. Planned cuts in social services, new income taxes and increased privatisation are unlikely to be balanced by robust private-sector growth. Economic growth, officially estimated at 3% this year, is being boosted by the high oil price; the official 5-6% GDP target for 2001 does not look achievable. The political scene The Prince Jefri case has been settled out of court, removing the prince from the public eye and preventing further damage to the government’s reputation. With the case closed, the government appears to have retreated back from greater openness. Economic policy and the Petroleum production has been increased by 25% to help refill the Treasury, economy seriously depleted by Prince Jefri’s actions.