I. INTRODUCTION
1.01 The Third Outline Perspective Plan (OPP3), which constitutes the
second decade of development under Vision 2020, focuses on building
a resilient and competitive nation. During this period, efforts will
be made to raise the quality of development and generate high sustainable
growth, bringing prosperity for all. National unity remains the overriding
goal of development and the diversities of Malaysians - ethnic, lingual,
cultural and religious - will be taken into account in forging a harmonious,
tolerant and dynamic society. Socioeconomic development policies, which
contributed to enhancing the quality of life of Malaysians, will
continue to be given priority.
1.02 The formulation of the Plan incorporates a review
of the progress of the Second Outline Perspective Plan (OPP2) as well
as lessons learnt from the 1997- 1998 Asian financial crisis. The policies
and strategies are aimed at building upon the country’s existing
strengths, addressing its limitations and constraints, and facing the
challenges of global competition. As in the past, the Government will
continue to pursue a holistic approach to economic development, which
is essential in ensuring stable growth, promoting harmony among ethnic
groups, and enhancing national integration. Various views and contributions
were considered,
including the report of the Second National Economic Consultative Council
(MAPEN II), which comprised representatives from different segments
of society.
1.03 The OPP3 has been formulated based on a policy that
will be called the National Vision Policy (NVP). The NVP, with national
unity as its overriding objective, is aimed at establishing a progressive
and prosperous Bangsa Malaysia which lives in harmony and engages in
full and fair partnership. Economic growth will be promoted alongside
efforts aimed at poverty eradication and restructuring of society. Social,
economic, and regional imbalances will be narrowed. The development
policies to improve material welfare and raise the level of Sustainable
Growth With Resilience.4 prosperity will be accompanied by efforts to
instill positive social and spiritual values as well as concern for
the environment to maintain the long-term sustainability of the country’s
development.
II. CHALLENGES TO LONG-TERM GROWTH
1.04 Malaysia faces challenges at both the global and domestic fronts.
Globally, the rules of competition have changed with the onset of the
Information Age and a more integrated global economy as well as greater
liberalization of the markets. A country’s competitive advantage
is no longer dependent on factors such as labour, land and natural resources,
but on its potential to produce, acquire, utilize and disseminate knowledge.
The availability of knowledge enhances the potential for lower-cost
developing countries to move into high value-added products at a faster
pace and enables new entrants to compete with established producers.
With their huge domestic markets, these countries threaten to undermine
the comparative advantage in some areas of manufacturing that Malaysia
enjoyed for the last 30 years. On the other hand, the industrialized
countries, which are focusing on knowledge as an important input in
their production processes, have increased the share of high-technology
industries in their total manufacturing value added and exports. They
are more advanced in terms of human resource,
technology, research and development (R&D), innovative capability
and infrastructure. Consequently, Malaysia will have to intensify its
efforts to stay ahead of the more dynamic developing countries and catch
up with the developed countries.
1.05 In this decade, the move towards greater liberalization
will lead to increased market opening by individual countries and benefit
those who are in a position to take advantage of the process. With the
reduction of tariff barriers, market borders will become technically
non-existent. Coupled with the pervasive use of the Internet, businesses
will be able to source for inputs, components and services, and get
quotes from suppliers at the most competitive price anywhere in the
world at a negligible marginal cost. The reduction in communications
cost will help to globalize production and capital markets, increase
competition and innovation, and speed up the diffusion of new technology
through trade and investment. Malaysian industry and trade entities
will, therefore, have to urgently build capability to contend with foreign
competitors in the domestic market and
enhance their export competitiveness. Malaysian businesses will need
to become more receptive to know-how, increase their skills and creativity
as well as identify their commercial potential..
1.06 Domestically, the contribution of TFP will have
to increase at a faster rate and the efficiency of capital will need
to be enhanced. This is because the contribution of labour to growth
will slow down in the future and the high investment rate in the 1990s
is neither sustainable nor efficient. As a long-term strategy for sustained
economic growth, it is imperative that the country shifts from input-driven
growth to productivity-driven growth so that the sources of economic
growth are derived endogenously. Greater emphasis will be placed on
building Malaysia’s human capital, productivity and capacity for
knowledge
absorption and utilization. Productivity-driven growth based on rich
knowledge content and efficiency will enable the country to achieve
sustainable growth with low inflation and price stability. Furthermore,
it offers unparalleled opportunity for improving the well-being of Malaysians
more rapidly to achieve the goals under Vision 2020.
1.07 The Asian financial crisis in 1997-1998 has highlighted
the importance of increasing resilience in an integrated global environment
where the flow of capital, trade and information transcend national
borders. Events in one country can have tremendous repercussions in
another part of the world through complex, criss- crossing networks
and lagged effects. Malaysia is exposed to these external effects because
its economy is integrated with the rest of the world. While it is not
possible to be completely insulated from external shocks, there is a
need to strengthen Malaysia’s economic, financial and social resilience
so that it is able to withstand global volatility and risks without
being derailed by them.
1.08 The cyclical downturn in the demand for semiconductors
in the mid-1990s highlighted the risks of relying on a narrow range
of products or a small group of markets. Although the electronics industry
was an important factor in Malaysia’s spectacular recovery from
the 1997-1998 financial crisis, there is a need to identify new growth
areas, while broadening and deepening existing ones, so as to widen
the range of exports and strengthen the sources of domestically-generated
growth as a strategy to increase economic resilience.
1.09 In building a resilient nation, the tasks of strengthening
unity and nurturing a more tolerant and caring society will rank high
on the national agenda. In respect of distributional objectives, while
major strides were made in bringing down the incidence of poverty, the
achievement in the restructuring of society was less satisfactory. The
percentage of Bumiputera corporate equity ownership in 1999 declined
slightly over the 1990 position, raising the issue of sustainability.
Bumiputera are still under-represented in high-level occupations. Although
Bumiputera businesses in both the corporate and non-corporate sectors
have.6
grown in number, they are mainly small and proportionately fewer than
non-Bumiputera businesses. Bumiputera entrepreneurs are lagging in terms
of the level of technology utilization and management expertise. The
challenge is to address these weaknesses in a significant way in order
to make greater progress with regards to the distributional objectives.
III. DEVELOPMENT THRUSTS OF
THE NATIONAL VISION POLICY
1.10 The NVP will build upon the efforts initiated under the country’s
past development plans and strengthen the basis of transforming Malaysia
into a fully developed nation as envisaged under Vision 2020. Besides
having an economy that is competitive, dynamic, robust and resilient,
Malaysia aims to be a united nation, with a confident society infused
by strong moral and ethical values, living in a society that is democratic,
liberal, tolerant and caring, equitable, as well as progressive and
prosperous.
1.11 While the NVP incorporates the key strategies of
the New Economic Policy (NEP), namely, eradicating poverty irrespective
of race and restructuring society, and the National Development Policy
(NDP), which emphasizes balanced
development, it also introduces new policy thrusts. Developments in
both the domestic and global fronts necessitate a change in the mindset
of policy makers, implementors and all other stakeholders involved in
development. It also underlines the need to learn, unlearn and relearn
as well as to do things differently including using innovative means,
in order to be effective and achieve the developmental goals. The public
sector will be more proactive and efficient, and undertake measures
that enhance the competitiveness of the private sector.
1.12 The new policy dimensions introduced in the NVP are as follows:
o developing Malaysia into a knowledge-based society;
o generating endogenously-driven growth through strengthening domestic
investment and developing indigenous capability, while continuing to
attract foreign direct investment (FDI) in strategic areas;
o increasing the dynamism of the agriculture, manufacturing and services
sectors through greater infusion of knowledge;
o addressing pockets of poverty in remote areas and among Orang Asli
and Bumiputera minorities in Sabah and Sarawak as well as increasing
the income and quality of life of those in the lowest 30 per cent income
category;.
o achieving effective Bumiputera participation as well as equity
ownership
of at least 30 per cent by 2010;
o increasing the participation of Bumiputera in the leading sectors
of the
economy; and
o reorientating human resource development to support a knowledge-based
society.
1.13 The policy is directed towards strengthening the nation’s
capacity, capability and resolve in meeting the challenges ahead. It
emphasizes the need to build a resilient and competitive nation, as
well as an equitable society to ensure unity and political stability.
The efficiency and productivity of all economic activities will be increased
to enhance Malaysia’s competitiveness. In addition, economic disparity
among and within ethnic groups, as well as between strata and regions
will be addressed to bring about unity and stability within the Malaysian
society. The private sector will spearhead economic growth, while the
public sector will provide the supportive environment and ensure the
achievement of the socioeconomic objectives.
