KXEX2162: ECONOMY, FINANCE AND ENGINEERS

ASSIGNMENT 2: MALAYSIAN ECONOMY FROM 1900-2014

NAME MATRIX NUMBER

FAIRUS FARIHAH KEU******

MISLIANA BINTI MD TAIB KEU******

NUR AMIRAH BINTI MOHD SHAHABUDIN KEU******

NURUL HUSNA BINTI RAOF KEU******

SALWA MARHAINI BINTI MAZELAN KEU******

SUBASHINY A/P PRABAKARAN KEU******

1900-1920

The nineteenth century witnessed the enormous expansion world trade which

between 1815 and 1914, grew on average at 4-5 % a year compared to 1% in the

preceding hundred years. This is because the driving force came from the Industrial

Revolution which happened in the West which saw the innovation of the large scale of

factory production of manufactured. In the early twentieth century, the economy of

Tanah Melayu (Malaysia before independence) is in the expansion caused by the

revolution happened in the west.

Late 19th century and early 20th century (1896-1910) witnessed an encouraging

growth of rubber whereby the price of rubber increased drastically as a result of the

development of automobile industry in Britain. This is due to the high demand of rubber

which exceeds its production.

Tanah Melayu faced recession during World War I. The rubber price dropped on

1914-1918 because of the World War I which the price dropped until 85 cent on 1918

and 20sen on 1922. Many of companies established in Tanah Melayu on that time

faced a loss of profit because they cant exports their rubber to the West countries.

By 19th century the population in Johor transformed from the trading society to

an agrarian society. The economy policy was focused on collecting the forest and

agricultural products. A recession happened at this time.

On 1910, the discovery of oil by a subsidiary of Royal Dutch-Shell in Sarawak

had provided the bedrock for the development of Malaysias present day oil and gas

industry. This put Sarawak more prominently in the business of exports. It created

opportunities for many oil and gas majors and other to invest in the upstream and

downstream sector of the industry provided employment and skills transfer to thousands

of Malaysian and changed the economic landscape of the country.

1913, Malay Reservation Enactment was gazetted. This situation brought a great

influence to the development of the agricultural economy of Malaya community. The

enactment established to protect the right and position of the Johor Malaya as the

native community in the state. In this year, Malay department heads were replaced by

the British officers. The General adviser appointed in 1913. Between 1910 until 1913,

there has many British officers were appointed in the administration of Johor, the

number of British investor investing in Johor increased drastically. Thus, it is showing a

good sign of growth of the economy.

However when of the World War I happened, whole world including Tanah

Melayu (that time Malaysia) was plunged into economic depression on 1919-1922. This

is because, investor cannot get their profit and they have to hold their product.

1920-1940

After World War 1 ended in year 1980, economy of Malaya began increasing

drastically in the early 1920s because of 'post-war economic boom'. Although there are

increasing in economy, the workers had to make a bank loan if they want to splurge and

some are forced to limit spending because the payment of wages to workers is too less.

A result, the flow of money is not smooth so many industrial plants and business center

goes bankrupt. The banking system suffered a worse fate because they fail to get a

refund of those borrowers. By 1930, more than 3,000 banks had folded.

Unfortunately, late of 1920 and early of 1930s, the world economy was in a

depression. The depression originated in the U.S., after the fall in stock prices that

began around 4 September 1929, and became worldwide news with the stock market

crash of 29 October 1929 or known as Black Tuesday. The Great Depression had

devastating effects in countries rich and poor. Cities all around the world were hit hard,

especially those dependent on heavy industry. Malaya did not escape in having

depression because of due to the integration of the Malayan economy to the global

supply chain. As industrial output slumped, primary product prices fell even more

heavily as the demand for exports experienced contraction. For example, in 1932

rubber sold on the London market for about one one-hundredth of the peak price in

1910. The effects on export earnings were very severe, in Malaysias case between

1929 and 1932 these dropped by 73 percent (Malaya), 60 percent (Sarawak) and 50

percent (North Borneo). The aggregate value of imports fell on average by 60 percent.

Estates dismissed labor and since there was no social security, many workers had to

return to their country of origin. Small holder incomes dropped heavily and many who

had taken out high-interest secured loans in more prosperous times were unable to

service these and faced the loss of their land.

In order to overcome these problems, colonial government instituted the

schemes to restore commodity prices to profitable levels. For the rubber industry this

involved two periods of mandatory restriction of exports to reduce world stocks and thus

exert upward pressure on market prices. The first of these (named the Stevenson

scheme after its originator) lasted from 1 October 1922 - 1 November 1928, and the

second (the International Rubber Regulation Agreement) from 1 June 1934-1941. Tin

exports were similarly restricted from 1931-1941.

