Indonesia vs Malaysia: ‘Stagnating’ Malaysia Seeks to Rebuild Economy

After falling behind neighbors like Indonesia in the race for foreign investment, Malaysia must undertake further economic reforms aimed at boosting growth, a top finance official said on Tuesday. Malaysia needs to rebuild confidence by providing the highest standards of governance after spending a decade “stagnating” in the wake of the 1997-98 Asian financial crisis, Second Finance Minister Husni Ahmad Hanadzlah told a business conference. “Our private investment is now half of what it was since before the Asian crisis while both manufacturing and service sectors have become less capital intensive,” Husni said. Malaysian ministers rarely criticize the country’s economic performance, preferring instead to tout its rejection of advice and money from the International Monetary Fund in 1998 as a role model during the current global economic turmoil. The most recent Transparency International corruption index saw Malaysia slide nine places to 57th. The government has been hit by a multibillion dollar corruption scandal over the construction of a free trade zone at the country’s main port. Malaysia recorded its first net portfolio inflows of 8.8 billion Malaysian ringgit ($2.6 billion) in the third quarter of 2009 after five consecutive quarters of outflows of portfolio investment totaling 114.4 billion ringgit. In a bid to revive growth, Malaysia’s Prime Minister Najib Razak recently introduced economic reforms that included reducing requirements that Malays own 30 percent of listed companies and opening up financial services. While the reforms, aimed at helping Malaysia compete with fast-growing regional powers like China and India were welcomed, few investors have committed new funds. Husni hinted that more reforms could come, ending protection for the majority Malay population, a potentially unpopular move from a government still licking its wounds after heavy election losses last year. “The long-term success of the nation’s economy must take precedence over the short-term interests of a few protected groups,” he said. In some parts of the economy, such as the vehicle sector and government procurement, Malays are given preference for contracts and ownership, a measure some have criticized for fostering corruption and wasting money. Husni touched on possible reforms to massive government-linked companies which make up half of the top 30 companies listed on Bursa Malaysia and whose low levels of free float have caused investors to shun Malaysia’s stock market. “Malaysia is trapped in a low-value-added, low-wage and low-productivity structure,” Husni said. Among its peers, Indonesia, China, India, Vietnam, Philippines and Thailand, Malaysia’s economic growth over the past three years was second-lowest, he said.

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