------- Forwarded Message Follows -------
From: yfyap@pop.jaring.my (Yap Yok Foo)
To: sangkancil@malaysia.net
Subject: [sangkancil] Malaysia Report
Date: Fri, 07 Nov 1997 01:34:47 GMT
Organization: Private
Reply-to: yfyap@pop.jaring.my (Yap Yok Foo)
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Political and Economic Risk Consultancy, Ltd.- PERC
Malaysia Country Risk Report:
(taken from www.asiarisk.com)
Executive Summary
oMalaysia may have suffered along with the rest of Asia in the current
financial crisis, but its behavior over the last few months may well
ensure that it is no longer regarded as part of the crowd when foreign
investors eventually return. Instead, fund managers are likely to
favor countries such as Singapore and even Indonesia which are
perceived to have reacted more appropriately.
oGovernment intimidation of local economists and market analysts in
recent months has been so effective that the credibility of economic
analysis originating from Malaysia is now in serious doubt. The result
is that outside observers are in danger of swinging too far in the
opposite direction, overlooking genuinely positive developments and
focusing on the negative ones instead.
oWatch out for further moves to restrict the number of foreign
laborers in the country. In addition to the usual arguments about such
workers being associated with a rising incidence of crime and
communicable diseases, policy-makers now have a powerful economic
argument. In recent weeks officials have been pointing out that
foreign workers in the country remit an estimated M$4 billion to their
home countries each year, thus contributing significantly to the
services deficit.
oPrime Minister Mahathir's reported remarks about the possible
involvement of Jewish financiers in the current financial crisis could
encourage more radical Muslim groups in the Middle East to take up the
issue in a way that Malaysia finds very uncomfortable indeed. This, in
turn, may make it difficult for Malaysia to attract additional foreign
investments in the future, particularly from the US. Domestically,
however, the issue has been well received in the predominantly Muslim
rural areas of the country.
Near-Term Outlook
Credibility problem
When asked to list the main misconceptions held by their head offices,
several expatriate businessmen working in Malaysia complained that
their superiors mistakenly believed the country to be a backward and
unsophisticated place. The most serious misconception about Malaysia
held by head offices until very recently, however, was almost exactly
the opposite: the idea that Malaysia is a far easier and safer place
to do business than it is in reality. Both the regional financial
crisis and Dr. Mahathir's sharp reaction to it has served as a timely
reminder that personalities rather than formal institutional
mechanisms remain the key driving forces in both economic and
political affairs in Malaysia, and that the business environment is
not quite as transparent as many outside the country would like to
believe.
This is not the same thing as saying that Malaysia is entirely lacking
in sophistication. The country has a very large pool of
foreign-educated graduates in fields such as engineering, accountancy
and economics who are well suited to working in a Western-style
corporate environment. Despite the traffic jams which regularly clog
its major cities, Malaysia can also boast of an infrastructure which
is very well developed by Asian standards. Moreover, while Malaysia's
legal system has its imperfections, in general it really does provide
a practical avenue of redress for aggrieved foreign companies - a
point which cannot be made with as much confidence about many other
countries in the region.
It was just these attributes, along with continued political
stability, that has enabled the country to sell itself successfully to
foreign investors as a good place to do business over the last few
years. US-based electronics companies in particular found Malaysia to
be a convenient location for their manufacturing plants. Until very
recently, important US and Japanese companies also gave serious
consideration to several of Dr. Mahathir's ambitious schemes, such as
the drive to create a Malaysian version of California's Silicon
Valley. Meanwhile, continued strong economic growth encouraged banks
and foreign fund managers to toy with the idea of supporting
Malaysia's effort to become a major regional financial center.
In the euphoria to join the bandwagon, however, many head offices lost
sight of some of the less palatable aspects of doing business in the
country. Corporate reporting standards and the rights of minority
shareholders, for example, fall well below those of most Western
nations. It is partly for this reason that many of the more important
Malaysian conglomerates were able to take out large bank loans to
finance risky projects which now threaten to turn sour. Other issues
of concern include the extent to which politically well-connected
companies have been able to obtain major contracts in circumstances
that are frequently less than transparent. National economic
institutions such as the Central Bank, while more sophisticated than
in many other countries in the region, are also quite open to
manipulation for short-term political purposes. Unfortunately, in
times of political stability and strong economic growth, such matters
are easily forgotten in the rush to make money.
One of the ironies about the recent financial turmoil is that, while
Malaysia's financial system is among the more sophisticated in
Southeast Asia - certainly far more so than that of Indonesia, for
example - it is generally perceived as having responded to the crisis
in a particularly crude and inappropriate manner. Of these responses,
perhaps the worst was Dr. Mahathir's comment that foreign exchange
trading should be banned, or at least severely curtailed. A close
second would have to be the threats of arrest made against local
stockbrokers and other analysts who produced critical analyses about
Malaysia's economic situation. Dr. Mahathir's more recent comment
about the possible role of Jewish financiers has also damaged the
country's international standing.
Even so, it is important not to swing too far to the other extreme and
adopt the view that Malaysia is little better than a banana republic.
When the dust settles, it may be well to remember that most of the
controversies were triggered by one man - Prime Minister Mahathir -
and that even he did very little to back up his talk with any real
action. Foreign exchange trading continued unabated throughout the
crisis, no analysts were actually arrested, and despite the apparent
policy flip flops, there were no major changes to economic policy
apart from announcements regarding government spending cuts. The
nation's continued political stability was not at risk either, despite
ill-informed rumors generated outside the country to the effect that
Finance Minister Anwar considered using the crisis to attempt to
unseat Mahathir.
Even so, there is no getting away from the fact that foreign
perceptions of Malaysia have changed significantly for the worse over
the past few months. Government spending cutbacks, combined with a
dramatic fall in share prices, have ensured that foreign investors are
now more likely to think twice about claims that a particular
well-connected company will necessarily be able to make money easily,
despite its heavy borrowings and risky projects. There will also be
greater demands for more sophisticated analyses by the broking
community and pressure for improved disclosure standards. If all this
results in a more balanced head office view of the country, so much
the better.
Malaysia meanwhile continues to suffer from a credibility problem.
When the international mood towards Southeast Asia eventually turns
positive once again, Malaysia could find itself being left out in the
cold as fund managers favor countries perceived to have acted more
appropriately during the crisis. Having been less directly affected by
the turmoil, foreign manufacturers and contractors operating in
Malaysia probably have a less critical view, but even they will find
it difficult not to be influenced by the negative sentiment which has
developed over the past few months.
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Economic Indicators
1991 1992 1993 1994
1995 1996e 1997f
Real GDP Growth (%) 8.65 7.80 8.30 8.70
9.50 8.20 7.20
Total Exports
(fob, US$ bil) 34.41 40.63 47.10 58.56
73.81 77.74 74.00
Total Imports
(cif US$ bil) 36.75 39.93 45.61 59.41
78.00 77.98 78.00
Current Account Balance
(US$ bil) -4.53 -1.60 -2.81 -4.15
-7.46 -5.17 -9.00
Foreign Exchange Reserves
(US$ bil) 10.42 16.80 26.81 24.89
22.95 26.16 23.00
Total External Debt
(US$ bil) 17.80 19.96 23.30 24.77
27.50 28.70 31.00
Debt Servicing
(US$ bil) 2.60 2.92 4.21 5.04
5.50 6.00 6.20
Exchange Rate vs US$
(year-end) 2.72 2.61 2.70 2.56
2.54 2.53 3.20
Inflation
(CPI %) 4.40 4.70 3.60 3.70
3.40 3.50 3.80
To send us comments please email us at info@asiarisk.com
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