1940-1960

During the Japanese occupation years of World War II,the Japanese invaded

Malaya and defeated the British, 1942-1945. This period can be categorized into 4

broad stages,ie (i)1942:Reconstruction, (ii).1943:Peak, (iii).1944:Degeneration of

conditions, and (iv).1945:Continuous deterioration of conditions. The Malaya economy

has had a serious impact .Destruction of economic resources, especially rubber

plantations and tin mine has occurred badly.

Before leaving Malaya, British army destroys rubber plantations and tin mines

under the policy of scorched earth. The workers leave plantations and mines to save

themselves. Transport and communication systems were destroyed. Japanese military

did not restore the damages made by the British and these were even worsening

Malaya economy. Inflation has occurred in Malaya whereby lack of food in market. The

Japanese issues printed Bananas Trees money without control and this led of

decreasing of currency. Generally, living conditions deteriorated significantly during this

period.

Overall the war period saw the dislocation of the export economy, widespread

destruction of the infrastructure (roads, bridges etc.) and a decline in standards of public

health. It also saw a rise in inter-ethnic tensions due to the harsh treatment meted out

by the Japanese to some groups, notably the Chinese, compared to a more favorable

attitude towards the indigenous peoples among whom (Malays particularly) there was a

growing sense of ethnic nationalism.

The withdrawal of Japan at the end of World War II left the Malaya economy

disrupted. Problems included unemployment, low wages, and high levels of food

inflation, well above the healthy rate of 23%. During this time, the British administration

was attempting to repair Malaya's economy. Revenue from Malaya's tin and rubber

industries was important to Britain's own post-war recovery. Only in 1950-1951, the

economy grew very rapidly and this was direct result of the sharp increase of the price

of rubber during the Korean War. The export sector had been very important in the

Malaysian economy before independence. Economic growth remained highly

dependent on the export of a narrow range of primary commodities, namely, rubber, tin

and palm oil in Malaya, and timber in Borneo Territories.

As the British seek to consolidate Malaya's economic policy between the Malay

States, Malayan Union was proposed to unify Federated and Unfederated Malay States

into a single entity. After a short period of union, the British dissolved Malayan Union

and replaced it with the Federation of Malaya, with Tunku Abdul Rahman as its first

Chief Minister. By that time, rubber and tin were the main source of income for the

Federation and it was one of the more properous economies in the region. Its per capita

income was ranked third in Asia, after Japan and Singapore.

1960-1980

Overall between 1960 and 1965, the Malaysian economy experienced a rapid

rate of economic progress measured in terms of output and income. The real Gross

Domestic Product (GDP) during that time grew at an average annual rate of 6.4%.

Over the 1960 to 1965 periods Malaysian real income grew at 5.8% annually,

which is has somewhat slower than the rate of output growth. This is due to the fact that

the steady decline in the price of rubber and a small decrease in round timber prices

have more than offset the sharp rise in the price of tin, while the prices of Malaysian

imports, on the average, have remained relatively stable.

The policy to develop the industrial sectors had an important role in slowly

expanding the role of the industrial sector in the economy. However, the unemployment

problem was getting worse. In 1960 the average annual growth of the economy

between 1960 and 1965 was about 6.4% and slightly reduced to 6.0% between 1966

and 1970. Despite of this, the rate of unemployment increased. In 1960, the rate of

unemployment was 6.0% but by 1970 it has increased to 6.5%. As unemployment

remained high in the midst of growing prosperity, inter-ethnic tensions erupted into a

series of violent street riots in May of 1969. Thus New Economic Policy (NEP) was

introduced in 1970.

In 1960 its contribution had increase to 9.0% of GDP and by 1970 the

contribution had reached 12.2%. The expanding contribution of the industrial sector to

the economy was due to its rapid growth whereby its average growth between 1966 and

1970 was 9.9%.

Malaysian economy achieved a creditable rate of growth during 1971-1975. The

manufacturing sector has become a key sector in the economy. The expansion of the

sector was the result of advances in export-oriented industries as well as in other

growth industries including palm oil processing, wood processing, textiles and many

else.

The agricultural sector, currently the largest contributor to the GDP, will expand

much faster under the TMP than in the last five years, while the manufacturing sector

will continue to register the fastest rate of expansion thereby becoming progressively

more important in the generation of income and employment in the economy. As the

implementation of NEP on 1971-1975 (SMP) AND 1976-1980 (TMP), we can see the

achievement during the period.

1980-2000

The dawn of 1980s saw a prospering Malaysian economy, thanking the New Economic

Policy (NEP) launched in 197, which marked the beginning of a new era of

macroeconomic activism. The development strategies handled by the Malaysian

government during 1980-84 saw the average annual growth rate to be 7%. For the

period of 1980 to 1990, Malaysias economy was said to be at its peak, with heavy

industrialization process and new economic policies being implemented to secure the

rights of Malaysian among foreign traders.

