R'ETUKN n I=1 RESTRICTED \ II fiO Report No. FE-51a E WEEK This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for.its occuracv or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION MALAYSIA*S DEVELUMENT PRUSPECTS AND PLANS (in four volumes) IT T"*.T T TB XL T THE MAIN REPORT MALAYSIA February 10, 1966 Far East Department CURRENCY EQTTVALENTS Currency Unit = malayan dollar 1 Malayan dollar = U. S. $0. 327 1 U.s. $ = M$3. 06 M$1 million = U. S. $327, 000 nTV A tWTV TTl% This report is based on the findings of a mission in Septem _r UV o ria-ayZila CUmpoQd 01 Messrs. W. L. ul.marbin, E. B. Waide and A. Golan of the Bank. TARTP. nr MURI\TMR Pncpr. No- akqTP T)ATA\ QTTMTA DV Ai iecent Econom11c Irends ................................... Output and Exports ................................. Expenditure and Imports............................. 6 Summary Trends in the Availability and use of Resources..................................... 9 Public Development Expenditures and Policy 1961-65.................. ....................... 11 Development Policies................................ 15 Ill. Economic Growth - Prospects and Problems................. 18 The Export Sector................................... 18 Prospects for Domestic Output....................... 20 Development Problems .............................. 21 Social Problems ..................................... 2 IV. The First Malaysian Plan.................... ............ 26 Overall Targets and Proposals....................... 26 Progress and Plans in the Major Sectors............. 28 (a) Agriculture................................. 28 (b) Transport and Communications ............... 30 (c) Public Utilities............................ 33 (d) Education and Training...................... 33 Conclusions on Expenditure and Planning............. 35 V. Internal and External Finance..................... ...... 38 The Financial Target.......... .................... 38 The Public Finance Outlook.......................... 38 Feasibility of the Public Finance Targets........... 42 Private and Overall Finance........................ 43 Overall External Finance Reauirements............... h6 Conclusions - External Capital Requirements and Creditworthiness ....... li STATISTICAL APPENDIX: Tables 1-24 MAP OF MAIAYSIA Basic Data Area: Malaya 50,700 sq. m. Sabah 29,388 sq. m. Sarawak 48,250 sq. m. Malaysia 128,338 sq. m. Under cultivation 21,424 sq. m. Population (1965 estimate): Malaya 8,052,000 Sabah 520,000 Sarawak 830,000 Malaysia 9,h1l,000 Rate of growth, (1957-1965)t 2.9% p.a. Political Status: Federation since 1963 comprising of Malaya, Sabah, Sarawak and Singapore. The latter was separated in August 1965 and became an independent State. Gross National Product: Estimate for 1965 M$8.500 million Rate of growth, 1960-65 5.0% p.a. Per capita (1965) M$900 (US$294) Gross Domestic Product at Factor Cost (1965), M$7,666 million ofJ which in percentages: agriculture 34 Mining and Quarrying 7 Manufacturing 7 Construction 5 Distributive Trades 16 Government and Defense Services 12 Others 19 Percent of GDP at Factor Cost : 1965 60o-6> Gross investment estimate 21.6 20. Gross savings estimate 24.0 21.0 Balance of payments current account surplus 3.7 5.5 Investment income payments 5.4 5.6 Current revenues 3.0 5.3 Money ouppUy kr,P ml-Lion): Relationship to monetary areas: Malaysia has a common currency, Malay dollar, with Singapore and Brunei. Est. Rate of change 1965 1961-65 Total money supply 1665 6.9% p.a. Currency in circulation 1000 6.2% p.a. Currency as % of money supply 60.1 1964 1959-64 Rate of change in retail prices n.c. 0.5% p.a. Public Sector Operations (M$ million): 1960 1965 Government current revenue 1276 1685 Government current expenditures 956 1639 Surplus 320 46 Government capital expenditures 213 682 Public investment expenditures 41 78 External assistance 103 183 External Public Debt (US$ million): Average of July i961-6h 1965 Tnt.l deht POP P_1 Total debt service 1965 n.a. 17 exports 1.8 2.0 Balance of Payments (US$ million): 1965 1961-65 Total exports 1207. 3.5% p.a. Total -i-ports -115355pa Net invisibles -114 -3.0% p.a. Nlet current account balnce "I-60 Commodity concentration of exports 1964 1960-64 Rubber and tin 63% 66% urous ±ureign excxiu±neoc o SUMMARY AND CONCLUSIONS 1. Malaysia's economic performance in recent years has been good. Output and income have been rising at more than 6% a year since 1961 mainly as a result of an expansion in output for domestic use. This expansion, which took place at a time of export stagnation, was mainly the result of a surge of Government canital and current expend- itures--capital expenditures alone more than tripled between 1960 and 1965. 2- The inease in annital Pornit.irP by thp Gnvernment. which was accompanied by a rise in private investment at about 8% a year, had thp rp.iflt. of raising +.he investment rate from about 1hi of (INP in 1960 to 19% in 1965. The savings rate, however, stayed at around 16% through- out the 4 - eri o- AQ n '~i !+. g,jn i +.wrrvn1 tiocfirc-it1. em rc X(io~ T.Alif-h- so far, has been offset by public and private capital inflows which haven c-naled a vrese,rvest I .4-11"a In , 1-1 h n.c g "-, na+o di ~nTrfIn expenditures was, on the whole, well conceived during the past 5 years 0.1 UIkUli 11 Vvu EIll1010±. V%Q P-L CE l 1.1±1 ou gl-, exc- e s. S.I 4.~ ,, .I -- i 1---A - P ,+ - on social and rural amenities and too little emphasis was placed on ±II I~L; r~±y~ii -.Lcztli, L7O L71%J, kU, CL -LU16 LVCLy UL.J~LUO improving the allocation of public investment. However, the Govern- ment's capacity to execute policies leading toward import substtuUUn, and towards the production of new agricultural commodities, is still inadequate and it will be the end of the decade before any signiudiau improvement in these fields can be expected. The overall investment targets are more ambitious than in the past, and, if achieved, will mean an increase in the investment rate to more than 20% of GNP by 1970. These targets appear to be realistic even though they will introduce greater financial strains than have been experienced in the past. 4. Sizeable external borrowing and grants will be necessary, in addition to reserve use, if these investment targets are to be attained without creaIng Lilation. External capital inflows will probably need to triple coiqpared with the 1961-65 level and approach a total of U.S. $600 million. There is little doubt, however, that the benefits to Malaysia of this increase in the investment rate make a substan- tial external borrowing effort worthwhile. hon_+n7- T DnTTrSTr1AT AIMr Qnn(TAT r)TTn~TnMT%TMQ' .-L .L JL A V k~J'JL .A'J .U .ULV UA.&J I 1i1L1k 1. For the past four years the political scene has been dominated by the attempts to integrate the former Federation of Malaya, Singapore, Sarawak and Sabah (North Borneo) into a single political and economic entity - Malaysia. The new Federation emerged in September 1963 after prolonged and often acrimonious negotiations, and represented the last step in a process of political consolidation which began in the Nineteenth Century with the formation by Britain of the Federated Malay States and the Straits Settlements at a time of rapid economic development. A large- scale Chinese and Indian migration, which accompanied the development of rubber, tiLn, and the trading centers, continued until the Second World War, creating a unique multiracial society. The political agreement which formed the basis of the Malaysian merger attempted a delicate balance be- tween Malay political powers, and Chinese economic dominance, but it did not endure. From the start, political and communal fears and conflicts between Malaya and Singapore hindered the process of integration, and led ultimately to the separation of Singapore in August 1965, less than two years after merger. Malaysia as a political unit thus now comprises Malaya and the distant Borneo States. As an economic unit, however, most of the close business and financial ties with Singapore, which have existed for many years, remain. 2. The pressures which led to the eventual separation of Singapore were not entirely removed by SinEapore's denarture. Merger had in effect brought to the surface some of the latent problems on the Malayan political scene. About half of Malaya's nonulation is Malay. 37% are of Chinese origin and 11% from the Indian sub-continent. Integration is partial, and the deeree of integration of thA non-indigenous nonles into n Malavinn society has depended partly on their length of stay. Just over half are now MPlvsian citi.ns., and the lare nronortion who wero horn in Malaya and regard Malaya as their home is one of the strengths of the country. Mirtion during the first par nofthe centuyn ws nover heavy, and strong ties still exist with China and India, as is evident from the heavy annua1 rtmitt.nnPc n tr 1tJvPn in +hnAp 1nnatrica. Runcccive constif.n- tions have preserved the traditional political position of the Malays in both Atate, ma Central goenet,and also intecvlservice,whl in recent years a number of government programs have also given special which business and commercial activities are more or less entirely in the handls of 4i -ir-nt groups. The need fr tI; ^a-Pn of-political andA economic powers, with its consequent patchwork of special concessions accepted without some resentment. On the whole, it has been successful n'U i 'a con,tributed t, L UI% 1Jt-L_VU U1 p.JU~.LuU_L bLU_A.-0. iJ-1I'aa.C- . erger wLiu D_ngapUre, and subsequenu political rivalries, upse this delicate balance of interests. The Singapore political parties, led by the Peoples Action Party, sat in opposition to the ruling Alliance Party in the Federal Parliament - the PAP having strengthened its position by in- creasing its majority in elections held in Singapore shortly after merger. - 2 - The ruling Alliance Party also increased its majority and won 851 of the 104 Malayan seats in the separate Falayan elections of March 1964. Al-- though the PAP won only one seat in the latter elections, its entrance into Malayan politics and its opposition role in the Federal Parliament, was felt to change the political balance in Malaya. It came to be regarded as an opposition which represented a predominately Chinese city-state, whose support for the existing system of Malay privileges was not assured. As a result, political and racial tensions rose, undoubtedly contributing to the riots in Singapore in July and August of 1964, and eventually_ Singapore was separated and became an independent State in August 1965. However, separation has not yet resulted in any noticeable improvement in relations between the leaders in Malaysia and Singapore, and some residual social tensions in Malaya remain evident. Nor has separation brought about an end to "confrontation" with Indonesia. Limited hostil- ities continue alona the Borneo borders althoueh their impact on Malaysia's economy has been minimal to date. However, if "confrontation" continues, rising military and security expenditures are bound to affect in some degree the amount of domestic resources that can be devoted to development. 