Malaysia: Policies and Issues in Economic Development (review)

This voluminous book is more an economic history book rather than as its title may indicate, a book on the current economic policies and issues that impact the process of economic development in Malaysia. It was published to commemorate the twenty-fifth anniversary of the establishment of the Institute of Strategic and International Studies (ISIS), a government think-tank in Malaysia. It starts with an introductory chapter by David Lim on the economic history of Malaysia from the beginning of the colonial period in the late nineteenth century to the present and ends with a chapter by the late Dr Zainal Aznam Yusof on “Looking Forward” on the possible future trends in the Malaysian economy. In between the first and last chapters, there are twenty chapters divided into four sectors covering macroeconomic management, economic growth and transformation, growth and equity and the institutional aspects of development. However, the book does not discuss in detail the New Economic Model, the Economic Transformation Programme or the Government Transformation Programme or the Tenth Malaysia Plan, which are shaping the outcome of the Malaysian economy in the present and the near future.

The chapters do not run in sequence and there is no unified theme, and each author is left to develop his own framework and argument. The chapters are written by twenty-five social scientists and two institutions, that is, the Malaysian Industrial Development Authority (MIDA) and the Federation of Malaysia Manufacturers (FMM). Of the twenty-five social scientists, at least nine have worked at one time or another at the Faculty of Economics and Administration in the University of Malaya. Four of the authors are from ISIS and the rest come from government institutions or other Malaysian universities or have worked in these institutions in the past. Hence it is not surprising that there is a pro-government bias in several of the chapters.

In the introductory chapter, David Lim surveys the main phases of development the Malaysian economy has gone through since colonial times. He does not dispute the fact that there was an income gap between the Malays and non-Malays and endorses the view that it “was a gap that bred a lot of discontent” (p. 12). He, in fact, argues that the May 1969 racial riots was “the result of a breakdown of the unwritten agreement between the Malays and the Chinese not to challenge each other in their respective areas of dominance” (p. 12). However, he fails to mention that this so-called unwritten agreement or Social Contract has been challenged as a concept without legal substance by several groups, especially the younger group of non-Malays, who were born in Malaysia and are legitimate jus soli citizens.

In one of the two chapters on macroeconomic management, Thillainathan, who is also one of the two advisers of this book project, compliments the former Finance Minister Tun Tan Siew Sin on moving swiftly to the U.S. dollar when the pound was devalued in 1967. According to Thillainathan:

Judged against the goal of stabilizing the external value of the ringgit, the record of Tunku Abdul Rahman’s administration was the best. He and his team not only embraced the pegged exchange rate regime to give the right signals to the market, they went a step further by retaining the currency board arrangement with sterling as the anchor currency. And when the sterling crisis broke out in the mid-1960s, they were quick in making the switch to the USD as the new anchor currency while retaining the peg. The key members of his economic team were Finance Minister Tan Siew Sin and Central Bank Governor Ismail Mohamed Ali.

(pp. 46–47)

However, according to Schenk (2008, p. 203) the ineptness of the Malaysian Government over the sterling devaluation in 1967 caused Malaysia heavy losses, and Singapore acted much more speedily than Malaysia in moving to the U.S. dollar.

According to Schenk, Malaysia’s diversification of reserves was not fast enough and was not significant, and the 19...