However, the economic downturn in developed countries triggered by the US

high- interest rate policy (the Volker shock) in the early 1980s resulted in a massive

collapse of world commodity trade. Between 1984 and 1986, Malaysias overall export

price index declined by 30% reflecting a sharp decline in tin and palm oil prices.

In 1986 the country was experiencing the trough phase. GDP growth was still

quite not promising but it's not as bad. It's clear that the economy has turned a corner.

Public debt as a percentage of GDP rose sharply from 44 in 1980 to 103.4 in 1987.

Then in year 1988, the countrys diminished economic growth slowly started expanding

back to its optimum state.

After the mid-80s recession that hit Malaysia, the economy was slowly growing

back by 1988. Malaysian government was doing all in its power to keep boosting up the

economy and setting back to its glorifying days. Malaysian economy was doing great at

its peak after the mid-1980s recession till 1996.

However, trouble started brewing in the form of another recession in the year

1997. It started on July 1997. This time the recession was induced by Asian Financial

Crisis (AFC). This lead to the downfall of the SEAs economic value in the 1997. It

started in Thailand, with Thai Baht devaluation. Malaysian Ringgit was attacked

heavily by speculators, when the ringgit had lost 50% of its value, falling from above

2.50 to under 4.57 on (23 January 1998) to the dollar. Foreign direct investment fell at

an alarming rate.

In 1998, the output of the real economy declined plunging the country into its first big

recession for many years, suffering a trough phase. GDP suffered a sharp 7.5%

contraction in 1998. During that year, the ringgit plunged below 4.7 and the KLSE fell

below 270 points. However, it rebounded to grow by 5.6% in 1999, entering an

expansion phase. The Government of Malaysia predicted 5.8% real GDP growth in the

year 2000, but most analysts predicted growth will exceed 8% for the year. Investor

confidence and global demand for electronics picked up.

2000-2014

In 2000-2001 the global economy was slowing down and the negative effects of

the US economic slowdown and global electronics downturn was felt as early as March

2001.These were manifested in declining manufacturing production and negative export

growth. This situation was leading Malaysia economy to growth in year 2001-2005 with

increasing ratio of 1% in every year.

But, beginning in 2002 until 2004 saw the economy as a result of fluctuations in

the current market uncertainty. Early 2003 saw economic growth has exceeded initial

projections were expected. But at that time, there had been some fluctuations in the

market due to the world was shocked by the presence of SARS. Concerns over SARS

was contained on a global level. 2007 also saw the country's economic environment

continued to strengthen in every area except the reported economic environment is

quite weak and slow.

GDP in 2008 was somewhat deteriorating due to depression in world financial markets.

The global financial crisis of 2008-2009, with its epicentre in the United States, has

brought enormous ramifications for the world economy. With the United States

economy contracting sharply, it sent ripples across export-dependent Asian economies,

which began to face a contraction as a consequence. Hence, the Malaysian economy

was insulated from the direct effects of financial exposure due to a collapse in exports

and a slowdown in foreign direct investment (FDI).

For the years 2009 and 2010 witnessed volatility graph influenced somewhat unstable

commodity price volatility and the collapse of the American economy. The downturn has

caused a sharp contraction in the economy and it has been contracted by 1.7% in the

first half.

In 2013, the Malaysian economy expanded by 4.1% in the first quarter. In the fourth

quarter of 2013, the GDP expanded to 5.1 per cent, the fastest pace for this year.

Malaysias economy in 2013 grew at 4.7 per cent.

After a slight slowdown in 2013, growth accelerated to 6.2% year on year in the first

quarter of 2014 boosted by strong expansion in domestic and external demand.

The Malaysian economy expanded by 6.2% in the first quarter of 2014.Global economic

activity expanded at a moderate pace in the first quarter. Malaysian economy registered

a strong growth of 6.4% in the second quarter of 2014.Overall, growth was supported by

higher exports and continued strength in private domestic demand.

Reference

1) Malaysian Institute of Economic Research Official Webpage -

http://www.mier.org.my/outlook/

2) Economics History Association - http://eh.net/encyclopedia/economic-history-of-

malaysia/

3) The World Bank Official Webpage - http://www.worldbank.org/en/country/malaysia

4) Economic Planning Unit Official Webpage - http://www.epu.gov.my/en/the-

malaysian-economy-in-figures-2013

5) Shanti P. Chakravarty, Abdul-Hakim Roslan, , Ethnic Nationalism and Income

Distribution in Malaysia, The European Journal of Development Research, June

2005

6) Daniel E. Charette, Malaysia in the Global Economy, New England Journal of Public

Policy , September 2003