4. The Borneo States together are one and a half times the size of Malava. contain only onn-sventh of thA nnnoulation of Malaysia. yet occupy over a quarter of the seats in the Federal parliament - a representation originally designed to offet .h weight. f Sinapnore- ThAv retain. how- ever, considerably more autonomy than do the States in Malaya. Historical ties with MalaA A n+. verystronI ecMO Mv -n the cae of Sabah which is farther from Kuala Lumpur than Bangkok or Saigon, and derive nAJ nly friom +.1h aPAMMM -1incn4Q u +. +4 ,,e v +4^n P n-rminI+-" 1,^1%n4ini1 heritage. Also, both Borneo States have an active Chinese immigrant popu- I AtAio, buti Vnlayo form- only a 1 -4-44 mior p Temao4 "ar groups - mainly the Dayaks in Sarawak and Kadazans in Sabah - whose ethnic ~1~+4 ~ 4-. U-f.1.,-- 43-- s- . 4.. . M-l A-&-, .4.U... of th4'.4e Borne LA.J rX..JOVO3 o J.0 U u11±LP LVU C UU Uliu 6,U V. ULA1UI .J L l . A4 States, which comprise alliances of various parties based on these indigenous --up have)O 'Lim ."L'y. supporte t1he IAI- ±Lcer Party cil wi- UU1kup V± This has been true in Sarawak despite the adverse impact of Indonesian "con- Vii 11#dA.Lulil' GLIU IA3L 1AUU1UU 0± strong11 UVU.LIUcl .;V-. VPUL.LvLL PJ.X& Decause of te various poltical problems with Singapore, anu the physical distance of the Borneo States, progress towards the creation of a common market - an integral part of the merger arrangements - was negligible up to the time of Singapore's separation. However the Tariff Advisory Board remains to serve the present Malaysi,. The strong commercial and business ties that existed prior to merger remain unaffected, although the gradual rise in the level of tariffs applied by both Malaysia and Singapore will tend to reduce the growth in mutual trade. Both continue to share a common currency and the Bank Negara Malaysia remains the common central bank for the time being. In the present political climate, however, it is unlikely that significant early steps will be made towards closer economic integration. Despite these problems, the prospects for political stability are good, as long as a reasonably high level of employment and prosperity can be maintained. The Malaysian Government's commitment to the promotion of further economic growth is emphatic, and the growth prospects, which are discussed below, are good, -3- Chapter II RECENT ECONOMIC TRENDS Output and Exoorts 6. Recent trAnd,n in the bn~q~i/-rn vpv been imnv_czivP GDP has shown a rate of growth of over 6% a year in current prices since IQ, A nnr hnc y-nn "Lqk - - 4t A 1- ---- 4- -1± -+- --;.- ann -'tAa. growth rate of 3.5% between 1960 and 1964 in spite of the adverse movements bn ~ '.'a. term Of tr d case mainL..L V Laic; ±J.Z-. L1 V111z; LuutiL'-± VLL ±I..lu its 1960 peak. This growth was maintained after 1963 despite Indonesian WAUC V-'~L J.L p CLL. _LILJ.7..) UI It= t ULJII±Y coninLIued _L UO p a UJJd~. pat asLd a.D result of unexpectedly favorable export prices and expanding demestic de- mand caused partly by recorU pubic secour expenitures. In volume terum, output has likewise grown steadily since 1958 at a rate of about 6.5% a year, reflecting in part the growth in rubber output as a result of the large replanting program begun during the 1950's. Output in the tin, iU ULe, timber and manufacturing sectors also rose rapla-y. Domestic export volume has likewise been rising at around 14 % in recent years, and rose by 46% between ly>o and 1y>. Export value rose by 4>b over the same period, but almost all this value increase took place between 1958 and 1960. Since then the volume increases have been offset by adverse price trends in rubber, and the economy recovered to the peak 1960 export level only be- cause of the 1965 export boom. Overall, the 1950-1965 period showed a growth of about 6.4% p.a. in real gross national income, or 3.5% per capita; since 1960, despite the adverse export price trends, a real in- come growth of 5% has been maintained. The import and internal price levels have increased only slightly in the past eight years. 7. Rubber and tin, Malaysia's major and traditional export commod- ities, accounted for 42% and 21% respectively of export earnings in 1964 and dominated the export sector - as they have (and will) for many years. Rubber output has been growing relatively slowly at 4% a year over the past decade, production having been held back because of the temporarily high acre)age of immature rubber resulting from the heavy replanting pro- grammes of the late 1950's and early 1960's. Average prices have de- clined since the mid-1950's (although passing through a temporary peak in 1959-60), reflecting the intensification of competition from synthetics, but have remained relatively stable for the past three years. Tin prices, in contrast, have risen steadily and almost doubled since the mid-1950's, mainly because of production difficulties in other major producing coun- tries. Production has recovered from the temporary cutback imposed in 1958-59 under the International Tin Agreement, and as a result the tin industry is enjoying a period of unprecedented prosperity. Were it not for the favorable turn of events in the tin industry, which have offset more than half of the rubber price decline since the 1960 peak, the economy and thp hance of navments would not be in the sound nosition in which they are found today. 1/ All references to the economy in years prior to 1964 refer, of course, to the collective performance of the areas which now comprise Malaysia. 8. The overall current-price trends can be seen in the following table: (MS million) 1958 1959 1960 1961 1962 1963 1964 1965 est. est. GDP in current market prices 5600 6280 6941 6877 7187 7652 8168 8740 Domestic merchandise exports 2379 3015 3328 2971 2933 3058 3194 3498 of which: rubber 1200 1795 1884 1486 1396 1414 1351 1413 tin 215 255 394 452 473 522 64[ 766 others 964 965 1050 1033 106h 1122 1199 1319 Rate of Prowth of GDP (N) - 12.1 10. q -o.1 L.. 5 6.h 6.7 7.0 Rate of 2rowth of exports (C - 26-6 10 n -10-8 -1.1 )_2 1AIL 9.q E>orts as o of n.nP (T 0_ ),A 0n 7-9 LA-2 )40-8 9_ 191 140n0 9. All regions of Malaysia have shared in this growth, although for Malaya, in which the value of output has grown at about 6.8% annually since having tripled in importance since 1958 to become the origin of a third of L~-5/~. al0'L -L-LI V11t; .L7U-)-v,) PUI±.od. UJVt-I-CX" ULLIPjU 11clo Utz:.;I gr-o-WdIg dJacorul ingly at about 7%, although further growth has been held back by the Urge o Si.JLu nUIU UILK.LiU laUou.[ - Ue perenuaI oi.ZLiUeuIU iLL Sabah. This growth rate is probably about twice that of Sarawak, where the growth in current value of output at _3 barely exceeded that Of population, reflecting the paucity of human and material resources. The timber industry has also been the leading autonomous growth sector, but is relatively unimportant compared with the agricultural sector, in which the complete absence of estates and the lack until recently of an effective government programme have contribute to stagnation in the face of declining rubber prices. In the last two years, however, the sharp increase in government spending, particularly in defence and internal security, has led to a surge in incomes and the production of local services. On the whole, the increase in Malaysian output has been concentrated on the populous west coast of Malaya, and incomes have tended to accrue to urban and adjacent areas. Output in most of the more backward rural areas of Central and Eastern Malaya, and the h i!erlaj .Ln the Borneo States, where the staple crops are rice or rubber, has in general increased at well below the average rate. 10. The performance of the -economy in maintaining rapid output growth despite the decline in the relative importance of exports has been one of the significant features of the past few years. Since the rest of the decade is also likely to be marked by stagnation in the overall value of exports, it is relevant to examine the causes of recent growth, and their relationship to demand and investment, for the light they may shed on future growth prospects. - 5 - 11. The experience of the past eight years can be restated as follows: M$ million 1958 1959 1960 1961 1962 1963 1964 L965 est. Esst. Net value of output for 1800 2100 2157 1973 1964 1996 2129 2219 foreign use Net value of output for domestic use 3180 3L7 b7 LtOK h290 L672 OTq hb7 Gross Domestic Product or __Antnr nnR+. ),Pn K).).7 c:938 K978 AAAA66 71),), 7666 12. It is thus clear that an important structural change is taking n1 nn i "i +.hm M'-"nMr. TnT+ ,-ii"+r4 f--" +Ii- ,x,~~+4, -L,~-f has bee ,--j,i at 8V. a year, compared with 6% for GDP as a whole, and the result has been to 29% in 1964/65. This trend, the prospects for the continuation of ~kUia± exC- .& UeU "OLow, Cle ca:Url±y re u C e~ S rlffCcys± I VLLL C10111 LiJ I fluctuation in export value, although the liability of the reliance on rubber Unu tin remaitu - hUese two commoULUes toUay being relatively more important in total exports than they were in 1958/59. On the whole, the trends in the export sector reflect the changes in output volume and export prices that were experienced during the period. There is no evidence of any significant productivity increase, despite the increase in average rubber yields per acre. 13. The origin of the growth in the net value of output for local use has been in manufacturing, building and construction, fish and poultry products, and a group of service industries other than the distributive trades, which together now account for about 39% of net output in Malaysia compared with 33% only five years ago. The most rapidly growing element - net output in the construction and building sector - can be related directly to the rapid growth in capital expenditures on dwellings, non-residential office buildings, schools, factories, road and bridge construction and. other works, each of which categories more than doubled over the 1960-65 period. This increase is mainly the result of public sector capital expenditures which almost tripled over the same period compared with a h4 increase in expenditure on fixed assets by the private sector. The growth of public sector capital expenditures is also an element in the increase in the net output from public administration and defence services and was probably a large contributing factor behind the growth in demand for locally produced building materials, and for manufactured capital goods and related intermediate products. Probably about a third of the growth in the net value of output of manufactured goods has been in goods destined for capital formation rather than consumption. The production of cement, for example, has nearly tripled and has substituted for imports. In the case of cement and other building materials the absolute increase in production was however much in excess of the volume of imports. in the tearlv 1960fs. so the npt valup of hmildina materials outnut resnonded to the increase in expenditure on fixed capital formation rather than the prcss of imort uiAtuedon. Thi pd.ern an ase aparenta in th case of some manufactured consumer goods. In many cases, substantial - 6 - increases in output took place without any change in the absolute level of imports so investment in those fields was adequate to enable the increase in demand to be diverted towards locally produced goods - a process which was of course encouraed by the use of moderate protective tariffs. Some diversion would probably have occurred whether or not consumption and caital exoenditures had increased. but probably not on the same scale. 