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MALAYSIAN ECONOMY.
Term Paper ID:30027
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Essay Subject:
Reivew of economic performance in Malaysia: 1996-2000.... More...
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Paper Abstract:
Review of economic performance in Malaysia: 1996-2000. Malaysia as a newly industrializaing country (NIC) that suffered severe economic consequences because of the Southeast Asian economic crisis in 1997. Economic output of Malaysia's performance; real & nominal GDP. GDP. Investment & consumption. The country's international economic position. Monetary measures. Statistics. 12 Exhibits.
Paper Introduction:
RECENT PERFORMANCE AND STATUS OF THE MALAYSIAN ECONOMY: A REVIEW
Introduction
This research presents a review of the recent performance and status of the Malaysian economy. Malaysia is a newly industrializing country (NIC) that suffered severe economic consequences because of the economic crisis that hit East Asia and Southeast Asia in 1997. NICs are not the same as transitional economies. Transitional economies are those economies that are in a state of transition from command economy (socialist) status to market economy status. Neither are NICs developing economies because their levels of economic development allowed them to move up to NIC status (Sercovich, 1999).
The economic problems that confronted Southeast Asian
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As the data presented in Exhibit 3 indicate, investment as aproportion of real GDP suffered greatly in the aftermath of the Asianeconomic crisis that began in the summer of 1997. 171 ||1997 |3.8883 |- 1.36 4 ||1998 |3.8 |+ . Economic Output The review of Malaysia's performance within the context of economicoutput covers measures of (1) gross domestic product (GDP) and (2)industrial production. Neither are NICs developing economies becausetheir levels of economic development allowed them to move up to NIC status(Sercovich, 1999). Exhibit 12 presents interest rates charges onleans by merchant banks and interest rates paid on deposits by merchantbanks. Most East Asianand Southeast Asian countries experienced severe difficulties because ofthe economic crisis, and Malaysia was no exception to the rule. This approach provided a basis for(1) assessing the effects of the economic crisis on Malaysia's economy and(2) assessing the effectiveness of Malaysia's efforts to promote economicrecovery. Exhibit 5, also below on thispage, presents a summary of the country's financial reserves for 1996-2 .|Exhibit 4 - External Trade 1996-2 [RM = millions] ||Year |Exports |Imports |Trade Balance ||1996 |197, 26 |197,28 |- 254 ||1997 |22 ,89 |22 ,936 |- 46 ||1998 |286,563 |228,125 |+ 58,438 ||1999 |321,56 |248,477 |+ 73, 83 ||2 |373,3 7 |312,427 |+ 6 ,88 ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | As the data presented in Exhibit 4 indicate, Malaysia was effective inthe management of external trade during the period following the crisis.The country avoided incurring additional external debt because of tradeimbalances and avoided a crippling imposition of conditions by the WorldBank and the International Monetary Fund.|Exhibit 5 - Financial Reserves 1996-2 [RM = millions] ||Year |Reserves |Change from Prior Year ||1996 |64,559 |+36.4% ||1997 |82,896 |+28.4% ||1998 |36,178 |-56.4% ||1999 |45,675 |+26.3% ||2 |41,372 |- 9.4% ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | As the data presented in Exhibit 5 indicate, Malaysia's reserveposition deteriorated because of the need to react to the Asian economiccrisis. Monetary Measures The review of Malaysia's performance within the context of thecountry's monetary performance covers measures of (1) money supply and (2)international currency exchange rates. |7.58 ||2 |3.33 |4. The policy has been successful,however, and the central bank maintains reserves above an establishedthreshold level. 883 ||1999 |3.8 | . In order to maintain solvency while avoiding additional externaldebt and the imposition of draconian conditions by the World Bank and theInternational Monetary Fund, it was necessary for the country to deplete itreserve levels. (2 1a, February 22).Comments made at a scheduled news conference. Summary and Conclusion This research presented a review of the recent performance and statusof the Malaysian economy. The data presented in theexhibit reflect the country's consumer price index.