1.14 The key thrusts under the NVP are as follows:
o building a resilient nation by fostering unity, inculcating the
spirit of
patriotism, nurturing political maturity, cultivating a more tolerant
and caring society with positive values, raising the quality of life
as
well as increasing economic resilience;
o promoting an equitable society by eradicating poverty and reducing
imbalances among and within ethnic groups as well as regions;
o sustaining high economic growth by strengthening the sources of growth,
the financial and corporate institutions as well as macroeconomic
management;
o enhancing competitiveness to meet the challenges of globalization
and
liberalization;
o developing a knowledge-based economy as a strategic move to raise
the value added of all economic sectors and optimizing the brain power
of the nation;.8
o strengthening human resource development to produce competent, productive
and knowledgeable workforce; and
o pursuing environmentally sustainable development to reinforce long-term
growth.
Building a Resilient Nation
1.15 Malaysia has a good track record of weaving its ethnic and cultural
diversity into a cohesive national fabric, which serves as a great source
of strength, dynamism and creativity. The central task of development
is to continue this mission of forging a united nation, based on fairness
and prosperity, with abundant opportunities for all and removing socioeconomic
differences among and within ethnic groups on the back of a strong and
resilient economy.
Fostering Unity and Spirit of Patriotism
1.16 National unity continues to be the goal of socioeconomic development
given the multi-ethnic, multi-religious, multi-lingual and multi-cultural
nature of the Malaysian nation. Although the launching of OPP3 coincides
with more than four decades of experience in nation building, the duration
is short when viewed in the context of the history of nations. Multi-ethnic
societies are particularly fragile entities and decades of nation building
efforts can be erased should narrow parochial considerations dominate
or groups within the polity perceive a sense of alienation or being
marginalized.
1.17 To be resilient and internationally competitive, the unity of
Malaysia’s diverse population is an indispensable precondition.
All policies, programmes and projects will be guided by this fundamental
requirement as the active and total participation of all groups and
regions are essential to ensure the success of socioeconomic development
and nation building efforts. Disparities and inequities among and within
ethnic groups and regions will be addressed so as to preserve the unity
of the Malaysian nation.
1.18 Despite the rapid pace of internationalization of values and
practices in the social and cultural domain, Malaysians must preserve
their national identity and heritage. Only with the preservation of
this identity will the Malaysian population be in a position to cope
with the rapid changes and withstand the negative fallout from globalization.
The spirit of patriotism will be harnessed. to instill pride of being
a Malaysian and in doing things and achieving successes as Malaysians.
The commercial practices of Malaysian companies should be beyond reproach
whether they operate domestically or internationally. Values
that conform to the best traditions and encourage the pursuit of excellence
and the highest standards of ethical propriety will be promoted.
Nurturing Political Maturity
1.19 Continued social and political stability will be crucial for the
realization of Malaysia’s development objectives. It is important
for Malaysians to practise a mature consensual, community-oriented democracy
without being sidetracked into parochial interests and extremism in
views, whether religious, sectarian, political or otherwise. It is through
the spirit of greater tolerance and cooperation that Malaysia develops
political maturity, which is fundamental for continued stability. In
addition, Malaysians should possess a strong desire for the nation to
prosper as well as be willing to protect the nation from any form of
domestic and international threat. For the country to become a fully
developed nation by 2020, all Malaysians must place the interest of
the nation above narrow political objectives and strive forward together
in order to bring the nation to greater
heights.
Cultivating a Tolerant and More Caring Society
1.20 The social institutions will be strengthened by cultivating a more
caring society and culture, where individuals place the needs of the
social system before themselves and where the welfare of the people
revolves around strong and resilient family units. A society that is
imbued with caring traits and fosters tolerance and acceptance for diverse
traditions will contribute to a united and harmonious Malaysian society.
Efforts will be made in moulding civic and national consciousness as
well as inculcating values in line with the Rukunegara, the national
ideology.
1.21 In building a caring society, emphasis will be placed on values
such as familial values, neighbourliness, strong religious values, moral
integrity, peace, love, cooperation, honesty, punctuality, hard work,
discipline, honour, and consideration for others. The family unit, schools,
workplace and religious and social organizations must instill and constantly
reinforce values that make the individual more caring and respect the
rights of his fellow citizens. A caring society has the family as its
core, and must entail love for the young and. consideration of the welfare
of the elderly and disabled, including through the provision of social
services. There should also be greater concern and respect for the environment
and public property. At the same time, the spirit of voluntarism will
be nurtured. Community-based organizations will be encouraged to pursue
activities that involve Malaysians of all ages and ethnic groups in
activities that forge bonds transcending ethnic, religious and cultural
considerations. Raising Quality of Life
1.22 The Government will ensure that all Malaysians enjoy and benefit
from the opportunities available, including education, employment and
access to social services. Every attempt will be undertaken to ensure
better coverage and improvement of social amenities for all households.
The measures include enhancing access to social and physical amenities,
such as education and skills training, improved working conditions and
harmonious industrial relations, as well as promoting better health
and environmental quality. Malaysians will be encouraged to participate
in the creative and performing arts as well as adopt a healthy lifestyle.
In addition, sports will be emphasized as a means of building the discipline
and character of Malaysians as well as encouraging tourism.
Building Economic Resilience
1.23 Appropriate measures will continue to be introduced to develop
greater economic resilience to enable the country to withstand the negative
impact from external shocks. Macroeconomic stability will be enhanced
by addressing all imbalances and potential areas of vulnerability. Efforts
will continue to be made to strengthen Malaysia’s economic fundamentals
by ensuring stable prices and exchange rate, having adequate level of
savings as a source of investible resources, and maintaining surpluses
in the fiscal and external accounts. As macroeconomic management will
become even more challenging in the borderless global economy, an early
warning system to take preventive measures will be established. At the
international level, Malaysia will continue to promote the establishment
of a regional self-help and support mechanism for crisis prevention
and ensure macroeconomic stability. Malaysia will also continue to work
towards ensuring that the views of the region are heard in global discussions
on the reform of the international financial architecture.
1.24 The corporate sector at large will need to strengthen itself
by focusing on their core activity, taking a longer term perspective
of their investments, improving efficiency and productivity as well
as enhancing their administrative. and financial management capabilities.
They must also aspire to achieve a higher standard of professionalism
and maintain their credibility and integrity. Corporate sector restructuring
efforts initiated at the end of the OPP2 period will be accelerated.
Efforts will also be taken to further strengthen the financial sector
through better prudential supervision and regulation, enhancing risk
management
and developing the domestic capital markets. In addition, information
on economic and financial affairs will be improved to increase market
discipline and enhance decision-making.
Promoting an Equitable Society
1.25 Malaysia will continue the strategy of developing a united and
equitable society, which is important for social and political stability
and the achievement of national unity. In this respect, the two-pronged
strategy of poverty eradication irrespective of race and the restructuring
of society will continue to be implemented. This strategy will be pursued
within the context of rapid growth so that no particular group or segment
of society will experience any loss or feel a sense of deprivation.
Restructuring of Society
1.26 During the OPP3 period, the emphasis of the distributional policy
will be to achieve effective Bumiputera participation and equity ownership
of at least 30 per cent by 2010. In this regard, measures will be taken
to introduce new programmes, and reorientate, consolidate and streamline
existing programmes as well as improve the delivery mechanism. This
will include the creation and promotion of Bumiputera ventures in the
manufacturing and dynamic services sectors. In the manufacturing sector,
efforts will be taken to increase Bumiputera participation in electrical
and electronics, pharmaceuticals, bio-technology, composite and advanced
materials, chemical and petrochemical, transport equipment and food
industries, while in the services sector emphasis will be given to wholesale
and retail trade, tourism, air and sea transport-related services, education,
health, and consultancy and professional services. The enabling environment
for Bumiputera to participate effectively and meet the challenges of
liberalization and globalization will also be enhanced. At the same
time, efforts will be taken to promote effective Bumiputera participation
in the knowledge-based economy. Other measures that will be taken to
increase Bumiputera ownership include the continued implementation of
the privatization programme, the review and streamlining of Bumiputera
institutions and trust agencies, the effective management of unit trust
schemes and the development of Malay reserve, wakaf, Baitulmal, native
and customary land.
1.27 Employment restructuring will continue in all sectors
and occupations to
reflect the ethnic composition of the population. Steps will be taken
to increase
the proportion of Bumiputera in professional and managerial categories.
At the
same time, non-Bumiputera will be encouraged to apply for jobs in the
public
sector. As education and training is an important instrument for employment
restructuring, the capacity of the higher education institutions will
be increased
to enhance the accessibility of Bumiputera students to pursue higher
education,
particularly in professional, management and advanced technical areas.