1L. In thp Iomatic a-nriniltmral fip.ld thp maior achievements were in poultry and egg production and in the fishing industry, in both of which the Singanore market nlays an imnortant. rol. Pork nroduction ind market gardening also were buoyant, one of the chief limitations being thp nvqi Inhilit.v of ciitalh IPnr_ Thp inrrPqms in the nrodnt.ion of' ricp_ the most important food crop, apparently has barely exceeded that of nIal tWon n m chr 'n doea+ nii+wn+. ++r%nl. various services., Gross and net output of electricity and water utilities heavy recent investment. Despite heavy investment in roads, vehicles., aiL JUllt-J. T:;;qUJ_jJIIIU, LIkIZ;V t- .L , the~ neu l ue 04[ 'U ra-lS or anVdLL ~I5LJ4.L ~.J services appeared to rise only slightly over the period. This was possible parul u k±-d U.t_ Ulic~ UUME-11GS UII D IJVE: uIRE-alu IS L1IM-Ly uvU L_I' . 11 Ii.1i or immediate returns. The value of education, defence and other public services has been awing aUt over w in recent ye UIU, nUU L)tn to be the largest single factor contribution to the growth of net output of the services sector. Other privately produced services such as hotes, restaurants, entertainment, etc. appear to have grown by 10% a year since 1960 - a rate considerably in excess of the rowTh ol overal private consumption. Expenditures and Imports 16. The trends in output discussed above are both confirmed and largely explained by the pattern of expenditures over the past six years, which are summarized below: - Growth % p.a. (MH million, current prices) 1959 1960 1961 1962 1963 1964 1965 19 -65 Est. Private consumption 3831 4176 4369 4611 4889 5137 5395 5.3 Public consumption 853 881 955 1025 1183 1358 1505 11.1 Total consumption U 87 7 53274 636 6072 79 6900 _.T Private fixed capital formation 512 648 665 716 788 869 931 7.5 Public fixed capital formation 174 233 376 569 583 615 638 22.0 Gross capital formation (incl. stocks) 626 1001 1121 1363 135 i60 1655 T0.A Gross National Expenditure 3O 08 6144 6999 '7e7 05 85 7.0 Current forein balance +7qO +1%A +203 +16 -17 -9 -20 - Gross National Product 6060 6656 6647 7015 7470 7960 8500 5.0 1/ For details see Appendix Table 8. -7- 17. The most important trend, to which reference has already been formation at 22% a year in recent years, in response to a strong develop- in greater detail onpages 11-14 below. Private investment spending has 1'1,I.L .".L L .LJ MU' [-20 L t;t.L UJLIY, 1 LCOUJI--1 JILLLiLLJ .LV III CL 'L"j.L level of investment in perennial crops - mainly rubber replanting and oil palm - a consuerable uludug oom, and expanlon in the manuecturug, forestry and transport industries. A large proportion of this private i1vetmentU as been reinvestment by foreign-controlled companies and new direct foreign investment. Accurate information is lacking, but it would appear that about one-third of total private investment and over one half of investment in the limited company sector has been foreign investment. About 40% of this investment was in the traditional rubber and other agriculture, 20% in mining and 10% in manufacturing. 18. The overall effect of this investment boom has been to raise the investment rate from 13% of GNP in 1958 to 19T70 in 1963, 1964 and 1965, and also to raise the relative importance of public sector investment, including the major utilities, from 25% to 40% of total investment over the same period. These proportions have been stable since 1963, and appear unlikely to change significantly in the near future. This increase in investment expenditure has not been at the expense of private consumpt- ion, which continued to grow slightly faster than GNP, while public consumpt- ion grew at twice that rate. (The causes of the increase in governments' consumption spending are discussed onpag6s 11-14 below4 Inevitably the external balance has moved from a position of surplus in the 1958-61 period to one of deficit since then: the trend towards an external deficit of in- creasing size Pnnaars howev6r to have been temDorarilyv arrested by the bocn conditions of 1965. 19. The impact that the growth in total expenditures - 34.0% between 1960-1964-has had upon imoorts into Malaya has been slightly less than proportional. Between 1960 and 1964, merchandise imports rose by 28% and both imports of consumption Roods and investment goods (including intermediate goods allocated according to probable final use) grew slightly more slowly than the correspondine growth of total consumation and invest- ment. The difference is accounted for by import substitution, and it would appear that about 101 of the increase in outnut for domestic use in the 1960-64 period can be regarded as import substitution. The overall trends in merchandise imnorts are indicated hlnw*- Stats nf Mava (Mt millinns) 1960 1961 1962 1963 196L Iorsdestined 0.r-nY%+n1 fr-rmn+Ani~ 425c 530) A)I 635AAE .Io l s / O. L'o a- ex-' t.L l Iw . W~ . C_ ~ L ~ Q ~ ' - 8 - 20. Import substitution in food products was negligible, food imports growing at about the same rate as GNP. Since food imports account for almost 27% of total imports and 37% of food consumption, considerable scope for import substitution exists, as in the case of many other consumer goods. The main fields in which substitution was achieved were building materials, tobacco products, beverages, some chemical products. motor parts. and netroleum products - followine the establish- ment of local refineries. The considerable additional scope for import substitution wiTT have to be exnloited if the trend towards a faster rate of growth of merchandise imports than of exports is to be arrested and PvATRAH_c -9- Summary Trends in the Availability and Use of Resources 21. The virtual tripling of the annual level of public sector capital outlays, together with the escalation of governmentst current expenditures over the past six years has been the basic cause of the emergence of a disequilibrium between the availability and use of re- sources in the economy. This spurt in capital formation has taken place at a time when the current resources generated by the public sec- tor were stationary or declining - with current expenditures growing twice as fast as revenues. The inevitable result has been a gradual increase in the overall public sector deficit and, since the supply of local finance has proven inflexible and since foreign financing has not been sought on a large scale, the impact has been absorbed by changes in public sector assets which increased by an average of M$230 million a year in 1959-61 but decreased at a rate of M$125 million a year in 1962-65. Recent trends can be seen in the following summary public sector accounts:1/ % p.a. M$ million 1960 1962 1964 1965 1966 1960-65 Est. (budaet) Government current revenue 1276 1362 1608 1685 1725 4.7 Government current e-mpnditure -9q6 -1111 -1h61 -1639 -1745 11.0 Other current resources 99 146 167 18h 201 13.1 Tot, rp.or, s )l9 397 11h 230 11 Canital evnPnitures 5 )4 I ll All 760 831 23.0 Overall surplus/deficit 16 -21 -3T7 -530 7-Z3 Finance T.ocal borrowing )l 200 11 Foreign loans and grants 103 79 84 183 221 Asset cbanges, -e AA +9) +107 +1)7 +307 10 rl'I- A4 c4- 4 n-4 on be+-.nn e-v + 1 a,nd c-rev,nt ex-pendi t used C_ r_t AA U .LLQ L.L±1 ±'.JL 1 Vwe~~4 " Oj4 -CA -&1' - -w ~ t~ here probably is misleading, in that the disappearance of governments' partly the result of the increase in, for example, education and health y 1J~1Uj LU.LZ VII-L L UILU UtZ U 4U . L ±c±L L UU. MICID-LE; "~. On the other hand, some defence equipment expenditures are included in cap:Lbd-L expenuitures, as are some transfers to the prvt setr Nevertheless, it is clear that the overall expenditures of the public sector have become well in excess of current resources and local bor- rowing. 23.. Since the growth of government revenues has roughly kept pace with GNP, private disposable incomes have done likewise, growing at about 5% over the 1960-65 period. Although private consumption shows a tendency to rise slightly faster than 5%, the level of private savings has apparently remained extraordinarly high during the first half of the 1960's - gross 1/ For dptils see Annndix Table 12. yreate Generation and Use of Resources 1960-65 MFTmillion) 1960 1961 1962 1963 1966 1965 est. Gross Domesti Product 6941 6877 7187 7652 8168 8740 less: net factor payments to abroad 285 230 172 182 208 240 =Gross National Product 6656 6647 7015 7470 7960 8500 less: government tax receipts; public authority surplus' and social security receipts and other transfers, net 1277 1333 1380 1428 1626 1613 =Private Disposable Income 5379 5315 5635 6042 6334 6887 less: private consumption 4176 4369 4611 4889 5137 5395 =private savings 1/ 1203 946 1024 1153 1197 1492 less private capital formation and stock changes 768 745 794 852 945 982 -private sector balance 21435 +201 _+230---+30l--+252 + "10 Publ:ic sector112 16663 Total transfers to public sector 1277 1333 1380 1428 1626 1613 less: public consuMption 881 955 1025 1183 1358 1505 =public savings l/ 396 378 355 2145 268 108 less public sectr capital formation 233 376 569 583 615 638 -public sector balance 2163 + 2 -214 -338 - -530 0 Resource balance current trade surplus on goods and services +598 +203 + 16 - 37 - 95 - 20 less, private remittances and transfers excluding public grants 235 24 235 238 231 222 -Current external deficit/surplus +363 41 -219 -275" -32T 22 Note: The data on public transactions follows national accounting rather than financial concepts, and thus differs from the public finance data. The external deficit differs slightly from the balance of payments data because of a different treatment of the errors and omissions item. 1/ For details of gross national andc domestic savings, fnc Aiaendix Table t. - 11 - domestic private savings apparently averaging 22% of private disposable income between 1961 and 196 and reaching higher levels in 1960 and 1965 as a result of the excetional profits accruing to the corporate sector during years of high export prices. Because of the importance of foreign ownership in the economy. however, this high level of domestic savings is used in part to finance large net investment income payments. There are also laree transfers of nprsonAl nnvinp in the form of nrivait remittances to relatives abroad. As far as can be seen, however, the level of private savings has ban suffinient in rprpnt verc to finann nrivante anitnl formation and all foreign transfers without any net borrowing from the public nAntor or from nhrna Tn fmrt the fln hma hopn in +.h rpvprqp dirAntion. Moreover, a large part of the investment income payments have tended to retuIrn in t.he formn ofrenstn, furthern auemnng thea subsantia1 resources that have been generated in the private sector. The essential Ynnern iin 0 T+ 4S Clea +-..41, -+ "ri,'Vmpin+. 