MALAYSIA ECONOMY HISTORY
MALAYSIA'S STRUCTURAL ECONOMIC CHANGE: PAST, PRESENT, AND FUTURE
Professor Jeffrey D. Sachs, Columbia University
Thanks to the pioneering scholarly investigations of Sultan Nazrin Shah, magnificently compiled in his new book Charting the Economy: Early 20th Century Malaya and Contemporary Malaysian Contrasts, we now have a panoramic view of Malaysia's economic history since 1900. It is a dramatic story, with the rise and fall of key economic sectors and with major changes in politics, demography, and strategy. I believe that Malaysia, and the world, are on the cusp of another major transformation, this one to Sustainable Development.
Malaya distribution of primary commodity production, 1950
Source: Huff (2020), p.139
Malaysia therefore finds itself at the start of a fifth era of transformation, starting in 2015, this one very well characterized by the United Nations' Agenda 2030. The aim of the globally agreed Agenda 2030 is sustainable development, meaning the combination of economic development with social inclusion and environmental sustainability. The three pillars of sustainable development – economic, social, and environmental – are made more precise and quantitative in the 17 Sustainable Development Goals (SDGs) that are part of Agenda 2030. Of course, Malaysia is not alone in having to move from economic development (based largely on the growth of GDP per capita) to sustainable development according to the 17 SDGs. All UN member states adopted Agenda 2030 and the 17 SDGs in September 2015, because all countries are in need of ensuring that their economies not only produce high levels of GDP per person but do so in a way that is also socially inclusive and environmentally sustainable.
In the most recent ranking of global progress to the SDGs, the SDG Index and Dashboard for 2017 (which I help to produce for the UN Sustainable Development Solutions Network), Malaysia ranked 57 out of 157 countries (view video). This position reflects Malaysia's upper-middle-income status as well as its vulnerabilities regarding economic development, social inclusion and environmental sustainability.
Moreover, many of the pro-Malay policies introduced in the New Economic Policy remain in place, leading to ethnic-based policies in the allocation of public funds, school positions, and hiring. Regional development policies are also affected.
Source: The National Archives of Malaysia
Education expanded rapidly but quality remain mixed
Regarding economic development, Malaysia's most urgent task is to upgrade its education and innovation systems, the key to overcoming the "middle-income trap" and becoming a high-income country. While the access to education is relatively strong, international testing shows that the quality of education, notably in science and mathematics, still lags far behind the world leaders. And while the share of national income devoted to research and development has been rising (and currently stands at around 1.3 per cent of national income), there is clearly much more to do to enable Malaysia to be home to a bustling, vibrant, innovation-based economy as called for in SDG 9.
Regarding social inclusion, Malaysia still lags behind the SDG 5 goal of gender equality (especially in the role of women in politics) and the SDG 10 goal of reduced income inequality, with a relatively high Gini Coefficient of around 40.0 (29th out of 143 countries with suitable data).
Rice Shortes During Japanese Occupation Led To Food Rationing (1940)
SOURCE: THE NATIONAL ARCHIVES OF MALAYSIA 1999/0000423G1
Malaysia therefore enters a new and promising phase of its historic trajectory. I recommend that the government mobilize more total revenues as a share of GDP so that it can channel more funds towards high-quality education, research and development, low-carbon energy systems, air and water pollution control, and transfer payments to those in need (the elderly, disabled, indigenous populations, and remaining pockets of poverty). Of course, Malaysia's success will depend not only on the mobilization of resources but on the quality of their use, and therefore on the honesty, skills, integrity, and creativity of public policies in partnership with the private sector. More funds without governance reforms will not suffice; both public investments and governance reforms in tandem will be crucial. Fortunately, as Sultan Nazrin Shah's wonderful book reminds us, Malaysia has more than a century of experience in economic development and transformation of which it can be very proud, and which it can utilize to help chart the way forward in this new age of sustainable development.