|Exhibit 9 - Consumer Price Index 1996-2 [2 = 1 ] ||Year |Consumer Price Index |Change from Prior Year ||1996 |1 7. Exhibit 11 presents rates of interest charged bycommercial banks on loans. Retrieved from the Internet 2 1- 3-19 at:http://www.bnm.gov.my/pub/msb/2 1 1/index.htm Roach, S. The economic problems that confronted Southeast Asian economiesbeginning in the summer of 1997 were especially serious. Because the economic crisis hit Asia in 1997, the review of Malaysia'seconomic performance began with 1996. The Economist(US), 351(8117),73-74. The review considers both real and nominal GDP. Sercovich, F. ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | As the data presented in Exhibit 8 indicate, the RM suffered a steeploss in value relative to the United States dollar in the year in which theAsian economic crisis hit. Overall, however, the management of the moneysupply has been effective. Therefore, the period of the analysespresented in this review is 1996-2 inclusive, a five-year period. Growth resumed in 1999and continued in 2 . |13.6 |1 .71 ||1999 |3.27 |4. References Akhtar, Z., Governor, Bank Negara Malaysia. recent performance and status of the Malaysian economy: A Review Introduction This research presents a review of the recent performance and statusof the Malaysian economy. Monetaryvalues reflect millions of RM. Kuala Lumpur, Malaysia: Bank Negara Malaysia (Central Bank ofMalaysia). Competition and the world economy: Comparingindustrial development policies in the developing and transitionaleconomies. As a proportion of GDP, consumption levelsremained relatively stable across the 1996-2 period. |+ 9. (2 1, January). The Financial Sector MasterPlan. 8 |2.72 ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | |Exhibit 11 - Commercial Bank Interest Rates Charged on Loans [%] ||Year |Base Lending Rate |Average Lending Rate ||1996 |9.18 |1 .12 ||1997 |1 .33 |11.51 ||1998 |8. (2 , March 17). Average lending rates by commercialbanks in Malaysia, however, are lower than comparable rates in the UnitedStates. (1999, May 1). As stated earlier in this review, the effects of the Asian economiccrisis on the Malaysian economy were severe. |+ 3.6 ||1997 | 1 9.9 | + 2.9 ||1998 |95.8 | - 14.1 ||1999 |98.5 |+ 2.7 ||2 |1 . The period covered is 1996-2 (inclusive).As the data presented in Exhibit 2 indicate, Malaysia's economic output asmeasured by the industrial index mirrors the economy's performance asmeasured by real GDP.|Exhibit 2 - Industrial Production Index [1993 = 1 ] ||Year |Index |Change from Prior Year ||1996 |141.1 |+11. Retrieved from the Internet2 1- 3-19 at: http://www.bnm.gov.my/spch/ 2 1/ 312.htm Bank Negara Malaysia. This outcome reflects a continuingwariness on the part of foreign investors with respect to the country'seconomic future.|Exhibit 3 - Gross Investment & Consumption [% of Real GDP] ||Year |Investment as a % of |Consumption as a % of || |Real GDPa |Real GDP ||1996 |43.5% |59.9% ||1997 |45.4% |59.3% ||1998 |28.1% |54.4% ||1999 |23.9% |56.6% ||2 |31.3% |56.7% ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 ||aInvestment and consumption total to more than 1 % of GDP in 1996 and ||1997 because of high levels of direct foreign investment (Bank Negara ||Malaysia, Financial Sector Master Plan, 2 1 | International Position The review of Malaysia's performance within the context of thecountry's international economic position covers measures of (1) externaltrade, (2) international reserves, and (3) balance of payment. The exhibit is below on this page. (2 1, February). Cheltenham, England: Edward Elgar, Publishers. More global growth. NICs are not thesame as transitional economies. Investment and Consumption The review of Malaysia's performance within the context of investmentand consumption covers measures of (1) gross investment and (2)consumption. The research presented found that the effects of the Asian economiccrisis on the Malaysian economy were severe. Kuala Lumpur, Malaysia: Bank Negara Malaysia (Central Bank ofMalaysia). | + 1.5 ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | As the data presented in Exhibit 9 indicate, Malaysia experiencedprice deflation in the year following the onset of the Asian economiccrisis. (2 ). Malaysia, unlike most NICs and developing countries in theregion, however, resisted the draconian measures demanded by the World Bankand the International Monetary Fund for assistance in economic recoveryefforts. The data presented in theexhibit, which is below on this page, reflect RM per one United Statesdollar (US$).