11n not so far succeeded in making these savings available, either through taxa- f-4LIe gradiua_± LL1U1WZ:LZ:SU _LL Uii1U W t.±L.U II_LtllIlaod UJ since 1961 can thus be seen to be the result of the moing excess of pubi.C capital formabion over publL savings. Vera±., Lhe glVob natUnal savings rate appears to have averaged about 16% in the past five years, ueclining siLghtly except for 156 - a year of high proLUs in tHe expurt sector - and has been exceeded by the investment rate since 1961. Of the resulting cumulated current external deficit in 1961-6 of N,10 million, M$580 million or slightly over half was financed by public sector borrcwing from abroad in the form of long-term loans and grants. Private long-term capital inflow, including reinvested earnings, probably totalled M$1,300 million and thus helped finance the capital outrlows, including a small increase of about M$50 million in official and banking assets held abroad, as well as other sizeable short-term capital outflows - largely to Singapore. Thus, Malaysia has maintained a very favorable foreign exchange position over the past five years, reflecting in large part the confidence and success of the private sector in which foreign - controlled businesses play an important role. Whether this favourable situation is likely to persist is examined later. Public Development Expenditures and Policies 1961-65 Expenditures 25. The surge in public developmental expenditures, both capital and current, has already been noted above. It took place, both before and after the formation of Malaysia, in both Malaya and the Borneo States, and has resulted primarily in a rapid acceleration in the provision of infrastructure facilities on bLtheone hand, and social services on the other. -12- Public Sector Development Expenditure 1961-1965 (M$ millions) %o Agriculture and Rural Development 476 17.0 of' which, Tand Tevelopment (139)f n Transport 747 26.7 Of fih4v,b Ae fEt).1 f(1o 1.% Communications 130 4.6 TT4;4 ;--, rl n Education and Training 277 9.9 Soia and Comnt Sevie 331 11n General Administration 176 6.3 Total 2797 100.0 26. About 52o of total public sector investment has been in power ni r rl traPr i+- n._z+nnor maiite ndi co^mmm4nAnln_s! in whinh investment has nearly tripled compared with the previous quinquennium- resulting in the -im-rovement of an alrendA sondn infrasctur.nv The 12% p.a. growth in power demand has been met efficiently, and water and on the Malayan Pe.insula are 0.eadily improving and are adequate for States are less s-tisfact4ory. Postal services are both efficient and on introducing telovision, which might in the long-run become an asset. IML JU11te ±L~JOUcL 'L.LV,-LU,, roads~ I.L.LU U-LUrt: CL.LV11f_ C%LUUU11UUU L.L- L(0210 of the country's public investment. Some of this investment--for ex- ample the improvements which have beneutted the rapiLy fepanuuig roau haulage industry has been fully justified, but the construction of over 2,000 miles of feeder or rural roads far exceeded the need of the economy to transport prod-cts to and from outlying villages, or from agricul- tural schemes whih in some cases were not productive. Mainy of these roads, which terdd to be built to unnecessarily high standards, stand little used today, but remain a maintenance liability. Their con- struction reflected the heavy emphasis in the Second Malayan Five-Year Plan on the provision of rural amenities, and also was facilitated by the opportunities offered by the rapid expansion in the Government's capacity to execute projects. Since 1963, however, the pace of road construction has slackened somewhat. In Sarawak also, pressures to build roads prematurely and to unnecessarily high standards have not been entirely avoided. Railway investments have on the whole been sound: operational problems stemming partly from inadequate management have however reduced the potential benefits, but the railways have continued to provide good haulage services and have gone a long way in adapting to the heavy competition of road transport. Internal Malayan and Bornean air-transport has rapidly expanded and provides excellent service. Lastly, with regard to ports, the completion of the North Klang Straits project at Port Suettenham removed the major port bottleneck. - 13 - 27. Thus. with the nossible exceDtion of surface transport in which investment may have been unnecessarily high, the 52/ of total capital expenditures which went towards imoroving infrastructure were well directed. resulting in a relatively high standard of basic services compared with mn.t thpr nnnntriat of a.in_Of +.hp romninin invadmPnt._ nhout 19 k may be classified as contributing more or less directly to increasing output, ndA t.he -remnining 2A Y.Ynwa in tAhe fieldsc o%f aocialI services nd nriminiArn- tion. The proportion devoted to directly productive facilities (less than o)ne-fi if+h ) i AInigVIeyf low yet? t+ n±hp maximumn that could be invested while yielding even moderate returns. Almost all thSa. in..ve~ QSmOnV wfa s a arg..icutMe o_I. w.4.VJIi.lU± U two&1.L.4d tok thefrmo rubber investments. These were partly in the form of planting and replant- &A, F = . W.L sma.LJ.JJ.L%AZ.L 0) CLUU FJd." VJ..J -& JLU LCIAI% OUd.UL4 -V 1 the Federal Land Development Authority and State governments. Irrigation in agriculture. Because of the long gestation period of rubber, and the re.Lau.tJ_ve.y -Uw VeUurns uU Ee uuUa.Lueur rice vrLgaun 1-.U tLe iAeuate benefits to the rural population of these "productive" investments are low, and are moreover limited to a fairly small proportion of rural famiLIes. The inevitable effect is also to increase, rather than decrease, the dpendence of iaLaysia on rubber,. Some successes were achieved at a low cuoun other sectors - in fisheries, for example, and in the introduction of new rice varieties and cultIvation practices. Overall, nowever, little immediate effective impact was made on problems of agricultural output, and such progress as took place in the agricultural sector - e.g. the introduction of oil palm and the successes in the livestock industry - were mainly the result of private sector initiative. The 1561-05 period ended without producing any significant applicable research findings on new subsidiary food or export crops. 28. The remaining investment of a directly productive nature - about 2% of total public investment - was in industrial estates and industrial finance institutions. Results have not been dynamic, for reasons discussed below. In general, the ability of the government directly to affect output has not been good except in the case of the several rubber-based schemes, but no larger expenditure would have been justified with the limited skills and opportunities available. It is nevertheless unfortunate, given the govern- ment's emphasis on raising rural living standards, that it has been possible to make relatively little impact, so far, on rural incomes. To date, additional incomes arising out of expenditures on social and in- frastructure projects in rural areas have exceeded the new incomes derived from new output. In other words, income transfers to the rural areas through the mechanism of investments in amenities have been important, al- though some benefits have accrued from activity in the traditional sectors. 29. Amonast projects designed to produce social services, education and health predominate. Capital expenditure increased sharply in 1965 as a result of the initiation of the comrehensive school Drogram - the wisdom of which is discussed later. Universal primary education was available by 1960, and the 1961-6q nAriod was devoted mainly to imnrovine secondary and technical education, as a greater awareness of the need for vocationally trained school- 1Aavrs nonurod. Al+.hnnah there were a numnbe nf fln -Qnt.nrt in the nrnlir.v field - for example the continuation school program - the level and direction -14- of investments was on the whole sound. Health standards are high, and - Malaysia does not now suffer significantly from epidemic diseases or mal- nutrition that afflict many other developing countries. The considerable expenditure of the past five years - M$117 million - has been mainly for rural health facilities and hospitals. Construction of the former has tended to run ahead of the supply of trained health workers and midwives. 30. The remaining 14% of total public investment is divided between various amenities in both urban and rural areas - e.g. some housing mosques, village improvement schemes, etc. - such general government building and administrative Prienditures as have bnn made on new Parliamentary accom- nodation, national' mosque, stadium, etc., can be seen to result in well- sed sitrninviie of eile dnnomh1_ alowan 31- n ennra the vtr^im nnA ~1~+ nof, caQpi.ta.ependitures 'has been sound, and the record of execution has been unusually good. Probably the same ecnmic4 results could have been obtanend LAt b omet,hat ThwAY transportation expenditures, and the trend towards the provision of rural that the government has yet to find ways of making more effective invest- 1AV±.J L411CLU W-L.L- LC_0LA..LU _.1 _L1.%.UL.L 1Jr UUL.VJLLV C;.L%A _LA --. ward rural areas, so as to substitute for the past reliance on income transfers. 32. Government current expenditure on UeveLopVenmUt DUwjU aI, grown rapidly, as needs have expanded in the wake of heavy capital ex- penditures. ivialaysia s Current Developmental Expenditure,slo961-65 ($ millions) 1961-65 1961 19b5 Total 1% Agriculture, rural development, etc. 65 100 402 5.8 Commerce, Industry, Mines 4 5 2L 0.3 Public Works and Transport 116 137 63L 9.2 Education 200 322 1306 18.9 O a L 385 56.4 12366 34.3 Non-developmental expenditures 680 1208 1'C11 6.7 Total 1065 1772 6897 100.0 1/ The classification is nP.A..rily 1itrary. Evclued are a1 df e administration, and social services other than education. 