Crisis and Response in Malaysian Political Economy

Topics: Macroeconomics, Economy, Tax Pages: 5 (1578 words) Published: December 5, 2012
The economic crisis of the Malaysian economy in the mid-eighties has been quite unprecedented. Various economic as well as political developments have contributed to the present situation, though two factors have loomed larger than others. On the one hand, the severity of the unfavourable external environment has been emphasized by all observers. In this book, the editors have been scraped the idea from several important man in the economic foundation. There are 16 economists that have contributed their idea in developing the Malaysian economy in the eighties. They are Tan Sri Thong Yaw Hong, Sahathavan Meyanatham, Murthi Semudram, Khor Kok Peng, Dato’ Jaafar Hussien, Ismail Mohd Salleh, Ali Abu Hassan, Aris Othman, Muku G. Asher, Yip Yaat Hoong, Mokhtar Tamin, G Naidu, Yoh Poh Kon, R. Thillainathan, Khalid Ibrahim and Sukor Kassim. These names are very famous in the mid eighties for their contribution towards Malaysian economic growth.

The book is divided into 4 critical parts of economy in Malaysia. The first part is about ‘The External Environment’ that gave impact towards Malaysian economy. The second part is about ‘Government Initiatives and Responses’. This part is very critical as the economy brings a lot of changes in the political structure of Malaysia. With the changes of Prime Minister in 1981, the economic structure also takes place to change. In the third part, the editor slightly change the topic to ‘The Case for Deregulation’ and the last part, the most important event in Malaysian economy were being discussed that are ‘Whiter the New Economic Policy (NEP)’.

FIRST PART – The External Environment
There are several external environments that affect the Malaysian economy. The first factor is the balance of payments issues. In that era, the balance of payments has been a key topic of discussion among economic planners as well as academicians. In 1981, this topic was a natural development following the sharp reversal of the traditional favourable merchandise. One of the priorities of national policies in that era has been the attention devoted to the balance of payments problem and its implication. In 1982-83, the realisation that the large current account deficit was not sustainable and that early action was necessary to prevent Malaysia meeting the fate of countries in Latin America where their government collapse as they cannot manage their economy well. This situation led the government to take resolute measures to combat the twin deficits in the fiscal account and the balance of payments. Tan Sri Thong Yaw Hong stated that “the balance of payments deficit fell to 5.2% of GNP that cause the economy of the country strained out” Moreover, S. Meyanathan stated that “the year 1980 was associated with low growth, increase inflation current account deficits in the balance of payments and unemployment’s”. By 1981, the Organisation for Economic Cooperation and Development (OECD) countries were in recession. Although the supply of side responses in the United States and other big countries, the economic recession still occur as the structure of world economy need to be change. As example, during the second oil shock of 1979-1980, Malaysia was already a net exporter of oil, and this shown that at that time, Malaysia have to restructured it oil selling by changing the structure of the economy. This step is taken to increase back the oil selling of the Malaysian oil. Apart from the adjustment outlined above, the volatile condition in international currency markets despite the strengthening of the U.S dollar exerted periodic pressures on the ringgit, which entailed heavy intervention by the central bank. As a result of the slowdown, monetary pressures were also evident. Currency creation in Malaysia involves the exchange of foreign assets for local assets, thus linking the balance of payments with money supply (currency and commercial bank deposits). The research made by Khor Kok Peng seems legit...
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