1.28 In building a Bumiputera Commercial and Industrial
Community (BCIC),
attention will be directed towards developing Bumiputera entrepreneurs
who are
resilient, self-reliant and world class. Past efforts in this direction
generated
modest results because the entrepreneurs were engaged largely in the
traditional
sectors. There is a need for them to venture into high value-added and
high-technology
activities. Existing packaged programmes to develop the BCIC will
be strengthened, among others, by expanding the vendor and franchise
development
programmes as well as the venture capital schemes. However, agencies
implementing
the programmes for developing the BCIC will be required to establish
an exit
policy to enable entrepreneurs to move out of related programmes to
make way
for new entrants.
Poverty Eradication and Income Distribution
1.29 Poverty will be a less pressing issue during the OPP3 period because
of
the significant progress made in reducing poverty during the earlier
perspective
plan period. The incidence of poverty will be reduced further to 0.5
per cent by
the end of 2005. Efforts will be focussed on tackling pockets of poverty
in
remote areas and among the Orang Asli and other Bumiputera minorities
in
Sabah and Sarawak as well as increasing the income of those in the low-income
group, particularly the lowest 30 per cent. All poverty eradication
programmes
will be consolidated under the Skim Pembangunan Kesejahteraaan Rakyat,
which
will include creating income-generating projects, providing greater
access to
basic amenities, and inculcating the concept of self-reliance. To reduce
the
income gap among households, education and training programmes will
be made
more accessible to those from the lower income group. The private sector
and
non-governmental organizations (NGOs) will support and complement these
efforts.
Regional Development
1.30 The principal thrust of regional development will focus on enhancing
regional balance through rapid development of the less developed states.
In the.13
OPP3 period, efforts will be taken to diversify the economic base of
the slower
growing states into manufacturing and services. Emphasis will be given
to
encourage the development of downstream activities in the agriculture
sector,
especially in the handling, processing, packaging and marketing of agro-products,
and the development of agro-based industries.
1.31 The growing urban population is expected to create
additional demands
for public services and social amenities in the urban centres. New strategies
will
be required to enhance the capacity and capability of local authorities
to face
the challenges ahead. This will include strengthening the management
of local
authorities and the implementation of Local Agenda 21, which was launched
in
1999, in line with the Rio Declaration. This programme aims at promoting
the
participation of local authorities, municipalities and all stakeholders
at the local
community level in the planning and implementation of sustainable development
projects. The Local Agenda 21 which was initially launched in four local
authorities,
which, initially will be extended to other local authorities by 2002.
Greater
community participation in promoting urban well-being will also be encouraged.
The development of indicators for comparing and evaluating urban quality
of
life with international benchmarks is expected to improve the provision
of
quality services by the local authorities.
1.32 Several strategies for rural development will be
adopted to reduce the
urban and rural disparities. They include strengthening rural institutions,
greater
use of information and communications technology (ICT) in rural areas
and
improving the linkages between urban and rural economies. Rural communities
will be regrouped into small townships to facilitate the provision of
infrastructure
facilities and services. Efforts will be undertaken to improve the supply
of water
and electricity to the remote areas through innovative ways. In addition,
the
development of indicators for rural quality of life will facilitate
the close monitoring
of the quality of life of the rural population.
Sustaining Economic Growth
1.33 There is a need to achieve sustainable rapid economic growth to
become
a developed nation by 2020 as well as to effectively meet the distributional
objectives. The manufacturing and services sectors are expected to lead
economic
growth by generating new areas of investment as firms expand their activities
along the value chain and move up the technology ladder. The performance
of
the agriculture sector will be enhanced by the substantial expansion
in food.14
production. The development of the knowledge-based economy, while spawning
new activities, will also bring productivity improvements and enhance
competitiveness as well as contribute towards broadening the economic
base and
shifting out the production possibility frontier. While FDI will continue
to be
encouraged in selected areas, domestic investment will become the main
driver
for growth in line with the shift to an endogenously-led growth strategy.
Strengthening Sectoral Dynamism
1.34 The growth of the agriculture, manufacturing and
services sectors will be
further promoted during the OPP3 period. With regards to the agriculture
sector,
the focus will be on increasing food production to meet the growing
domestic
demand as well as for exports. For this purpose, the private sector
will be
encouraged to undertake medium- and large-scale commercial farming,
facilitated
by the establishment of permanent food production areas and agro-technology
parks. The use of modern technology and farming methods will be intensified
to enhance productivity and quality as well as reduce the cost of production.
Market research will also be intensified in order to identify customer
preferences
and establish new marketing channels as well as to venture into export
markets.
In addition, special emphasis will be given to the restructuring of
the smallholder
sector particularly those engaged in uneconomic size holdings both in
food as
well as plantation crops with the view of increasing their income.
1.35 In the manufacturing sector, new growth areas in high technology
manufacturing will be identified for further development, taking advantage
of
the infrastructure that has already been put in place. Product innovation
and
R&D will be emphasized. The cluster-based industrial development
approach
will also be applied to the new growth areas. The focus will be on raising
value
added by developing indigenous design and branding, as well as expanding
into
downstream activities such as marketing, distribution, packaging, product
customization and delivery, and the development of other manufacturing-related
activities.
1.36 In services, efforts will be intensified to develop
the tourism, education,
health, finance, ICT and transportation sectors to become internationally
competitive
and world-class. The development of the knowledge-based economy is also
expected to accelerate the creation of new service industries such as
in software
and content development as well as enable the country to develop its
strength
in internet-based delivery systems, such as in commerce, banking, brokerage,.15
news, entertainment and courier services. The rapid development of the
services
sector during the OPP3 period is expected to significantly narrow the
deficit in
the services account of the balance of payments and further strengthen
the
external position of the economy.
Promoting Domestic Private Investment
1.37 Domestic private investment will be promoted to unleash its growth
potential so that a greater portion of wealth creation and profits will
be retained
in the country. While strengthening economic resilience, this will also
set the
stage for shifting to an endogenously-driven growth strategy by building
indigenous
capability to develop advanced technology as well as new products and
services.
To support the rapid increase in private domestic investments, the Government
will provide a conducive environment in terms of the institutional and
legislative
framework as well as an efficient physical infrastructure. It will also
ensure a
stable macroeconomic environment and a more comprehensive financing
infrastructure as well as provide customized incentive packages for
strategic
investments. The privatization programme will continue to serve as a
vehicle to
increase the proportion and scope of private sector participation in
the economy.
In addition, domestic investors will be encouraged to collaborate and
forge
strategic alliances with foreign partners in order to gain expertise,
market access
and specialized services.
1.38 To raise the level and quality of domestic investment,
the private sector
will be encouraged to expand into downstream and upstream activities;
innovate
by offering new and superior value in existing and new markets; build
customer
allegiance with customer-oriented production and marketing; acquire
and use
more technology; and develop a more creative and skilled workforce.
The role
of science and technology (S&T) as well as R&D will be emphasized
in order
to increase overall productivity and develop a strong industrial base.
Encouraging FDI
1.39 Malaysia continues to be an attractive location
for FDI in view of its
substantial manufacturing base that is becoming increasingly sophisticated,
as
well as political stability, good legal framework, excellent infrastructure
and
telecommunications system, pro-business policies, good public administration,
and a skilled and educated workforce with facility in foreign languages.
The
country will build on these strengths and continue to attract FDI, not
only in.16
the manufacturing and related sectors, but also in strategic sectors
such as in
ICT, energy, port management and the financial sector. In addition,
foreign
investors will be encouraged to invest in human capital and undertake
technology
transfer, as well as provide expertise in management to raise national
competitiveness
and strengthen the country’s position in the international value
chain.
Pursuing Prudent Fiscal and Monetary Policies
1.40 The Government will continue to pursue a prudent
fiscal policy. The
overall fiscal deficit will be kept at a sustainable level so that the
country’s
external debt servicing ratio remains within a manageable level. The
Government
will return to the fiscal surplus policy with the recovery in private
demand.
Government expenditure will continue to focus on infrastructure for
capacity
expansion and the provision of social services. The tax system will
be further
strengthened to generate revenue, promote growth, savings and investment
as
well as achieve equity and efficiency. In addition, tax administration
and compliance
will be improved to expand the revenue base of the Government so as
to enable
it to raise the quality of social services and attract high calibre
personnel into
the public service.
1.41 The monetary policy will be directed towards promoting
long-run growth
with price and financial stability. In coping with the global environment
characterized
by uncertainty, monetary policy will be flexible and proactive in order
to respond
to new challenges effectively. The challenges will include managing
the rapid
movement of speculative and destabilizing short-term capital flows and
adapting
to the structural transformation of the economy and financial system,
financial
innovations and the emergence of new payment mechanisms such as e-money.