1Tow~ir~r . Mt. i fh-i Vvtvp'+- --r-4-h --1-hAd - -__ 1961 and 1965 - compared with 12% for non-developmental expenditures and 23%fo caitl e,;nditues and also account fo0r on"'Y a third of currcent spending. Agricultural and industrial services account for only 6.1% of the total, and tend to confirm the conclusion that the provision oi services to Dromote nroduction in thosp sectors is a 'hntt1PPc_. ITh is.noraiq for the future, that current spending on public works and on education hns not started to rise un ntrn1alh1v Tf, as is sugesd in Chano V, the growth in current expenditures must be curtailed in order to pro- mote nnhli. qqviTnrn.q_ +.ihinn +.hnt houl clqanyv fill most hn! ily on the non-developmental side. Development Policies 33. The dominating, but usually implicit, feature of public policy ~ UC~ ~ ~ U 'JL U V_~&L~ LU ±L1 ~ IIIU1 t L 4V1~i ±j.1- __L -e sector can operate with considerable freedom. This objective has been successfLuLy maitaUe oUr many years. The performance of tbe ecOnoumv has enabled exchange controls and import quotas to be virtually absent, and impUrU uUtes aVUe not been so hign as to create rising overall prices in the face of rising domestic demand - in fact living costs have remained more or 'ess steady since the mia-1yu's without any significant use of price controls. The government has limited the need to resort to infla- tionary borrowing and actually had a contractionary effect on money supply up to 1963. Overall neyic supply rose at about the same rate as GDP. There is little doubt the the maintenance of this climate has encouraget private investmenl, and particularly foreign capital inflows, into tradi- tional sectors which plays a crucial part in the economy. 34. Within this framework, government policies towards the private sector are executed mainly through limited use of (a) financial incentives; (b) administrative restrictions; and (c) the provision of infrastructure and other facilities, as has already been discussed. The rubber replanting subsidy has already been mentioned: in addition the government offers in- come tax relief for "pioneer" industry - the amount of relief increasing with the size of the investment. In the last two years, as a byproduct of abortive efforts to create a Common Market including Singapore, the govern- ment has established machinery for the systematic use of protective tariffs. On the whole the market price mechanism is respected, and public sector pricing policies generally introduce no bias into resource allocation al- though there are indications that the provision of electric power to large industry below cost is being contemplated. Also, small crop subsidies have been extended in the past to encourage the production of rice, coconuts and fruits. 35. On the side of administrative restrictions, the picture is not auite so bright. The control of land use, for example, is one of the re- maining prerogatives of the State governments, which have on the whole moved very cautiously in alienatine land for new industrial. mining. for- estry or agricultural use. Particularly this is true in the case of alienation to foreien-controlled companies, and to Malaysians of other than Malay origin. Disputes over land use have held back prospecting for new mineral reserves both on and off-shore. hindered to some extend the develon- ment of a forest industry based on long-term licences, restricted the growth of the livestock and market. arning industries, and held bank agricltural estate development as well as industrial estates. In recent months, however,the, INational LWnd Col_ncil ha_S moved to reop-en, thle possibilityi MOr'e land alienation policy, but change is expected to be slow. The issue of tions reduce efficiency. Here the aims are two-fold. On the one hand and goods vehicles, and on the other there is an implicit policy of protecting the railways LrQm excevss3ive road haulage Competi-t-n. ihe latter aim certainly does not promote efficiency; nor does the former, which linus a manifestation in many walks of MaTaysian life: on the wUle, however, the price paid in the interests of nation -building is unavoidable and riot excessive. 36. The area of policy in which the government has been least effective to date is probably that of industrial policy. Great reliance has to be placed on this sector, both in the short run as a major souce of import-competi.ng goods,and in the long run as the major alternative to the traditional ex- port sectors. Output in the sector, now in its infancy, has been growing rapidly at 10-11% a year, yet its greatest potential is not being exploited in the absence of positive promotional steps. The Tariff Advisory Board, established in 1964, will help put the use of protection on a systematic basis, but the systematic evaluation and promotion of industrial possibilities awaits the creation and effective use of the Federal Industrial Development Authority - recommended by the Rueff Mission in 1963 and enacted in 1965. Despite the creation of FIDA, however, there are no indications of significant departures from the traditional laissez-faire industrial policies and no real enthusiasm has yet been demonstrated for closer economic cooperation with Singapore, nor for the considerable benefits such cooperation could bring to Malaysia. 37. In summary, the Rovernment's development Policies have generally contributed well to economic growth in the past few years and internal and external monetarv stabilitvhave been maintained. The private sector has undoubtedly benefitted from the excellent infrastructure which has been created and maintained by generous nublic canitnl expenditureq. These on the whole have been well allocated, although expenditures on rural amenities were Perhaps excessive. The government has effectively promoted the re- habilitation of the rubber industry over the past ten years, and made a direct attack on the nroblpm of raising rural incomes thronuh land develon- ment schemes - also mainly rubber, but with some oil palm. However, the twin nim.q of in,-rPnczJnor ruiral in-ormes Jn banncT.7ward areas andir nrnnt.ina rli-rimci- fication in output and exports have suffered because of the absence of effec- tiegove-rnm-nt pogra_ to stimulate the pdcto ofnew., non-uber crops. Substantial production increases have been recorded mainly as a. in the latter field, again, opportunities for more positive promotional gone is that of close cooperation with Singapore - to which further reference .me mIove ovr te l JibV 11d UeI IItU -3erir in1 generald fHinanda" erms the governL1- ment moved over the last six years from having an excess of savings over - 17 - investment, to having an excess of investment spending over saving. This caused a potent demand stimulus to growth. In effect, the public sector spending program compensated for the unusually high average propensity to save in the private sector. The implications for future growth are examined in the next chapter. - 18 - Chapter III ECONOMIC GROWTH - PROSPECTS AND PROBLEMS 39. Two related points emerge from the discussion of the experience of the early 1960's. First, it is clear that economic growth took place despite near-stagnation in export earnings for three main reasons. (a) There was an autonomous increase in investment and net output in manufacturing, as import substitution began to take place, and in one or two other sector.s such as hotels and tourism; (b) there were some increases in net output in export sectors resulting from productivity improvements and volume increases. (c) The growth in the other rapidly growing sectors - the construction industry and most services - was clearly the direct result of the boom in total government expenditures. The question that arises is thus whether these forces will be in operation to the same extent during the second half of the 1960's, during a period when export earnings are also likely to remain virtually unchanged. These growth prospects largely determine the volume of resources which could be available for investment during the coming Plan period. The second point, related to the first, is the question of the probable effect on the economy of the increase in the investment rate achieved during the early 1960's. and the ability of the economy to sustain or even improve this rate. The EKport Sector 40. In the export sector, the probable volume of output can be characterises rubber, tin, iron ore, timber and oil palm production. Rubber during the previous five years, largely because of the large acreage planted Wj_UII AI.gIi.-yj_e_ULIIL VadL± t4..±e WIL.±UL1 WL-L- Uf:,' LiAi 11CIIiL.'JU UU.FLII; U11±t; j_)UiLUU. Tin and iron ore exports are almost certain to decline as the exhaustion of Known reserves continues, although on the basis of past exprienCe it Lb probable tha particularly in the case of tin the rate of decline will be quite low. if tne recently granted concessions for off-shore prospecting produce favorable results, the output prospects for tin could be significantly improved. Iron ore output and exports are exclusively geared to the Japanese market, and exports are likely to decline fairly rapidly as the quality of deposits is dropping at a time when competition is being intensified through the expansion of Australian output. The output of timber - now Malaysia's third most important export commodity - is likely to increase only slightly as production in the Borneo States levels off. Considerable potential exists for expanding Malayan output, but is not likely to be realised unless ;tate governments change their timber concession policies. Local consumption is also expected to grow, reducing export growth to about 1% a year. Output of palm oil and palm kernels is expected to continue to expand rapidly reflect- ing heavy planting at the present time - and only a three-year gestation period. Output is expected to more than double by 1970. On the basis of the above commodities, which account for almost 80% of Malaysia's expo:rts, export volume appears likely to rise by about 4.8% per annum between 1965 and 1970. 41. Trends in prices are less easy to predict. Continuous expansion of synthetic rubber capacity is expected, and synthetics gradual movement towards capturing a larger share of the rubber market is expected to continue. For the last three years. however, total rubber demand has expanded rapidly. - 19 - aided by boom conditions in the United States; sales of natural rubber have 'Y ~ tLJJj±J "%'± "' u~v uqzii LL U11 ~ 41W d Contrary to expectations of a price fall, the price remains at around rqu. (V a lb., almost unchanged Irom ute 17) average, but improvemeUt in the overall supply position and a gradual reduction in the supply price of directly competitive synthetics are expected to cause the price of natural rubber to fall from the present M70 a pound to around IW55 a pound 1US/20) by 1970. As a result, rubber export value is expected to increase by only about 1% a year over the rest of the decade. However it is not possible to rule out the possibility of a cost breakthrough in the production of synthetics which could cause a drop in the price of natural rubber, with disastrous results for the Malaysian economy. 42* Tin prices shot up in late 1964 as a result of the emergence or a supply/demand disequilibrium. High prices have persisted since then despite substantial sales from the US stockpile, and are likely to persist for most of the rest of the decade. By that time an increase in production by Indonesia, Thailand and other minor producers, possibly augmented by offshore production by Malaysia, is likely to take place. Given also the probability of an increased use of substitutes, the resulting price trend is likely to be downward from the present level of P1,400 per ton to around £1,200-1,250 per ton - somewhat above the upper limit of the present International Tin Agreement. Domestic Export value as a result may fall from the present level of around M$745 million to 1/$600 million in 1970. Re-exports are also likely to fall as Thailand's smelting capacity rises. 