The Malaysian Economy: Booming :: essays research papers

The Malaysian Economy: Booming The Economy: Following a period of severe and prolonged recession, the Malaysian economy has returned to growth aided by a relaxation of monetary and fiscal policies and by increased export demand, particularly in the electronics sector. While the world economic slowdown was more severe than expected and the unprecedented September 11 events in the United States had widespread implications for all economies, Malaysia was able to steer away from a major economic contraction and GDP growth for the year remained in positive territory. However, given the openness of its economy with trade accounting for about 200 percent of GDP, Malaysia was not spared from the negative effects of the United States economic slowdown. These effects came in the form of declining manufacturing production and negative export growth, particularly of electronics. Nevertheless, the government’s initiation of strong monetary and fiscal policies to stimulate economic growth through accelerating domestic economic activi ties and reducing the over-dependence on exports helped the nation to sustain a positive real GDP growth. Since 1998 the Government has relaxed the equity guidelines for investment in the manufacturing sector. Foreigners can now own 100% equity regardless of the level of exports and several incentives have also been introduced recently to promote the manufacturing-related services sector. Foreign Direct Investment has been the key to the country's remarkable success in recent years. Hundreds of international companies have so far established themselves in the country, attracted by the favorable investment environment has made Malaysia one of the world’s top locations for offshore manufacturing operations. Manufacturing is now the largest export sector of the economy (contributing around 34% of GDP and employing nearly 28% of the labor force in 2000). The electronics sector (radios and television) is the main export earner followed by processed foods, rubber, chemicals, timber, petroleum-refining and automobile manufacturing. In 2001, the impact of the slowdown in economic activity was also felt by the labor market, particularly in terms of unemployed workers in the manufacturing sector. However, given the flexibility accorded by the labor market, alternative measures that were adopted by employers (such as pay cuts and temporary layoffs) helped contain the number of workers unemployed. The Malaysian exchange rate remained pegged to the US dollar at the rate of RM3.80 per US dollar in 2001 (an arrangement that has been effective since 2 September 1998). The ‘Ringgit’ appreciated against all major currencies, including regional currencies in tandem with the strong U.