Accordingly, monetary policy will be increasingly conducted through
market-based
instruments to enhance effectiveness. Steps will also be taken to improve
the dissemination of information to the market to increase transparency
in relation
to the conduct of monetary policy. In addition, the development of the
bond
market will allow more effective open market operations and reduce reliance
on
the more direct instruments of monetary policy. The Government will
continue
to maintain an exchange rate regime that is non-distortionary and provides
a
stable environment for trade, investment and growth.
Strengthening the Banking Sector
1.42 A strong and resilient banking sector is a prerequisite
for sustainable
economic growth. A three-pronged approach will be adopted, which includes.17
creating stronger domestic banking institutions, strengthening the supervisory
framework and instilling market discipline by market players and consumers.
The consolidation of domestic banking institutions into 10 banking groups
raised
their capital base and size to improve the ability of the financial
institutions to
absorb risk, achieve economies of scale, and enhance the risk management
expertise of the banking system. The supervisory framework and prudential
guidelines governing the banking system will be continually enhanced
to promote
prudence and minimize systemic risk.
1.43 To instill market discipline in the banking system,
greater product and
institutional transparency will be introduced, which will enable consumers
to
make informed decisions on banks and banking products. New modalities
in
bank regulation will be explored, including using a market-driven approach
in
allocating risks and resources. Market participants will be required
to provide
greater disclosure and increase transparency and discipline. In addition,
the
supervisory authority will be vigilant in containing excessive risk-taking
activities,
minimizing moral hazard and protecting consumer interests.
1.44 To chart the strategic direction of the banking
sector, the Financial Sector
Master Plan (FSMP) will be implemented. The FSMP proposes the necessary
regulatory framework to increase the resilience, competitiveness and
dynamism
of the Malaysian financial system. There will be a gradual and progressive
liberalization of the sector at a pace that is consistent with the institutional
and
regulatory framework as well as the requirements of the economy in order
to
create a more efficient, competitive and market-driven financial sector.
1.45 Measures to identify and remove impediments to progress
will be
implemented, beginning with infrastructure improvements and increasing
the
intensity of domestic competition, so as to allow best institutions
to flourish.
This will be accomplished by building the capabilities of domestic institutions
and increasing the incentives for these institutions to drive performance.
In
addition, steps will be taken to meet the socioeconomic objectives with
the least
possible distortion as well as to promote a more market-driven consumer
protection
infrastructure.
1.46 The programme under the FSMP will be implemented
in phases over the
OPP3 period, subject to achieving specified milestones and safeguards.
This is
to allow domestic banks to grow in capacity and strengthen their infrastructure
before introducing new foreign competition. In the case of the insurance
sector,
deregulatory measures will be initiated to build domestic capabilities
and strengthen.18
financial resilience, corporate governance and consumer protection mechanisms.
The deregulation of incumbent players will be accelerated in order to
promote
greater competition within the domestic market. Development of the Islamic
banking and takaful sector will first involve the strengthening of the
operational
and institutional infrastructure. This will be followed by greater competition
and
upgrading of the infrastructure, as well as raising the performance
standards
through progressive liberalization.
Broadening and Deepening the Capital Markets
1.47 An important lesson from the 1997-1998 financial crisis was the
need to
diversify risks in the economy by developing alternative sources of
financing
and reducing over reliance on the banking sector. Private debt securities
and
secondary trading in the Government securities market will be further
improved
to complement the stock market. An active private debt securities market
will
be able to accommodate large and more complex funding arrangements to
allow
companies to obtain long-term fixed rate of financing at a lower cost
than bank
credit. In addition, the venture capital industry will be further developed
to
provide equity capital to knowledge-based start-ups with high risks
but yield
good returns.
1.48 In terms of the stock market, efforts will be taken
to improve the dissemination
of corporate information and educate investors, particularly the retail
players,
so that investment decisions are made based on fundamentals. The players
in
the capital market will also need to understand fully the risks involved
and adopt
effective risk management systems to deal with new risks that may arise.
Capital
market activities will be supported by strong and internationally competitive
intermediaries and institutions. To address these areas and chart the
strategic
directions for the capital market development over the longer term,
the Capital
Market Master Plan (CMP) will be introduced.
1.49 Under the CMP, Malaysia is envisaged to establish
a world-class capital
market that is internationally competitive in all core areas to support
the country’s
capital and investment needs, as well as to be a highly efficient conduit
for the
mobilization and allocation of funds. This effort is supported by a
strong and
facilitative regulatory framework that enables the capital market to
perform its
functions effectively and provides a high degree of confidence to its
users. To
develop internationally competitive market institutions, a single Malaysian
exchange
and a single Malaysian clearing house will be established. The funding
instruments
and markets will be broadened and deepened through the development and
enhancement of alternative capital raising avenues such as the corporate
bond.19
market and venture capital. The stockbroking industry will be consolidated
and
a new category of intermediaries known as universal brokers will be
created to
develop a more competitive market for integrated financial services
and prepare
the industry for liberalization. Malaysia will be developed as an international
Islamic capital market centre as part of the effort to build upon the
country’s
competitive advantage.
1.50 The investment management industry will be further
deregulated to increase
its effectiveness. The pension funds will be reviewed to allow for the
development
of a higher number of industry players with greater access to funds
available
for management. To promote a more conducive environment for investors,
the
framework for corporate governance will be strengthened and shareholder
value
recognition will be enhanced. A full market-based regulatory framework
across
all capital market segments will be adopted to ensure that market processes
and
disciplines complement the broad regulatory objectives as well as facilitate
greater competition and innovation in the market place.
Strengthening Corporate Governance
1.51 Measures introduced by the Government to reduce
corporate abuses and
stock market volatility as well as to strengthen the position of minority
shareholders
were aimed at improving transparency and overall corporate governance.
In
recognition of the need to further enhance the standards of corporate
governance,
the Malaysian Code on Corporate Governance was adopted to bring about
stronger,
more responsible, transparent and accountable management in line with
international
best practices. The Code contains recommendations on the principles
and best
practices for good governance; strengthening the overall regulatory
framework
for listed companies; training and education of corporate participants
in Malaysia
to prepare them for the implementation of the recommendations as well
as
measures to protect minority shareholders. During the OPP3 period, the
Government
will create greater awareness of the Code and encourage the private
sector to
conform to this. With the adoption of the Code, the corporate sector
will move
towards greater self-regulation, and this will be supported by improvements
in
the legal and regulatory environment to promote the culture of corporate
excellence.
Meeting Global Competition
1.52 Competition at the global and regional levels is expected to intensify
following implementation of the World Trade Organization (WTO) and the.20
ASEAN Free Trade Area (AFTA) commitments as well as the intensification
of
bilateral initiatives. Rapid advancements in ICT will intensify competition.
Malaysia
will continue to participate actively in these multilateral arrangements
and fulfill
its commitments for market openings. While it will continue to support
the
process of liberalization, it will be committed to do so at a pace that
it is
comfortable with and consistent with the institutional capacity of the
country and
its development objectives, so that the process is mutually beneficial.
In this
regard, Malaysia will participate in consensus-building initiatives
with like-minded
countries to be able to negotiate effectively.
1.53 Domestic industries will need to enhance their productivity,
efficiency
and innovative capability to meet global competition. Policies relating
to trade,
industry and technology will be streamlined so that domestic industries
and
enterprises can respond more effectively by producing goods and services
that
can successfully compete in the local and overseas markets. FDI will
be leveraged
upon to improve efficiency, enhance competitiveness and gain access
to international
markets. To monitor and provide direction for increasing Malaysia’s
competitiveness,
a National Council on Competitiveness will be established.
Increasing Productivity
1.54 Productivity improvement is central to Malaysia’s
economic growth and
competitiveness. To raise productivity, greater efforts will be made
to upgrade
skills, adopt better management and organizational techniques, upgrade
R&D
and S&T as well as produce high quality and customized goods. The
private
sector will also be encouraged to seek internationally recognized quality
standards
including the accreditation by the International Standards Organization
and other
bodies. The knowledge content of products, services and internal processes
must
be substantially enhanced and accompanied by strong work culture and
positive
attitudes. The culture of excellence and the quest for continuous improvements
will be promoted and targeted at individuals as well as business entities.
Wage
increases will have to be supported by improvements in productivity
and work
performance so that Malaysians can enjoy a higher standard of living
without
inflation. Initiatives will also be taken to reduce the cost of doing
business so
as to enhance competitiveness and productivity. The Government will
continually
assess and review the various cost components, including taxes, utility
rates and
fuel, transportation and labour costs to ensure that Malaysia remains
cost-competitive..21
Strengthening S&T and R&D
1.55 To maintain the competitiveness of Malaysian industries
and to benefit
from the knowledge-based economy, it is crucial to strengthen the environment
for innovation and knowledge. The Government will re-examine existing
innovation
systems to be in line with future requirements. Attention will be given
to improving
creativity and innovativeness of the education and training delivery
system,
enhancing S&T and R&D, and ensuring the availability of financing
facilities.