|Exhibit 8 - International Currency Exchange Rates 1996-2 [RM:US$] ||Year |Currency Exchange Rate |Change from Prior Year ||1996 |2.5279 |+ . Malaysia is an NIC that suffered severe economicconsequences because of the economic crisis that hit East Asia andSoutheast Asia in 1997. Exhibit 6 presents a summary of Malaysia's balance of payments for1996-2 . The most recent full-year aggregate data available forMalaysia's economy are for 2 . Malaysian chose to go its own way and design its own policies foreconomic recovery ("The Road Less Travelled," 1999). Global Economic Forum,1-3. While the data presented inExhibit 6 reflect problems in international economic activity, the dataalso indicate that Malaysia overcame those problems. Transitional economies are those economiesthat are in a state of transition from command economy (socialist) statusto market economy status. Very highinterest rates prevailed in the year that the Asian economic crisis beganand to a lesser extent in the following year. Exhibit 8 presents a summary of the international currency exchangerates for the RM for the period 1996-2 . Because the economic crisis hit Asia in 1997, the review of Malaysia'seconomic performance begins with 1996. Data presented in the exhibit, which is below on thispage, reflect millions of RM.|Exhibit 7 - Money Supply Measures 1996-2 [RM = millions] ||Year |M-3 |M-2 |M-1 ||1996 |329,7 8 |238,2 9 |6 ,585 ||1997 |39 ,8 9 |292,217 | 63,365 ||1998 |4 1,459 |296,472 | 54,135 ||1999 |434,59 |337,138 | 73,447 ||2 |456,475 |354,68 |78,195 ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | As the data presented in Exhibit 7 indicate, money supply growth inthe broader M-3 and M-2 measures are relatively moderate in the post-crisisperiod. The duration of these adverseeffects, however, was little more than a year. Inmonetary values, investment levels in 2 were only 87 percent of 1996levels and only 75.6 percent of 1997 levels (Bank Negara Malaysia, MonthlyStatistical Bulletin, 2 1). As the data presented in Exhibit 12 indicate, patterns similar tothose of commercial banks characterized interest rates paid and charged bymerchant banks in Malaysia. The duration of these adverse effects, however, was little morethan a year. Malaysia,unlike most NICs and developing countries in the region, however, resistedthe draconian measures demanded by the World Bank and the InternationalMonetary Fund for assistance in economic recovery efforts. The exhibit is below on this page.|Exhibit 6 - Balance of Payments 1996-2 [RM = millions] ||Year |Balance on Current |Change from Prior Year || |Account | ||1996 |-11,226 |+1 ,427 ||1997 |-16,697 |- 5,471 ||1998 |37,394 |+54, 91 ||1999 |47,9 2 |+1 ,5 8 ||2 |39,572 |- 8,33 ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | As the data presented in Exhibit 6 indicate, the effects of the Asianeconomic crisis did not prevent Malaysia from pushing it current accountbalance of payments to a positive position. Real GDP,however, fell 7.4 percent in 1998 from 1997 levels. The review examines economic performance in Malaysia within thecontext of economic aggregate measures. The duration of these adverseeffects, however, was little more than a year. Since that time, the increase in the consumer price index has notbeen sufficient to return price levels to pre-crisis highs. Monthly Statistical BulletinJanuary 2 1. Prices and Interest Rates Exhibit 9, on the following page, presents data relative to pricechanges in the Malaysian economy for 1996-2 . Exhibit 7 presents summaries of Malaysia's M-1, M-2, and M-3 moneysupply measures. Retrieved from the Internet 2 1- 3-19 at:http://www.bnm.gov.my/feature/fsmp/index.htm Bank Negara Malaysia. The rates paid on deposits by commercial banks have yet to returnto pre-crisis levels.|Exhibit 1 - Commercial Bank Interest Rates Paid on Deposits [%] ||Year |CD - 6 Month |CD - 1 Year |Savings Account ||1996 |7.23 |7.26 |4.1 ||1997 |9.21 |9.33 |4.23 ||1998 |5.76 |5.74 |3.87 ||1999 |3.47 |3.95 |2.76 ||2 |3.51 |4. Malaysian choseto go its own way and design its own policies for economic recovery. Exhibit 1 presents the rates of interest paid on deposits incommercial banks. Exhibit 2 (on the following page) presents measures of Malaysia'sindustrial production index. Each measure represents a proportion of real GDP. Maintaining the pegged rate for the RM required the central bank touse substantial monetary reserves. The exhibit is on the following page. 4 |9.72 ||1999 |6.79 |7.75 ||2 |6.78 |7.45 ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | |Exhibit 12 - Merchant Bank Interest Rates Paid on Deposits and Charged on ||Loans [%] ||Year |CD - 6 Month |CD - 1 Year |Average Lending Rate || |Deposit |Deposit | ||1996 |6.84 |7.3 |11.15 ||1997 |1 .51 |11.89 |16.34 ||1998 |6. Malaysia's efforts to return the economy to growth are highlyeffective within the context of measures of economic output. The economic problems that confronted Southeast Asian economiesbeginning in the summer of 1997 were especially serious (Roach, 2 ).Most East Asian and Southeast Asian countries experienced severedifficulties because of the economic crisis, and Malaysia was no exceptionto the rule. 3 ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | As the data presented in Exhibit 11 indicate, interest rates chargedby commercial banks on loans also fell in the wake of the Asian economiccrisis; however, the drop in the rates charged was not as steep as the dropin the rates paid by commercial banks. 