On the dimensions of environmental sustainability, Malaysia faces an enormous and increasingly urgent challenge. Malaysia is a fossil-fuel-based economy in an era when fossil-fuels must give way to low-carbon energy sources such as wind, solar, geothermal, ocean, hydro, and nuclear power. The entire world must quickly reduce carbon-dioxide emissions, mainly from fossil-fuel use but also from deforestation, to near zero by 2050. Yet Malaysia's starting point today is a high rate of energy-linked CO2 emissions of 8 tons per person per year. Malaysia's land-use practices are also unsustainable, with considerable ongoing deforestation, loss of biodiversity, and chemical pollution.
Fortunately, the Government of Malaysia and the university sector are increasingly putting the 17 SDGs at the heart of Malaysia's post-2015 development policy. This requires not only attention to the SDGs but an enhanced quality of government. The public perceptions are that politics are corrupt, a sentiment associated with lower levels of subjective wellbeing and lower quality of overall sustainable development. There is a feeling that politics, both ethnic and party-based, too often take precedence over transparency, merit, and quality of public services.
Source: The National Archives Of Malaysia 1999/0000423g1
The Japanese Occupation Marked The Dramatic Collapse Of British Colonial Rule In Malaya (1940)
The year 1969 marked another turning point, with the racial unrest and the adoption of the New Economic Policy, aiming for broad social inclusion and especially a catching-up of the Malay population with the more urban and more prosperous Chinese population.
One of the tenets of the NEP was economic diversification. By then (around 1970), tin and rubber were in any event shifting to hydrocarbons (oil and gas) and oil palm.
After 1970, this shift would continue, but would be significantly augmented by the rise of labour-intensive export-oriented manufacturers, mainly the development of a labour-intensive electronics assembly export industry tightly interconnected with US multinational companies.
Chinese tin mining in Selangor in the 1910s
ECONOMIC HISTORY OF MALAYSIA
1971–1990 TIMELINE
Mahathir Mohamad, Prime Minister with EPU Director-General Thong Yaw Hong at a press conference, early 1980s
Source: NSTP archives
Abdul Razak, Prime Minister, at a meeting with the Finance Minister, Tan Siew Sin, late 1960s
Source: National Archives Malaysia, Accession No. 2001/0036556W
At a Conference of the Malaysian Chamber of Commerce, Dr Mahathir presented a paper, Malaysia: Moving Forward, which became known as Vision 2020.
Source: The New Straits Times, 1 March 1991
Abdul Razak briefing on National Economic Policy to government agencies on 31 July 1975
Source: National Archives Malaysia, Accession No. 2001/0043298W
General Election was held on 21 October 1990
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ECONOMIC HISTORY OF MALAYSIA 2020
Timeline 1991 - 2020
Progress Towards Vision 2020
In the early 1990s, the government introduced Vision 2020, aiming to transform Malaysia into a fully developed nation by the year 2020. This attracted foreign investment, turning Malaysia into a major manufacturing hub, especially in industries like electronics and palm oil. After facing some challenges in the late 1990s, the country recovered quickly and maintained its growth momentum. Malaysia shifted its focus towards services, including tourism, finance, and IT, becoming a global leader in Islamic banking, which helped attract international capital.
Malaysia also led in Islamic finance, offering financial products like sukuk (Islamic bonds), which brought in foreign investments. The country continued to thrive globally as a top exporter of palm oil, rubber, and electronics. In 2010, Malaysia launched the Economic Transformation Program (ETP), with the goal of achieving high-income status. The government emphasized innovation, education, and investments, leading to growth in key sectors such as healthcare, education, and finance. The ETP strengthened Malaysia's global market position and helped the country move closer to its long-term development goals.
By 2020, Malaysia had made significant strides toward achieving Vision 2020. The nation built strong infrastructure, diversified its economy, and became a leader in manufacturing, services, and Islamic finance, laying the groundwork for continued growth and success.