The Government will promote a culture of innovation as well as networking
and
clustering among stakeholders to enhance technology infusion. Efforts
will be
made to increase collaboration between public sector research institutions
and
the private sector for effective development, dissemination and commercialization
of R&D.
1.56 In order to encourage S&T and R&D activities,
the Government will
provide the appropriate environment and active support to nurture and
accelerate
the growth of patents, trademarks and copyrights. Appropriate regulation
will
also be introduced to protect intellectual property rights in the context
of the
rapid development in computer-mediated networks and global information
infrastructure which will enable the downloading of copyright materials.
Developing Entrepreneurial and Technopreneurial Capacity
1.57 As a traditional trading nation, Malaysians have been endowed with
entrepreneurial skills. These skills, however, are inadequate to meet
the requirements
of an economy in an environment of increasing globalization and rapidly
changing
technology. Malaysian enterprises will face increasing competition from
entrants
in the domestic market as well as in the international market. To succeed,
Malaysian businesses and corporations will need to be quick to access
know-how
as well as be able to identify the commercial potential of the opportunities
that arise and take calculated risk. Entrepreneurs must be prepared
to use the
latest knowledge and technologies, operate and manage businesses in
different
cultural milieus, have superior negotiation skills and be able to forge
strategic
alliances. They will need to marshal their knowledge, skills and creativity
to
improve their products and services and raise their productivity. In
this connection,
the Government will support private sector initiatives to strengthen
entrepreneurial
capacity as well as encourage the growth of technopreneurs. In addition,
the on-going
efforts to develop Bumiputera entrepreneurs will focus on enhancing
resilience and self-reliance so that they can compete in the domestic
and international
markets.
Developing World-Class Companies
1.58 Malaysian firms should think global and look beyond the domestic
market.
During the OPP3 period, the focus will be on developing world-class
Malaysian
companies that can act as role models for other Malaysian companies
to pursue
excellence. These companies should benchmark against world-class standards,
adopt international best practices and promote a culture of excellence
and
productivity within their organizations. The competitiveness of firms
depends
on their ability to seek opportunities and source for inputs, components
and
services at the most competitive costs. Domestic businesses will be
encouraged
to establish symbiotic relationships with foreign partners to gain market
access,
technologies and know-how as well as other inputs including packaging
and
brand identification to enable Malaysian goods to compete in global
markets.
Developing Local SMEs
1.59 Small- and medium-scale enterprises (SMEs) serve as a strong foundation
to anchor the nation’s industrial sector and provide the necessary
base upon
which future industries can be developed. In the development of industrial
clusters as envisaged under the Second Industrial Master Plan (IMP2),
SMEs
will evolve as key suppliers and service providers to leading industries.
For
SMEs aspiring to go into the global market or become suppliers to multinational
companies, they must be committed to meet the highest standards of performance
on a sustainable basis and move their manufacturing processes to a higher
level
through continuous R&D and skills and technology upgrading. To stimulate
the
growth of SMEs, the investment threshold under the Industrial Coordination
Act
(ICA) will be reviewed.
1.60 SMEs will be encouraged to quickly integrate into
IT-based manufacturing,
focusing on all key segments of the manufacturing value chain, from
designing
to marketing. They must adopt the best manufacturing practices that
are universally
recognized and accepted, so that they can excel in their core strengths
and be
able to integrate with cross-border collaborations that characterize
the international
production network. In that integration process, Malaysian SMEs will
be encouraged
to work towards establishing and strengthening their own niches in the
market
and emerge as market leaders in their own right..
Establishing a World-Class Public Sector
1.61 A world-class public sector is important to support rapid economic
growth
and ensure improvements in the standard of living and quality of life.
It is,
therefore, necessary to take steps to attract and retain personnel of
high calibre
so that public administration, public services, economic management
as well as
the protection of national interest at international fora can be conducted
at the
highest level of proficiency. There will be selective recruitment of
personnel
including those with specialized skills, experience and outstanding
track record.
The capability of existing workers will be upgraded to raise the quality
of public
service to be world-class. A competency-based human resource management
approach will be adopted.
1.62 The programme to reform the public sector will be
further strengthened
during the OPP3 period. It will be aimed at inculcating a culture of
excellence
in the public sector, based on the core values of quality, productivity,
innovation,
integrity, discipline, accountability and professionalism. Efforts will
be made to
continuously increase productivity, improve the delivery system and
discard
procedures and regulations that become inappropriate. Emphasis will
be given
to strengthening the monitoring mechanism as well as the capacity to
ensure that
projects are implemented according to schedule and meet their intended
objectives.
Efforts will also be taken to improve the administration of the regulatory
and
approving bodies at the Federal, state and local levels so as to facilitate
private
sector growth and wealth creation, protect public interests, and improve
the well-being
of Malaysians. The role of the public sector as a regulator to safeguard
public interest will also be strengthened in the context of further
privatization
during the Plan period.
1.63 Principal strategies to advance administrative reforms
in the Malaysian
public service include providing more customer-oriented services, improving
system and work procedures, upgrading the use of ICT, strengthening
public-private
sector cooperation, improving organizational structures and human resource
development, enhancing accountability and discipline and inculcating
values of
excellence. The public sector administrative reform agenda will continue
to
incorporate a wide range of best practices that have been applied and
tested
worldwide. The various initiatives under the quality movement as well
as the
e-government project will ensure that the public service keeps abreast
with
service-oriented developments internationally and incorporates the best
management
practices.
Developing a Knowledge-based Economy
1.64 The knowledge-based economy is where the acquisition, utilization
and
dissemination of knowledge provide the basis for growth. The development
of
a knowledge-based economy involves enhancing the value-added of all
productive
activities through knowledge utilization, in addition to creating new
knowledge-intensive
industries. It will strengthen Malaysia’s competitiveness and open
up
new opportunities for the country. Among the opportunities are increased
global
trade and investment, better access to technology, the possibility for
leapfrogging
to catch up with developed countries, the availability of a platform
to build
strategic alliances with key players in selected industries as well
as expanding
existing and generating new areas of investment. The increased use of
knowledge,
coupled with a better skilled workforce will also contribute towards
improving
productivity levels and shifting the production possibility frontier
outwards.
1.65 The developments in and utilization of ICT and e-commerce
will facilitate
the establishment of an efficient and up-to-date information system
to support
trade and investment. This will allow Malaysians to seek new markets
and
trading partners for their exports, source the most competitively-priced
inputs,
and set up their enterprises abroad to enhance competitiveness. The
knowledge-based
economy will generate new activities for investment within existing
and
new industries as a result of the introduction of high-technology and
knowledge-intensive
production processes.
1.66 To develop a knowledge-based economy, a master plan
to facilitate the
process will be introduced. Among the critical areas that will be addressed
are
human resources, S&T and R&D, infostructure and financing. In
addition, efforts
will be taken to change the mindset of all segments of society, particularly
the
corporate sector to be more receptive to the adoption of ICT in business
transactions
and in-house operations. The culture of acquiring knowledge on a continuous
basis will be promoted to develop a learning society. While efforts
are taken to
build a knowledge-based economy, parallel measures will be introduced
to ensure
that this development does not lead to a knowledge divide, particularly
between
the rural and urban communities and different income groups.
1.67 The knowledge-based economy will require the public
and private sectors
and the NGOs to work in a close collaborative partnership. The platform
for such
collaboration already exists under the Malaysia Incorporated mechanism,
with
the Malaysian Business Council at the apex. The public sector will assume
a
supportive role by providing a conducive environment as well as acting
as a.25
catalyst for the private sector to spearhead the development of the
knowledge-based
economy. The protection of the intellectual property rights as well
as
privacy and security will be strengthened to encourage innovation and
improve
information flow. The Government, private sector and NGOs will collaborate
to
narrow the digital divide between the rural and urban areas as well
as different
income groups so that those who are less privileged have equitable access
to the
new opportunities generated by the knowledge-based economy.
Strengthening Human Resource Development
1.68 Malaysia’s capability and capacity in acquiring
and utilizing new knowledge
and technologies will be determined by the quality of its human resource.
A
competent, disciplined and highly skilled labour force with strong ethical
and
moral values and commitment to excellence must be developed. To face
the
challenges of globalization, Malaysians will have to be equipped with
a strong
base in education and training and possess a range of generic skills,
including
communication and linguistic abilities. Efforts will be made to increase
accessibility
to education and training and reduce the performance gap between urban
and
rural schools. More schools with better teaching and learning facilities
as well
as hostels will be built in rural and remote areas to provide a more
conducive
environment for students. Besides maintaining a high level of competency
in
Bahasa Malaysia among students, the level of proficiency in English
as well as
other foreign languages will be raised.