43. The price of iron ore is likely to decline by about a fifth by 1970, and with the drop in output it will probably cease to be a major export product. Timber prices, on the other hand, are buoyant, and by 1970 it is expected that timber products, amounting to perhaps 12% of exports, will be2in to aDDroach tin in iznortance. Palm oil and kernels prices are closely related to those of other fats and oils, and are likely to decline over the next five years by nPrhans 61 a year - a trend which will be more than offset by volume increases. Export value may be expected to double. On the anmimnt.inn thnf nt-.hp-r minnr smnnrt.q will amow at around Jil a year. as in the past, the export prospects that emerge are as follows: (in M$ millions) 1961 1965 1970 Rubber .................... 1567 1440 11924 Tin (of ..... ....... .......... 50) (37610 (o Lw re. exprtl. / % / %ln Timber ............................. 186 338 446 Iron Ore .. 9.. ,*a 1) 177 70 Palm oil and Kernels ............... 65 114 202 Otl"hers .. .... . ..... .... 677391 Total Exports ............ 3212 3695 3770 44. The net result is that total exports will barely rise during the coming years, while domestic exports will rise by perhaps 1% a year. The commodity concentration of exports, with rubber and tin accounting for 57% of the total in 1970 compared with 63% today, will probably decline slightly. - 20 - Net value of output in the export sector is however projected to grow by around 1.5-2% a year, because of expected productivity increases as yields rise in rubber and oil palm. Nevertheless, the relative importance of the export sector to GDP, which has already fallen from 45% in 1958/59 to Ito% in 1964/65, is expected to fall further to around 38% in 1970, thus further reducing Malaysia's vulnerability to fluctuations in export earnings. Domestic Production 45. As has been Dointed out in Chanter II. the rate of growth of outout for domestic use depends mainly upon the rate of growth of domestic demand, partly on thp rate of imnort sibstAt.ition and nartly on the rqte of invest- ment during the coming period. For these reasons, an accurate projection is diffinit +.'.n Tn +.hp mnmnt manfatiri r netor t.hp rate of aroti%h o' -npt output in recent years has been about 12% a year, during a period of heavy irnmnr. qiih'5a+A-+.ii+Arnr nn A'v l IT fr O CZ MY +r-n+Ml i v-niarii +.ii rp - on 'n h"Ini s consistent with the level of expenditures considered feasible below, this support in the form of adequate protected markets, financial facilities, etc. The cOnstruc-tion and buildiAJng tr-des ar lieAis expeted to^ grrw at nriir 7% - somewhat slower than in the past because of the expected slackening in the ra+ of growth of i--netme sending. Net e4-cul+tual output for domestic use is expected to grow slightly faster than population growth at C&LJVILUJ42I. UVJ~± C L4AU ± L_%,1k_ U.LCLLt:, LO .L.LL U±II JJC60I, J. VW rV W at about the same rate as GDP as a whole, while private services such as htls, restaurants, enUtanets Ut., areU ProUjetedUto; cntinue_1 tv rowU in relative importance. The value of Government services, including internal security, will follow te expectueu level of curreu spenU"ig - UUout u'/ a year, concentrated in the early years. 46. The possible level of future output, based on these considerations, is thus as follows: 1965-70 y% annual M$ millions 1961 1965 1970 growth rate Agriculture, Fishing and Fbrestry ... 2330 2521 2990 3.5 ining and Quarrying ................ 410 61) 53U -3.U Dnufacturing ................... 333 565 895 9.5 Construction and Building ........... 210 390 555 7.5 Ownership of Dwellings .............. 293 349 450 5.2 Wholesale and Retail Trade .......... 929 1183 1530 5.2 Transport Services ................. 223 273 350 5.1 Government Services ................. 677 942 1295 6.5 Other Private Services .............. 565 828 1200 7.5 GDP at factor cost ........ 5978 7666 9800 5.0 GNP at market prices ...... 6647 8500 10790 4.8 47. The probable rate of growth that could be attained, given the patterns of expenditure discussed below, would be about 5.0% a year for GDP in current prices, compared with almost 6% in the 1958/59 to 1965 period. GNP may in turn grow at 4.8%. a year compared with 7% in the recent past. - 21- 48. It should be emphasised that these projected rates of growth, which are slightly lower than those achieved in the past during a period of exceptionally rapid growth in the public sector, are considered to be the maximum rates attainable given the export price assumptions. It is assumed that a steady and continuous increase in public sector expenditures will take place, as outlined below, which presupposes substantial foreign capital inflows and additional tax increases. Furthermore, the growth of manufactur- ing, and some agriculture and trade sectors. also presunoses that the imort substitution targets discussed below will be achieved or exceeded. To the extent that these exnectations are nnt fnl fi l Ild. the grnwth rate may be expected to be lower. 49. The growth prospects for the coming five years thus do not appear t.n he ii rentjiv rle +.Pri ++.ho atii +Annn1 nini innriiii h i hnqvy niihl i r- investment in the recent past. This is largely because of the pattern of recent public investment Alnn + nlI nffwicl+en.1 "n"d rural develanment investment has been in crops with long gestation periods and long lives, or i n fon i14+4 no o, i-l Am-4 - - -nfn , A ,v4,..+4n,n--1u-. ~ n .., --. - -l - ,4 , ^irn the whole promise to have a significant effect on productivity and incomes at, a .later . L-l.Lt V ."~J'. I I L ULU; -LtVVV LUAJ~U -L41 .LV %A CQU 1% VA±L .L"GIU JTLaJ Lh.Y ' &A Vt..A be expected to make a gradually increasing contribution to the productivity of transport. sevie and hence theI L't:OUUt U1± V,1. Ul4. At::L;U1JU11Vj1 c-L U11UU6IL11U~ invo ±Ii1jJLVC-- ments have been marginal additions to already efficient systems. Expenditures which are euentiilly on ameniies have been Lairly large, and im1ediate increases in output and incomes cannot be expected from some of the investments in broadcasting and television, health, housing, airport-construcion and various social services. On the other hand, most of the investment in industrial site development, port facilities, and utilities is proaucing immediate returns, and capital expenditures on education and security services result in immediate use of facilities and equipment, although it is difficult to measure the long runeffect on the value of output. If public sector expenditures were to remain at their 1965 level, it appears unlikely that GDP growth would exceed 4% a year. The achievement of the above growth rate of 5% for -1966-1970 thus essentially depends on attaining the public sectorls goals for borrowing and expenditure, together with the maximum possible rate of growth of value added in manufacturing and domestic agriculture, and in the export sectors. Development Problems 50 Malaysia has a number of primary long run structural problems, and a set of secondary problems which arise out of attempts to change the economic structure., The major structural problem is of course that of the high dependence on exports and, within that sector, the dominating position of tin and rubber. However, since hardly any significant change can be made in the export structure within a decade, the export risk is inevitable. Thus, a program whose aim is diversification of exports, per se, is liable to direct resources into sub-optimal uses without affecting the magnitude of the risk significantly. The corollary of the export risk is that imports would have to be curtailed in the event of a cut in export value, so the best way to reduce the exoort risk is in fact to increase the proportion of total expenditures that are met by local production - a proportion that in Malaya has so far riqen only qlirhtly frnm 6El tc 66V between 1960 and 1965. - 22 - 51. The problem of an excessively high dependence on imports, which exists because of Malaysia's long history of good export performance and unrestrained trade, has become more serious in the 1960's because a growing level of :umports relative to exports has been necessary to support the growing expenditures on capital formation and public consumption. As was outlined in Chapter II domestic output responded to the increase in deiand, particularly with increases in the construction and building sectors and in the output of services. There was also a largely autonomous increase in manufacturing output and a slow expansion in the traditional agriculture sectors. The over-all effect was in fact a considerable rise in output for domestic use, and some import substitution took place. Unfortunately, retained imnorts of aoods and serviPs nov-rtheless rose at over __ a vear and. with stagnant export earnings, this has meant a gradually increasing payments deficit - a trend broken nnl-,byhtr+hn ePtrP+ionnal Pvnnr. n,-fr)rrmnnt.P in 1965. If this payments deficit continues to increase, a large gap will emerge, whicnh would reql r exesiv -resrv use o-r an dr7-astic cubcrn-mot with the danger of inflation and slower growth. The problem, then, is to 1u+-n +Ina ^f ren+nir ,n 4vm n"+q , "A +n m--" w rp +In "+ e- substitution achieved to date. 52. The import problem is in effect part of a larger problem - namely, whole economy are achieved. In the long run, of course, the best way of the real cost of output of all goods. At the present time, Malaysia is in the fortunate position, not 5nared by many developing countries, of having enjoyed a liberal import policy for many years; moreover, there are good prospects for continuing to maintain a fairly high level of imports in the foreseeable future - although declining relative to GNP. Malaysia thus has the prospect of being able to achieve a growth in-output through unusually large opportunities for import substitution, yet it can continue to have access to foreign goods at a reasonable cost - an opportunity not shared, for example, by India, where the need to curtail imports itself curtails production. 