4 |7. On balance, both deposit interest rates andloan interest rates are higher at merchant banks than at commercial banksin Malaysia. (1999). Included in the review aremeasures of: (1) economic output; (2) investment and consumption; (3)international position; (4) money; and (5) prices. In the following year, Malaysia adopted apegged rate of RM3.8 to one United States dollar (Akhtar, 2 1a).Management of the pegged rate has been effective over the past three years. Exhibit 4 presents a summary of external trade for the 1996-2 period. As a proportion of realGDP, the recovery of investment to pre-crisis levels has yet to occur. World Bank. As the data presented in Exhibit 1 indicate, interest rates paid ondeposits by commercial banks fell sharply in the wake of the Asian economiccrisis. This approach provides a basis for(1) assessing the effects of the economic crisis on Malaysia's economy and(2) assessing the effectiveness of Malaysia's efforts to promote economicrecovery. Malaysia is a newly industrializing country(NIC) that suffered severe economic consequences because of the economiccrisis that hit East Asia and Southeast Asia in 1997. % ||1997 |156.1 |+ 9.6% ||1998 |144.9 |- 7.2% ||1999 |158. Malaysia's efforts to restore investment to pre-crisis levels havebeen less effective than planned. 29 ). ||2 |3.8 |- . % ||2 |188.5 |+19.3% ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | The effects of the Asian economic crisis on the Malaysian economy weresevere. Exhibit 1, below on this page, presents both real andnominal GDP data for the 1996-2 (inclusive) period.|Exhibit 1 - GDP [Real & Nominal] 1996-2 [RM = millions] ||Year |Real GDP [1987=1 ] |Nominal GDP ||1996 |183,292 |253,733 ||1997 |196,714 |281,795 ||1998 |182,221 |284,472 ||1999 |192,794 |3 ,349 ||2 |2 9,269 |339,42 ||Source: Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1 | As the data presented in Exhibit 1 indicate, the economic crisis thathit East Asia and Southeast Asia in the summer of 1997 did not causeMalaysian GDP growth to decline in 1997 from 1996 levels. Malaysia's efforts toreturn the economy to growth are highly effective in relation to most ofthe aggregate measures of economic performance considered. New York: OxfordUniversity Press. The official WorldBank classification for Malaysia in the World Development Report 2 (World Bank, 2 ) is "Upper, Middle Income" (p. All three exhibits are on the following page. (2 1b, March 1 ).Comments made at a scheduled news conference. The most recent full-year aggregate data available forMalaysia's economy are for 2 . World Development Report, 2 . The narrow M-1 measure was volatile with a steep drop in supply inthe year that the economic crisis began, followed by an even steeperincrease the following year. Malaysia's efforts toreturn the economy to growth are highly effective within the context ofmeasures reflecting the country's international economic position. In monetaryvalues, however, consumption fell sharply in 1998 before recovering in 1999(Bank Negara Malaysia, Monthly Statistical Bulletin, 2 1). Retrieved from the Internet 18 March 2 1 at:http://www.msdw.com/GEFdata/digests/latest-digest.html The road less traveled. Money supply data reflect millionsof RM. Monetary values for GDP represent millions of Malaysian ringgit (RM).The base year for the determination of constant (real) GDP values is 1987(e.g., 1987 = 1 ). Overall, management of interest rates has been effective. Otherwise, however, interestrates are reasonable. Exhibit 3 presents gross investment for the 1996-2 period andconsumption for the same period. Therefore, the period of the analysespresented in this review was 1996-2 inclusive, a five-year period. Retrieved from the Internet2 1- 3-19 at: http://www.bnm.gov.my/spch/ 2 1/ 222.htm Akhtar, Z., Governor, Bank Negara Malaysia. Nevertheless, the country's central bank maintainedreserves above the level required to fund international operations forthree months - the criterion adopted by the government (Akhtar, 2 1b).
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