1.69 To meet the requirements of the knowledge-based
economy, there will
have to be a paradigm shift in the policies and strategies of human
resource
development. The education and training system will be reoriented to
be more
effective in imparting skills as well as focus on areas required by
the economy.
The Government will give priority to improving facilities and infrastructure
and
intensifying the use of ICT in all schools and institutions. Greater
emphasis will
also be given to raising the standard of the teaching and learning of
mathematics,
science and foreign languages.
1.70 Private sector participation will be further encouraged
to complement
public sector efforts in the area of tertiary education to provide greater
number
of places to meet the increasing demand from qualified students as well
as to
meet the human resource requirements particularly in the area of S&T.
The
Government will, however, ensure that these institutions provide quality
education
at reasonable rates.
1.71 Malaysia will also be developed into a regional
centre of educational
excellence. The capacity of public tertiary institutions will be increased
and they
will concentrate on programmes in new technologies and disciplines.
While the
private institutions will be encouraged to develop niche areas to attract
foreign
students, the public universities will develop centres of excellence
and act as
the springboard for innovation and development of indigenous technology.
Universities will be encouraged to collaborate with industry in order
to undertake
research with commercial potential. To ensure that all tertiary institutions
have
international standing, a rating system based on norms comparable to
reputable
universities will be developed to rank these institutions.
1.72 Lifelong learning will be introduced to continuously
upgrade the quality
of the workforce which must keep pace with changing technology so that
structural
unemployment is minimized. Distance education and virtual learning will
be
developed as an important element in continuing education in the workplace.
In
this regard, the private sector will be encouraged to provide enterprise-based
training, distance learning programmes and web-based learning, especially
in
technical areas.
1.73 The Government will also promote the development
of the creative and
performing arts and nurture talents in these areas. This is in line
with efforts to
preserve and promote the rich Malaysian cultural heritage as well as
cultivate
a society that is appreciative of the arts. The development of the arts
will not
only provide the avenue for talented individuals to excel in their fields
but also
contribute to the vibrancy of the Malaysian lifestyle. Outstanding Malaysian
artists and performers will also be given the opportunity to fully develop
their
talents and achieve international recognition.
Developing a Generation of Resilient Youths
1.74 To meet the challenges arising from rapid economic development
and
globalization, and contribute effectively to nation building, youths
will need to
be equipped with appropriate skills and knowledge as well as the right
values.
Their access to education and training will be improved with particular
emphasis
on achieving a high level of literacy in information technology (IT)
so that they
can participate in the opportunities that are generated in the process
of development.
Efforts will be taken to enhance the entrepreneurial and management
skills of
youths to instil interest in business at an early stage and increase
the number
of youths involved in commerce and industry. Emphasis will also be given
to
nurturing a generation of young and dynamic leaders who are able to
mobilize
youths to contribute positively to the nation.
1.75 Youths will be properly guided to develop the right
values and attitudes.
They will be taught to respect their parents, elders, teachers, the
institutions and
laws of the country. While striving for self-improvement, they must
be imbued
with the spirit of volunteerism and the eagerness to contribute to society
and
the nation. Their level of civic-consciousness must also be raised.
The pursuit
of knowledge and the quest for excellence will need to be nurtured as
core
values. Youths should also be instilled with strong moral and ethical
values and
abstain from activities that work against their personal well-being
and the welfare
of the nation. Efforts will be intensified to ensure that they do not
involve in
vices such as drug abuse, gambling, gangsterism and other criminal activities.
1.76 In addition, youths should participate more actively
in sports as well as
excel to achieve international standards, bringing glory to the nation.
Basically,
these core values will hold youths in good stead to withstand negative
influences
and exercise good judgement in the choice of lifestyle and social practices.
Towards this end, the family and community as well as the NGOs and youth
organizations will need to play a more active role to complement the
efforts of
the Government.
Enhancing the Role of Women in Development
1.77 A resilient and competitive economy cannot be created unless the
full
potential of all its members is utilized. Towards this end, opportunities
in
employment, business and social activities will be made available without
gender
bias. Greater access to training and retraining will promote employment
opportunities
and greater occupational mobility. Information pertaining to the labour
market
and opportunities for advancement in education and business will be
made more
accessible through the use of ICT. At the same time, the participation
of women,
particularly those with family commitments, will be enhanced by more
extensive
use of flexible working hours, the provision of crèches at workplaces
as well
as enabling them to work from home.
1.78 Entrepreneurship among women will be promoted actively
by providing
greater access to information on starting businesses. Banks and financial
institutions
will be encouraged to provide credit to assist women who want to venture
into
business. This will be complemented by efforts to develop women entrepreneurs
through the provision of assistance to develop home-based business.
The relevant
Government organizations at the Federal, state and local levels as well
as women
organizations will organize courses to promote entrepreneurship among
women..28
All forms of gender-based discrimination and bias that inhibit the fullest
contribution
of women will be identified and progressively eased out either by legislation
or
education.
Pursuing Environmentally Sustainable Development
1.79 During the OPP3 period, the Government will strive to ensure that
the
environment is clean, healthy and productive as well as capable of sustaining
the nation’s needs and aspirations. The Government will explore
opportunities
for multiple benefits, identify and implement measures that are prudent
and cost-effective,
in order to move Malaysia towards a more sustainable and resilient
future. Socially and environmentally sustainable economic development
will be
realized by adopting an appropriate mix of policies, practices and technologies
that will build upon the synergies between the environmental and economic
systems. In addition, the Government will continue to closely monitor
developments
taking place on global environmental issues as they may have a bearing
on
Malaysia, including imposing restrictions on our development and trade
policies.
Domestically, Malaysia will take steps to fulfil its Conventions, Protocols
and
other international environmental obligations and to ensure that its
programmes
and projects are in line with its commitments.
Integrated Approach and Strategies
1.80 During the OPP3 period, emphasis will be placed on addressing
environmental and resource issues in an integrated and holistic manner.
The
challenge will be to identify prudent, cost-effective, and adaptive
management
approaches that yield multiple benefits for a more sustainable future.
These
approaches will, among others, be geared towards addressing the challenges
of
providing access to clean water, providing adequate food without excessive
use
of chemicals, using more organic fertilizers, providing energy services
without
environmental degradation, developing healthy urban environments, and
conserving
critical natural habitats and resources.
1.81 The management of land resources will be further
improved through more
integrative land-use planning. The National Biodiversity Policy will
form the
basis for integrating and consolidating biodiversity programmes and
projects in
the country. Efforts to manage forests sustainably will be intensified
and multiple-use
forestry expanded. Steps will be taken to formulate integrated river
basin.29
management plans to improve water quality and supply as well as manage
water
resources. To ensure sustainability of coastal resources, integrated
coastal
management plans will be introduced in all states.
Reducing Pollution Intensity
1.82 A critical challenge will be to reduce energy, materials, pollution
and
waste intensity of urban-industrial activity. Measures to influence
the choice in
technology and management of new urban and industrial investments will
be put
in place, including steps to promote the reduction, re-use and recycling
of
materials. The Government will go beyond controlling pollution at source
and
adopt preventive measures that include the policies that drive down
energy,
materials, pollution and waste intensity of urban-industrial activity
in a process
of continuous improvement. This will require moving from the current
pollution
abatement and clean-up paradigm and technology-retrofit approach to
one where
technology itself is the source to prevent pollution and cut resource
intensity.
Efforts will also be taken to encourage the recycling of materials.
Increased Use of Economic Instruments
1.83 The Government will continue to implement the Polluters Pay Principle,
and intensify enforcement efforts to ensure that environmental laws
and regulations
are complied with. However, these measures will be complemented by the
use
of innovative economic and tax instruments, including the removal of
distortions
and barriers that impede efforts in improving environment quality and
optimal
natural resource use.
Environmental Performance Standards
1.84 Efforts will also be channelled at promoting environmental performance
measurement as a basis for harnessing market forces and community engagement
in addressing environmental issues. Once environmental and resource
issues are
identified, measured and tracked, including through the use of sustainable
development indicators and various environmental standards such as ISO
14000
and other standards, then the environmental intensity of economic activity
becomes
more susceptible to the force of the market and society at large, through
consumer
demand, community pressure or supply-chain management.
IV. CONCLUSION
1.85 For the success of the OPP3, there should be total commitment of
all
Malaysians, a change in the mindset and a sense of urgency in the face
of
increasing competition in the years ahead. To build a resilient and
competitive
economy, the Government will continue to be responsive and business-friendly
and adopt appropriate market-oriented policies and incentives. The business
community should be willing to take risk, invest in R&D, be able
to adapt
quickly to changes and adopt new technology, particularly in the context
of the
knowledge-based economy. The workforce should be disciplined, productive,
committed and willing to learn and improve continuously. The Government,
complemented by the private sector, will continue to ensure a united
and equitable
society through its poverty eradication and distributional policies.