53. The emphasis on import substitution and other increases in the net output for domestic use is made necessary at this time mainly because of the existing and prospective stagnation of exports. Where opportunities exist, however, equal emphasis is applicable to increases in output and. productivity in the export sector.. As far as can be seen, if the present rate of growth in per capita incomes is to be even maintained in the near future, these incomes must derive from increases in value added from goods which are primarily for domestic use. 54. In attempting to implement policies to alleviate the above problem the government runs head-on into a difficult task which in the past has not been successfully pursued - that of production promotion. The main direction of the government's effort would have to be in food production, including fisheries, fruit and livestock, manufactured goods of all kinds, and forest products. Other tropical export products might eventually be proven feasible. In the aLricultural sector the bottlenecks are in the form of inadeauate agronomic knowledge, resulting from insufficient and misdirected research Pffnrts in thp nnat- An ancte shortageof trainP8 and t-nprienced extension personnel and settlement scheme managers, and institutional barriers in the - 23 - form of land policy, traditional tenure and credit problems, etc. Each of these is a formidable problem which is not susceptible to solution overnight. In industry the government has not yet attempted a positive promotional policy, but is rationalising the use of tariffs. In short, the pursuit of policies aimed at promoting import substitution, or at increasing rural incomes is beset by problems of its own. 55. As far as these iroblems are concerned,. finance is not a limiting factor either in the field of industry or agriculture. Problems are more of an administrative nature and reflect the shortaLe of human resources: to the extent that industrial finance or rural credit is necessary, a financial provision can be made at the cost of eliminating exnenditures of a lower priority. In an aggregate sense, however, the country is likely to face an invpstment/savins gan of arAAt.pr nrnnnrtin.q in the 196-70 nprind than in the past. The investment rate began to exceed the gross national savings rate in 190; and t.he ann hintmpn qnvina.n anA inuptmPnt renched about Mt27q million in 1964/65. By 1970 it is likely to reach around F$600 million. 56. Given a substantial public sector borrowing effort, a gap of this reserves, as is discussed in Chapter 5. Hbwever, at the projected rate of resewrve usea 4 F 4 4" vA v-a, .,,, , ,,n a a. -v,r n"""_l. nol,A n,r 1975 after which further significant drawdowns would not be possible. The J.* UALL~ L &JO~ U ")±.L CL - qz JVIUILLL ± V ;L I~, L adequate savings level so as to enable the economy to maintain a reasonable .LIVU m.1±nI rave wJl.A I'ZUUI.; vy L7(.-) VILy UU wit- uouCL u JUuld pAvL a sources of capital flows from abroad. The use of reserves can of course be maupultedU in principle by cuanging 11cal policy, but the efIecive J.eeway is small and offers little scope for adjusting expenditures downward. In practice, the problem may be to postpone reserve use as far as 1975, because whereas the capital program in 1961-65 was limited (at least up to 196h) by problems of administrative capacity, in the future the financial constraint will be dominant. Thus, if the targets for foreign borrowing and public savings are not achieved, the pressures to continue with expenditure programs at the expense of reserve use may well be strong, but will have to be resisted. 57. Output and savings in the Malaysian economy have traditionally reacted slowly to changes in investment, and this basic response is expected to prevail in the coming 5-10 years because of the heavy recent capital formation in perennial crops, education, transport, and also social over- head and infrastructure facilities which tend to have long lives and long gestation periods. Hbwever, output prospects for the early 1970's are more favorable than for the remainder of the 1960's, and these prospects will be further improved if substantial investments in manufacturing and food production are made in the course of the campaign for import substitution. Such investments tend to have shorter gestation periods, and once the initial stage of low profits is overcome, they should contribute significantly to the level of savings by the mid-1970's. On the whole, then, the arguments for the maximum possible delays in reserve use are strong; relatively slow use would avoid the need for the sudden adjustments that would be necessary if reserve use had to be curtailed suddenly before the savings/investment gap had been reduced to a tolerable size. - 24 - Social Problems 58. As better statistical information has become available, it has become clear that a high level of unemployment exists in some parts of Malaysia, particularly amongst the 16-24 age group in large towns. The 1962 Malayan average has been 6%, with declared unemployment in rural areas less than 3%. Throughout Malaysia the structure of employment and umemployment has important communal aspects; overt unemployment is the lowest in agricul- ture and other rural occupations in which Malays predominate, and highest in urban occupations and areas which are largely Chinese. Information on trends in unemployment is inadequate, but such information as is available indicates that the problem has had approximately the same dimensions at least since 1957. No serious problem appears to exist in the working force age --rouDs from 24 upwards. but problems of initial employment for school- leavers are serious in the towns. Partly this is the result of selectivity on the part of both employers and employees. Unemployment is for example higher amongst those whose education finished at around age 15-16 than amonrst those with Pithpr more or lpm. Pincation. Town dwellers are reluctant to accept rural employment opportunities. Language barriers annPear to h A contributing fnator. There isa l reA onsatifiAd demnd for vocationally trained personnel, so better training facilities should hpIn allevint. the nrohem_ The cnntribution of nrhan drift in tneTar but certainly important; this drift is in effect a secular trend and is unlikely to be much inflinced even mhasnsive rurnl investment prograns- accompanying a 5% growth in GNP,, appears to have contained the employment materially over the next five years. A long-run solution must be based O D lU4J.L.y V.IA CL LI.LUWOjJ1ULIGt:lI IU 0- J.Z )v W.i , d JLI IA.A1 S IA.ltSl. during downward cyclical trends through high and rising government p J~XUU.L~ - LICd~ UQUULt:U LL ,11- _L~ 7UU-U_? FtJ4.LLU±UkV1JuiUJ.LY, U4Y OV directing investment as to produce the best possible rate of increase in net ouUput in future years, and thirdly, by specfic programs Uf tainLin, relocation, etc., to relieve specific structural or regional problems. L.auce he projeoeu growth patuern and ivestmen, rate indicae i Chapters 2 and 4 already represents the maximum rate achievable, emphasis during the coming plan period will have to be on the thiUd set of policies. In the long run, of course, the unemployment situation could be alleviated by a fall in the birth rate. To this end the Malaysian Government has recently, for the first time, made a commitment to support family planning. 60. Various other social problems are pressing; poor housing in urban areas, pockets of poverty in rural areas, and the need to improve the com- petitive ability and economic opportunities of the more seriously disad- vantaged indigenous people. Overall, however, these social problems and the problem of the savings gap and import substitution mentioned above, re- quire in the long run essentially the same solution, namely, an allocation ac investment and human resources in such a way as to create the conditions fr sustained economic expansion while providing for essential social needs and political stability in the meantime. A steady long-run expansion of the social services will be possible only if adequate resources are created in advance for this purpose through direction of ne major part of investment to productive purposes. Where social investments are made, the emphasis should whenever possible be on creating conditions for social and cultural change, without which economic growth will be hindered. Malaysia is moving into a situation in which both foreign resources and capital are becoming more scarce. The evaluation of public capital expenditures and policies towards private investment have to reflect this, and emphasize adequate returns from capital as well as the particular benefits to the economy of achieving import substitution or export growth. - 26 - Chapter IV THE FIRST HALYSIAN PLAN - 1966-70 Summary 61. The First Malaysia Plan, 1966-70, in essence continues without radical change t1he- -1 Jcies -P +,-n -P-4 rie i 1-n n" +.n 'rr States. There are, however, some important changes of emphasis. It remains macroeconomic analysis and in its assessment of the problems affecting the V0..L.L'JlhO L;%VJAQL J_ U%J L L%,1U D LLPV41 1dCLIV U. lt±± pl-uLL U AILD a,.L.LU%L,_I5IL1r L110 C%';,VJ as a whole. As such the Plan provides valuable guidelines to future policy judguents 0UJYth publi se.tLu C-.nd pur±vvae sectoUr aLlk-to rbCLLd.'0. 1.0C CU41 unusually good record of plan implementation, and followed closely both the expen'iture and policy guilines1J:-Z oL Ute IM1C1,YC1 second11 fiLVet-ear pJlan. LiTere is thus every reason to believe that developmental policy will in fact continue to fo0low tue inUcateU course. Ti plan however goes furuer than previous plans in attempting to bring together the various suggested aspects of Malaysian economic policy. For example the need for, and impiLcations of, an import substitution policy are mentioned. Such abstract policy aims are less easy to execute, and in such areas proof of the success of the planning process will have to await evidence on the implementation of the plan's recommendations. This is probably where the greatest difficulties lie. UC. The programs and policies in the main sectors, for 1906-70, are discussed below, in the light of recent experience. A detailed breakdown of proposed public sector capital expenditures is given on page 27with compa- rative data for the 1961-65 period. The changes in emphasis, as indicated by the expenditure proposals, are entirely in the right direction. More emphasis is to be given to production promotion in agriculture and to related technical training, and less to the maintenance and improvement of an already good transportation system, and to social amenities. Industrial policies are more or less unchanged. In terms of the classification used earlier, about 40% of the total expenditure is destined for infrastructure development compared with 52% in 1961-65, about 32% (20%) for activities related to the promotion of production, and 28% (28%) for social services and administration. Within the social services sector, the relative spending on administration and welfare services is lower, while that on education and public housing (a field which was largely ignored in earlier years) is increased. These are emphases which are relevant in the light of the trends and problems discussed in Chapters II and III, and offer further evidence of the Govern- ment's commitment to its development effort. 63. On a per capita basis these targets, if achieved, will mean an increase of a third in total expenditures, with much greater increases, and greater per capita expenditures, in the Borneo States, in the light of their relatively low past level of investment. Per capita development expenditure would be around M$390 per head in Malaya, M$V90 per head in Sarawak and M$590 per head in Sabah, compared with a national average of M$300 per head in 1961-65. These are sizeable increases: after allowing for a doubling of security expenditures on accommodation and equipment, total public capital exnenditures are nLanned to rise by h6% compared with 1961-1965. Emenditures of this magnitude are probably justifiable, but will create some financial nroblems for the nblic qec.tor Private sectnr canital formation is nlanned to rise by 38% from $446o million to m$6,160 million. The overall financial imp,licnAinndl nesbli~ f +.hr,q ro areq evpPamined in CIhaptepr U. Public ector Capital Expienditure Pronosals. 