ECONOMIC HISTORY
OF MALAYSIA KLCC
The petronas towers, also known as the petronas twin towers and colloquially the klcc twin towers, are an interlinked pair of 88-story supertall skyscrapers in kuala lumpur, malaysia, standing at 451.9 metres.
Correction: March 1, 1993
August 31, 1999 (25 years ago)
ECONOMIC HISTORY OF MALAYSIA TUN RAZAK EXCHANGE TRX
The exchange 106 (malay: menara exchange 106), formerly known as the trx signature tower, is a 445.5-meter tall (1,462 ft) super tall skyscraper in Kuala Lumpur, Malaysia.
It is the second-tallest building in Malaysia and the third-tallest building in southeast Asia. It is also the second largest skyscraper in malaysiaby floor area with 453,885 m2 (4,886,000 sq ft)
The tower has a net lettable area of 240,000 square meters (2.6 million square feet). It is also the centerpiece of the new tun razak exchange(trx) financial district.
Construction started :May 2016 (8 years ago) / Completed: August 2019 (5 years ago)
MINISTRY OF FINANCE HISTORY
According to the historical perspective during the 19th and 20th century under residential system, the Federated Malay States were administered separately and independently by their respective Malay rulers.
Each State had its own rules and regulations, and the role of the residents was mainly advisory in nature. financial administration was conducted through the Bendahara.
A perpetual nightmare, a ceaseless struggle to make bricks without straw Sir Frank Swettenham, British Resident of Selangor 1882 & Perak 1889
The establishment of the Federated Malay States on July 1, 1896
The Federated Malay States (FMS) Flag
ECONOMIC POLICIES
Prior to the 1998 Asian Financial Crisis, the Malaysian Ringgit (MYR) was a floating currency that traded at RM2.50 at the dollar. As speculative activities spread across the region, the Ringgit fell to as much as RM4.10 to the dollar in matter of weeks.
An executive decision led by the then Prime Minister Mahathir Mohamad decided to peg the MYRto the dollar and impose capital controls to prevent excessive outflow of the Ringgit in the open market. The Ringgit became was pegged at RM 3.80 to the US dollar and a traveller had to declare to the central bank if taking out more than RM10,000 out of the country and the Ringgit it self .
The fixed exchange rate was abandoned in favor of the floating exchange rate in July 2005, hours after China announced the same move.
At this point, the Ringgit was still not internationalised. The Ringgit continued to strengthen to 3.18 to the dollar by March 2008 and appreciated as low as 2.94 to the dollar in May 2011.Meanwhile, many aspects of capital control have been slowly relaxed by Bank Negara Malaysia. However, the government continues to not internationalise the Ringgit. The government stated that the Ringgit will be internationalised once it is ready. Bank Negara Malaysia for the timebeing, uses interest rate targeting. The Overnight Policy Rate (OPR) is their policy instrument,and is used to guide the short term interbank rates which will hopefully influence inflation and economic growth.
CURRENCY
Malaysian Ringgit
The only legal tender in Malaysia is the Malaysian Ringgit. As of 19 February 2024, the ringgit is traded at MYR 4.78 at the US dollar.
The ringgit has not been internationalized since September 1998, due to the 1997 Asian financial crisis in which the Prime Minister Mahathir Mohamad imposed capital controls on the currency, due to speculative short-selling of the ringgit.
As a part of series of capital controls, the currency was pegged between September 1998 and 21 July 2005 atMYR 3.80 to the dollar after dropping from MYR 2.50 per USD to, at one point, MYR 4.80 per USD.
In recent years, Bank Negara Malaysia has begun to relaxcertain rules on capital controls, although the currency itselfis still not traded internationally. According to the BankGovernor, the Ringgit will be international ised when it is ready.
In September 2010, in an interview with CNBC, Dato' Seri Najib Tun Razak, who was the then Prime Minister of Malaysia and also held the position of Finance Minister, said that the government was open to open up the ringgit to offshore trading if the move would help the economy. He added that before such a move could be made, it would ensure that rules and regulation were in place to avoid abuse of the currency.