Above all, the
society should stand united and remain resilient in facing the challenges
of the
decade..
Chapter 2
Review of the Second
Outline Perspective Plan,
1991-2000.32.33
I. INTRODUCTION
2.01 The Second Outline Perspective Plan (OPP2), 1991-2000
provided the
platform for the implementation of the National Development Policy (NDP),
which was aimed at achieving balanced development. The broad economic
development framework set forth in the NDP strengthened Malaysia’s
position
as a modern industrial-based economy and as a result brought significant
economic
and social progress. In 1998, the economy suffered the worst-ever recession
due
to the Asian financial crisis. The Government then introduced measures,
which
succeeded in turning around the economy and setting it on a stronger
footing
to face future challenges.
II. THRUSTS OF THE NATIONAL DEVELOPMENT POLICY
2.02 The primary thrusts of the NDP entailed striking an optimum balance
between the goals of economic growth and equity; ensuring balanced development
of the major sectors of the economy; reducing and ultimately eliminating
the
social, economic and regional inequalities and imbalances; and ensuring
material
welfare while instilling positive social and spiritual values. The NDP
also gave
priority to human resource development; making science and technology
an
integral component of development planning; and ensuring the protection
of
the environment to maintain the long-term sustainability of the country’s
development.
2.03 While the NDP maintained the basic strategies of
the New Economic
Policy, it also introduced several new dimensions. The dimensions included
CHAPTER 2
Review of the Second Outline
Perspective Plan, 1991-2000.34
shifting the focus of the anti-poverty strategy to address hardcore
poverty; emphasizing
on employment and the rapid development of an active Bumiputera Commercial
and Industrial Community (BCIC) as a more effective strategy to increase
the
meaningful participation of Bumiputera in the modern economic sectors;
relying
more on the private sector to achieve the restructuring objective; and
strengthening
human resource development.
III. PROGRESS AND ACHIEVEMENTS, 1991-2000
2.04 During the OPP2 period, the Malaysian economy continued to undergo
structural transformation. The country witnessed the strengthening of
its
manufacturing base both in terms of its contribution to growth as well
as composition
of industries. The services sector expanded in size and improved in
qualitative
terms. The change in the structure of production was also reflected
in the
employment pattern and export composition of the economy.
Macroeconomic Performance
2.05 Overall, the economy grew at an average rate of 7.0 per cent per
annum
and achieved the target for the OPP2 period, despite the economy experiencing
the financial crisis in 1997-1998, as discussed in Box 2-1. The high
growth rate
was attained in an environment of low inflation and unemployment. The
per
capita income increased at an average rate of 7.8 per cent per annum
and doubled
from RM6,298 to RM13,359 at the end of the OPP2 period. The purchasing
power parity (PPP) per capita grew by 5.3 per cent per annum to reach
USD8,852
or 2.5 times higher than the per capita income of USD3,516.
2.06 During the OPP2 period, total factor productivity
(TFP) contributed
25.5 per cent to total growth, while the major sources of growth were
labour
and capital, as shown in Table 2-1. The high contribution of capital
was attributed
to the rapid growth of investment during the first seven years of the
Plan period,
which led to an expansion of installed capacity that was not fully translated
into
output. Some investments had a long gestation period, particularly infrastructure
projects, which were built to meet future demand. In the second half
of the OPP2
period, the sharp fall in domestic demand following the financial crisis
gave rise
to excess capacity, resulting in a decline in TFP..35
FINANCIAL CRISIS AND RESPONSE
In 1997-1998 the Malaysian economy was affected by the contagion effect
of the East Asian financial
crisis. The full impact was felt in 1998, causing the economy to undergo
a severe contraction, due
to the significant decline in aggregate demand.
Managing The Crisis
The National Economic Action Council (NEAC) was established on 7 January
1998 as a consultative
body to deal with the economic crisis. Under the NEAC, the National
Economic Recovery Plan
(NERP) was prepared as the blueprint for economic recovery. The Recovery
Plan contained over
580 recommendations to stabilize the currency, restore market confidence,
maintain financial market
stability, as well as address medium-term issues such as improving economic
fundamentals and
addressing the equity and socio economic agenda. The four components
that were central in the
recovery measures were:
o fiscal stimulus package directed towards priority sectors
to prevent further contraction and
jumpstart the economy;
o easing monetary policy to lower interest rates;
o establishing Danaharta to address the rising non-performing loans
in the portfolios of the
banking sector, Danamodal to recapitalize and consolidate the banking
sector, and the Corporate
Debt Restructuring Committee to facilitate voluntary debt restructuring
of viable companies;
and
o introduction of the selective capital control measures as a pre-emptive
step on 1 September
1998, which included making the Ringgit non-tradable outside the country
and pegging the
Ringgit at RM3.80 to USD1.00.
The stability accorded by the pegged Ringgit facilitated business decision-making
process and
enabled Malaysia to capitalize on the recovery in external demand. This
resulted in unprecedented
levels of current account surpluses of 13.9 per cent of GNP for 1998
and 17.1 per cent of GNP for
1999. The surpluses contributed to the sharp rise in international reserves,
increased the monetary
base and provided the liquidity to support economic growth. The collateral
values of loans were
strengthened with the improving stock market prices, thereby facilitating
the resolution of NPLs of
the banking system.
Lessons Learnt
The experience gained from the crisis was useful in providing the direction
and thrust for the
country’s future development. Some of the lessons learnt were:
o efforts to strengthen economic fundamentals must be continuous. Malaysia
needs to further
intensify the resilience of domestic economy and enhance its competitiveness,
not only to
mitigate adverse external economic development but also to reap the
opportunities available;
o monetary and fiscal policies must be directed towards promoting sustainable
growth, while
keeping inflation at a low level;
o strong economic fundamentals must be supported by sound financial
and corporate sectors;
o develop the capital market to diversify risks and lessen the reliance
on bank financing; and
o strong corporate governance to increase resilience and sustain investor
confidence in the
event of a crisis..36
2.07 The growth of TFP in the manufacturing sector for the period 1990-1999
was estimated to be 5.1 per cent, as shown in Table 2-2. The food and
beverages,
furniture, glass and clay products, general machinery, electrical machinery
and
other manufacturing industries recorded higher TFP growth during the
first half
of the OPP2 period, while the general machinery industry as well as
resource-based
industries such as textile and apparel, wood products and furniture,
experienced
higher increases in TFP growth during the second half of the OPP2 period..37
BOX 2-2
TOTAL FACTOR PRODUCTIVITY
Total factor productivity (TFP) refers to the additional output that
would result from improvements
in the methods of production, with the inputs of labour and capital
unchanged. They include the
improvement of technology and know-how, innovation, superior management
techniques, gains from
specialization, increased efficiency as well as workers education, skills
and experience. The Corporate
Sector Survey, which was conducted in 1998/99 to provide the micro perspective
on the impact of
the financial crisis at the firm level, also shed some light on firm-level
TFP. The survey covered
six major subsectors within the manufacturing sector, namely, electrical
and electronics; textiles,
garments and footwear; food and beverages; chemicals, rubber and plastic
products; construction-related
manufacturing; and auto-parts. The following results were obtained:
Firms that reported a higher TFP
o Export-oriented with FDI and higher capital intensity;
o Little or no foreign control (less than 10 per cent foreign-owned)
but with a large share of
their output exported (more than 50 per cent);
o Lower inventory in proportion to their sales;
o Utilized new machinery (i.e. less than six years old);
o Predominantly semi-automated;
o More than 30 per cent of its workers had higher education (diploma/degree);
and
o Conducted training and R&D.
Firms that reported a lower TFP
o Those that faced a lack of quality local suppliers, shortage of skilled
labour, constraint on
the availability of credit and had poorer corporate governance; and
o Those with heavy debt burden.
Lessons Learnt
The lessons learnt from the 1997-1998 financial crisis at firm level
o Firms should gear-up their competitiveness to face increasing competition
from low cost
countries;
o Firms with higher TFP were in a better position to withstand a crisis;
and
o Firms must spend more on training and R&D.
During the 1990-1999 period, the food and beverages, furniture, glass
and clay
products, general machinery, electrical machinery and other manufacturing
industries
recorded faster TFP growth rates compared with the overall TFP growth
of the
manufacturing sector. The performance of TFP at the firm level is discussed
in
Box 2-2..38
2.08 The incremental capital output ratio (ICOR) rose from an average
of 3.3
in 1990 to 3.5 in 2000 and averaged 6.1 for the whole OPP2 period. The
high
ICOR indicated a sharp decline in capital efficiency due to low capacity
utilization
during the economic downturn. Large investments in infrastructure projects
and
heavy industries with long gestation periods also contributed to high
ICOR.
