THE Malaysian economy is now in a much stronger position to withstand challenges compared to the time of the Asian financial crisis in 1997/1998, according to academician and National Economic Action Council (NEAC) head of the special consultancy team on globalisation, Professor Dr Mahani Zainal Abidin.
“Since the crisis, the government has strengthened a few sectors like banking, where the rate of non-performing loans has been controlled and improved, and the corporate sector, by stressing on corporate governance as well as introducing measures for the capital market,” Mahani said during an interview with Starbiz.
She said the country’s economic fundamentals were strong, with low inflation, full employment and the fact that foreign direct investment numbers had steadied.
“Going forward, the economy is in a better position prior to the crisis,” Mahani said, adding that the country was not without potential, and new sources of growth in various sectors like education, health, tourism and logistics had been identified.
Based on this, she said, a 4% to 4.5% growth in the country's gross domestic product was very achievable.
Mahani, who was a member of the working group of the NEAC during the crisis, is also the author of Rewriting The Rules : The Malaysian Crisis Management Model, which provided an insider point of view on how the country overcame the crisis.
The working group was specially convened in 1998 to assist the NEAC, which formulated policy responses and action plans, to address the impact and implications of the crisis.
Mahani said one of the reasons she decided to write the book was that everyone could learn from the lessons derived from the crisis.
“I wanted it to be more of a policy book: what the government did and why, its measures and policies,” she said, adding that a lot of the writings on the crisis had been academic in nature and from “outside” by foreigners or Malaysians outside the government.
“The most important lesson learnt from the crisis is that a country need to know what is happening within it, making monitoring a crucial aspect. We also need to think independently and not only follow what people from the outside tell us. We must design measures that suit us best.”
Another point to note was that unlike other countries, Malaysia did not have any riot or racial tension during the crisis.
Mahani felt that it was the “acid test” for our multicultural country, which we passed with flying colours.
“We had distributed the wealth and everyone was not suspicious of each other,” she said.
According to Mahani, the book is not only about historically looking at measures to overcome the crisis but also about having a better understanding of the Malaysian economy. The book will be very suitable for students and the general public as it describes the “defining moment of the economy.”
“We have shown that there is another way to manage the crisis and that there is not only one recipe to bake a cake,” she quipped.
The book also includes a special interview with Prime Minister Datuk Seri Dr Mahathir Mohamad on his views of the crisis.
“From the interview, two things came across very clearly to me: one, that he felt very strongly about currency speculators that they can do a lot of damage. Two, he was very concerned about how the crisis would hurt the Malaysian public and how much they would suffer from it,” she said, adding that he even toyed with the idea of doubling income to offset the depreciation of the currency by 50%.
She said the interview was quite interesting as one was able to see the non-economic side of the Prime Minister.
Mahani said the government's management of economic challenges now was very much based on what had been learnt from the financial crisis of 1997/1998.
“The economy is managed in a more pro-active level. We are learning from the crisis and replicating its methods to overcome challenges,” she said.
Mahani added that the same model was used to proactively monitor the impact of war to come up with measures to overcome it.
“Although there has not been any drastic effect on the economy yet from the Severe Acute Respiratory Syndrome (SARS) and the war, we may have to brace ourselves as certain sectors like tourism would be affected,” she said, adding that the impact would not be immediate.
Mahani said that there was also a need to relate the impact of the war to how the global economy – the United States, Europe and Japan – would be affected as this in turn would affect the Malaysian economy in terms of exports.
However, the impact of such external factors will be somewhat reduced as there is now a stronger and more resilient domestic economy.
“We are not only dependent on the external market as we have a relatively strong domestic market too,” she said.
Increase in intra-regional trade, for example trade in East Asia, has also helped increase the diversification of the export market.
According to Mahani, the economic package to be introduced is expected to be aimed at making the domestic economy more resilient by strengthening consumer demand.
“We need to look at areas to generate economic activity, increase export revenue and find new sources of growth. In that broader context, the measures that are going to be discussed would be along these lines now and for the future,” she said, adding that this would be the basic thrust in the medium-term objective of the Malaysian economy.
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