2.09 On the demand side, the major contributors to economic growth
were
private expenditure and exports of goods and non-factor services, as
shown in
Table 2-3. Private investment grew at an average rate of 2.9 per cent
per annum,
well below the target of 8.0 per cent per annum, on account of the severe
economic contraction in 1998, as shown in Chart 2-1. During the first
seven
years of the OPP2 period, private investment was the main catalyst for
growth,
expanding rapidly at 17.0 per cent per annum, attributed largely to
better economic
conditions, lower corporate tax rate and the increase in reinvestment
allowance.
The accelerated privatization programme generated domestic investment,
particularly
in the utilities, transportation and social services sectors. In addition,
the large
inflow of foreign direct investments (FDIs) into the manufacturing sector
for
building capacity in the export-oriented industries, including the oil
and gas
sector and investments in capital-intensive and high-technology areas,
contributed
to the high rate of private investment. The promotion of FDI was reinforced
with
the adoption of an additional set of incentives in 1996 to attract information
and
communications technology (ICT) companies to establish their operations
in the
Multimedia Super Corridor (MSC).
2.10 Private consumption grew at an annual rate of 5.5 per cent, lower
than
the target of 7.2 per cent per annum, mainly due to prudent consumer
spending.
Efforts by the Government to encourage domestic savings as well as to
control
inflation also contributed to lower spending. In addition, the negative
wealth
effect of the financial crisis affected consumer sentiments, which resulted
in the
contraction of spending in 1998.
2.11 Public investment expanded by 10.5 per cent per annum in contrast
with
the targeted reduction of 0.4 per cent per annum under the OPP2. The
bulk of
public investment was by the Non-Financial Public Enterprises (NFPEs),
particularly
Petroliam Nasional Berhad (Petronas), Tenaga Nasional Berhad (TNB) and
Telekom Malaysia Berhad, to finance their expansion and modernization
programmes, especially during the first seven years of the OPP2. The
increase
was also due to the fiscal stimulus package launched by the Government
beginning
1998 to initiate economic recovery. The focus of public sector investment
was
to enhance productivity and efficiency to support private sector initiatives
and
fulfill the rising demand for better services from an increasingly affluent
society.
Public consumption, which accounted for 20.5 per cent of total consumption
spending, grew at a relatively moderate rate of 5.5 per cent per annum,
in line
with the Government’s policy of fiscal prudence.
2.12 Exports assumed an increasingly important role in propelling
economic
growth during the OPP2 period, particularly in leading the economic
recovery
from the financial crisis. The sector grew at an average rate of 16.7
per cent
during the OPP2 period. Electronics and electrical machinery appliance
and
parts contributed an increasing proportion of exports, accounting for
more than
61.6 per cent of total exports in 2000 compared with 33.3 per cent in
1990, as
shown in Chart 2-2. Strong demand for these products was largely due
to
concerns about the Year 2000 (Y2K) problem, the rapid growth in the
Internet,
mobile telephones and telecommunications as well as the need to upgrade
technology
for competitiveness reasons. Imports grew at an average rate of 14.7
per cent
per annum during the OPP2 period. As a result of the high import content
in
the production structure, the boom in the manufacturing sector generated
higher
imports of capital and intermediate goods, which grew by 12.1 per cent
and 16.2
per cent, respectively, as shown in Chart 2-3.
2.13 The balance of payments position strengthened towards the latter
part of
the OPP2 period following significant growth in merchandise exports,
as shown
in Table 2-4. The merchandise account was in surplus throughout the
whole
OPP2 period, with the largest surplus of RM86.5 billion recorded in
1999. The.41
CHART 2-2
STRUCTURE OF EXPORT, 1990 AND 2000
(%)
services account was, however, in deficit due mainly to the net outflows
of
investment income arising largely from the repatriation of profits and
dividends
by foreign investors. In addition, the higher payments for freight and
insurance,
contract and professional charges as well as repatriation of income
by foreign
workers also contributed to the deficit. However, policy measures taken
to
strengthen the services account led to some favourable structural changes
particularly
in the travel and education and other transportation subsectors. The
other
transportation subsector turned around since 1994 to generate surpluses
while
the net inflows of travel improved significantly. The merchandise surplus,
however,
was able to offset the services deficit, thereby resulting in a notable
improvement
in the current account with the shift to a surplus position beginning
1998, as
shown in Chart 2-4.
2.14 The long-term capital account of the balance of payments registered
a net
inflow of RM130.1 billion during the OPP2 period. This was attributed
to the
net inflow of private long-term capital that amounted to RM107.5 billion
due
to the strong inflow of long-term direct investment. In addition, the
official long-
term capital amounted to RM22.6 billion, reflecting mainly the large
external
borrowings by the NFPEs to finance their expansion and modernization
programmes. In contrast, the Federal Government recorded net repayments
during
the OPP2 period. The Federal Government had selectively prepaid its
more
expensive external loans during the first half of the OPP2 period, reflecting
the
strong financial position of the Government as well as its commitment
to contain
the external debt at a manageable level. Accordingly, the external debt
of the
Federal Government declined from RM24.7 billion at the end of 1990 to
RM13
billion at the end of 1997. However, as a result of the financial crisis,
the
Government raised some external loans amounting to RM3.9 billion during
1999-2000 to finance its fiscal stimulus package. Consequently, the
overall
balance of the balance of payments, which takes into account the current
account
as well as the short- and long-term capital flows, recorded a surplus
of RM86.5
billion. The Central Bank reserves increased to RM113.5 billion or 4.5
months
of retained imports at the end of the Plan period.
2.15 The terms of trade during the OPP2 period improved marginally at
an
average rate of 0.5 per cent per annum due to higher prices of major
export
commodities, such as palm oil, saw logs, sawn timber, petroleum and
liquefied
natural gas. In line with this trend, the Gross Domestic Product (GDP)
in terms
of real purchasing power grew by 7.8 per cent per annum, higher than
the rate
of output growth of 7.0 per cent per annum.
2.16 The consolidation of public finance continued into the OPP2 period,
resulting in a fiscal surplus between 1993-1997 on account of prudent
fiscal
management and the privatization programme. The financial crisis made
it necessary
for the Government to launch a fiscal stimulus package in 1998 to compensate
for the sharp contraction in private investment. The public sector account,
nevertheless, registered an overall surplus of 1.3 per cent of Gross
National
Product (GNP). At the same time, the overall deficit of the Federal
Government
account stood at 1.0 per cent of GNP. Although Federal Government revenue,
as a percentage to GNP, declined from 25.9 per cent in 1990 to 19.9
per cent in
2000, it increased at an average rate of 7.7 per cent per annum. This
was attributed
to the higher revenue collected in the form of company and petroleum
income
taxes, sales and service taxes as well as non-tax revenue in tandem
with the
impressive economic performance during the first seven years of the
OPP2 period
as well as the recovery in aggregate demand and better crude oil prices
during
1999-2000. The size of the Federal Government operating expenditure,
as a
percentage of GNP, also declined from 21.9 per cent in 1990 to 18.2
per
cent in 2000. Emoluments, which constitute a large component of the
operating
expenditure, increased moderately from 8.0 per cent of GNP in 1990 to
8.1 per
cent in 2000. In addition, the proportion of public servants, including
the Army
and Police forces, to the population declined from 4.7 per cent to 4.2
per cent
during the same period.
2.17 Economic growth during the OPP2 period was achieved in an environment
of low inflation and price stability, averaging 3.4 per cent per annum,
as shown
in Chart 2-5. In the first half of the OPP2 period, the Government launched
a
comprehensive anti-inflationary package to keep prices low and stable.
The
Government, among others, undertook a prudent fiscal policy by restraining
operating expenditure and focusing development expenditures on projects
that
alleviated infrastructure and supply constraints. Import duties on more
than
3,000 items were reduced or abolished to lower the price of goods and
reduce
the cost of doing business. In addition, an anti-inflation campaign
was launched
to educate the public on the causes and impact of inflation. The sharp
depreciation
of the Ringgit during the crisis, however, led to higher producer and
consumer
prices. To address this, the Government implemented a mix of fiscal,
monetary
and administrative measures, which successfully contained the inflation
rate at
2.2 per cent between 1999-2000.
2.18 During the OPP2 period, the country achieved a high level of
savings,
averaging 38.0 per cent of GNP compared with 36.8 per cent for investment.
Savings as a percentage of GNP rose from 31.6 per cent in 1990 to 39.0
per cent
in 2000 as a result of the successful campaign to increase domestic
savings.
Factors contributing to the rise in the savings rate were higher disposable
income,
increased contributions to the Employees Prov