1966-70. with comparison for 1961-65 (M4$ million) 1961-65 estimated expenditure 1966-70 proposed expenditure Mialay Sabah Sarawak Malaysia ' Malava Sabah Sarawak Hialaysia % Agri culture and Rural Development: 4_1 1 47 476 17.0 900 55 131 107 2 8._5 of which: Drainage and Irrigation 109 1 3 112 4.0 319 7 7 333 8.7 Land Development 130 3 6 139 5.0 335 28 13 376 9.9 Other agriculture 172 14 38 225 8.0 246 20 111 378 9.9 Industrial Development and Hining 60 5 6 70 2.5 112 2 3 116 3.0 Transport: 589 68 _1 747 26.7 36 69 112 5.46 14.3 of which: roads 417 50 76 544 19.4 256 54 80 390 10.2 Communications 113 8 8 130 4.6 157 26 23 206 5.4 Utilities 527 29 34 590 21.0 695 58 33 786 20.6 Education and Training 237 18 23 277 9.9 368 27 46 441 11.6 Health and Housing 171 17 16 204 7.3 324 25 29 378 9.9 Other Social Services 113 8 7 126 4.5 106 9 12 127 3.3 Administration 124 33 20 176 6.3 88 27 12 126 3.3 TOTAL (excluding defense and security) 2344 203 250 2797 100.0 3114 298 400 3812 100.0 (Per capita) 296 400 305 303 -- 393 588 488 412 -- Source: First 11alaysian Plan. Details may not add to totals due to rounding. - 28 - Progress and Plans in the Major Sectors 1/ 6h. (al The A-ricultural Sector - Agriculture is the mainstay of Malaysia' s economy, contributing directly almost a third of GDP, and is the Inraoc! .e inai qe)nro nf izrnnInvent and enhange earninL7s. Rubber, strictly an export crop, accounts for 62% of total output, followed by padi 8%. Other man4or nrod"tis A nc,lAn fJh 14vnier conna- tAmhr- nineanole. flour. pepper and palm oil. Despite the fact that Malaysia produces a wide variety of -acl*fn pro+ +ka onnew+nr s not. fl rrinnt and is forced to import large quantities of food which accounts for 27% of total imports. 04 -4~~-~44 .n1 ,tyls.--A a 1,4-1, r,-n -t'-n-i y--nnrnw+th hqupe nutstrinned domestic production in recent years and imports of food have been rising. At Wt: 0CUtIU Wu11t: WPL'.L" j.WTI-COQ I.-. J 4-J- Deterioration in rubber prices and a rising level of foodstuff imports are OILLY arl, 1 U1W UlLLVlWIIU .LUUU U 1110 ±%_L LLL.UU± tOCI'J.4 BesideL'~' lems,. the pountry is also beset by a growing population pressure on- ailable land, low income in rural areas outside the esate sector, d c diversification, and institutional shortcomings. The Borneo States .suffer from the additional handicap of labor shortage in £avah aud the pam-ti-. of shifting Cutivition. 65. Public sector participation in agriculture during 1961-65, aimed principally at alleviating the snortcomngs mentioned abOve, was largelY concentrated on three fronts: rubber replanting, land development and drainage and irrigation. Hbwever, in view of the long gestation perioud characterizinG Malaysia's tree crops, much of the effort was in schemes whose full impact will not be registered until the second half of the 19601a and even later. The rubber replanting scheme was a continuation of a program started in the 1950's through which the Government provided cash subsidies and technical assistance to rubber producers to help them substitute high-yielding varieties for old ones. The basic assumption behind the scheme is still valid, i.e. that rubber is the most suitable crop for large areas of Malaysia in terms of climate, soil and smallholders proficiency and that given improved productivity, natural rubber will continue to compete successfully with the synthetic industry. Under the program estates have almost completed the transformation to high-yielding varieties but the change on smallholders holding is only half finished and requires a continuation of the program for some time. The overall success of the program is best indicated by the expanded output and higher yields now being realized, although with the result of preserving tne dominance of rubber. 66. Land development schemes during the period had a dual function; to provide additional rural employment for the landless part of the population, and to enable the economv to expand production. Over half of the 250,000 acres opened up were under FLDA schemes in Malaya, these schemes being: without doubt the most successful element in the agriculture program. The remaining acreage was developed under various schemes such as fringe and controlIpd alienation. which were greatly handicapped by the lack of support- ing extension services and the restrictive land alienation policy of state CnVArnmnt. WT.A schemes also mroaressed slowly because of shortage in qualified jungle clearing contractors and experienced staff. Overall land 1/ The agricultural sector is discussed in more detail in Annex 1 to th'-report. - 29 - development consequently progressed slowly and availability of developed land per capita actually declined. Drainage and irrigation schemes were pushed vigorously in 1961-65 as a means for expanding smallholder output. These schemes were related to a subsidy program which attempted to improve yields through the supply of agricultural inputs such as seed and seedlings, ferti- lizers, mechanization services. etc. The overall imoact of these programs was greatly reduced by insufficient research and inadequate extension services. 67. There has also been a rapid expansion in private sector activity; Darticularly in nalm oil prnducti nn whprp tstats have taken thL initiative. livestock and poultry where government extension work played a small but signi- ficant role, and in for9t The nmbination of phlic and nrivan initiative in agriculture has enabled the economy to enjoy a steady increase in output and nrPnrA8 t.hp aroindi for a more rapidj gvrwh duiring t.he Plan nperiodi_ Despite these achievements, several problems have not received adequate n+.+.a"+Ann M"A~ MV 1.ln,rl+ ~e,-aA ',,,~ ~~~. vrliA in training facilities for professional staff, land tenure arrangements, research giving results applicable for diversification schemes. The Plan Proposals 68. The programs represent mostly a continuation of schemes initiated .L11 _J.-V.LULLO yt: Ju.Iluugil WLUIL a 'jigIL.Lucl .ul cug ±11 0%UjJu CdIU as well as several new ones. Dominant position in the Plan is given to land development and draUinIage andU _I-1rrigatIn schemll M.U±ILL wVLIh aL m1uch1 stVronger emphasis on education, research, and extension. The rubber replanting program L continued on a significant cale, and otUer crop Oubsives are expand. Provision is made for two new agencies, Bank Bumiputra for the extension of credit to indigenous smallholders, and the Federal Agricultural verkeiUug Authority to coordinate the activities of agencies engaged in marketing agricultural produce. A Land Consolidation and Rehabilitation Authority is being set up to rescue some of the less successful alienation and subsidy schemes of the past. The existing problem of the availability or prores- sional staff is likely to become more acute, given the proliferation of agencies, and could seriously undermine successful implementation of the Plan. 69. Previous increases in the agriculture program and expansion in private sector activities have given rise to a growing demand for qualified personnel in agriculture. The capacity of the various academic institutions who prepare agriculturalists has failed to keep pace with demand and conse- quently the country is entering the new Plan era with an acute manpower shortage. A serious bottleneck is therefore likely to persist in the early years of the Plan, despite the stated intention to supplement local personnel with external assistance, and delays in the initiation of schemes might be necessary. Fhrthermore, close coordination between government agencies will be necessary to ensure that positions are available when the flow of graduates starts. 70. The target for new FLDA schemes is maintained at its 1961-65 level because of capacity limitations. While such a modest target is in line with the agency's present capacity, there are no adequate provisions for in-service training to allow for future expansion. Actual FLDA expenditure will however double because of continuing development of existing schemes up to the point -30- of maturity. Land developed on non-FLDA schemes will depend to a large degree on the availability of staff for extension work and the extent to which state governments will respond to the Federal Government plea to liberalize land alienation policy. Unlike previous years, heavy emphasis is placed by the Plan on private land development. Land policy will be even a greater factor for estates which in recent years have been unable to expand. Various estates have indicated interest in opening new land and pro- vided a change in land alienation nolicy and adequate tax incentives can be introduced, it is possible that estates will succeed in meeting the Plan target which calls for the onening un of 1 0.000l to 200.000 acres. Drain- age and irrigation schemes in the Plan comprise mainly two large schemes - the Mida and Kenibn irrioAtion nrniets - which are hp.ing financed by the International Bank for Reconstruction and Development and several smaller schemes 71- Lc ofnh nPrpaty annalyisrofe th -v;niabIi+--t r%r qnn- ofr thep schemes, shortage of staff for supervision and inadequate extension work hn n~f+.n 'hrn thencau. ofM1Q f^iP ini the past. ^h ' +M o- ther +i probability that the necessary personnel will not be available for several ,e + rnnir ntr on I-% n 4+ A1 ^I n- ~ + -, -; m A ^~+ P enme niz~r T.T nerb) cies, new schemes and expansion of existing ones until the staff position the 1970's when the real benefits of the present Plan will be realized, are projects should be completed and will provide a further boost to production. LIZe epansion of traininig faiiisso ltbegin1 toU Urn UtU gradLute inL1 growing numbers and much of the research to be undertaken in the next five years will be ready for practical implementation. kb) The Transport and Communications 72. The transport sector has been given very high priority during the last decade. Its share of public development expenditure reached M$588.5 million or 25% of the total, during the 1961-65 Plan period. As a result the present transport system is now on the overall fairly well established, and the most densely populated and economically developed regions of the country are well provided with transportation facilities. Under the last Plan, 1961- 65, about 70% of public expenditures on transportation went for highways and financed the construction of about 2,300 miles of roads, mostly rural. There are now about 9,200 miles of roads, about 80% paved, including a good system of trunk highways. Heavy investment on the main trunk routes was on the whole justiTied by the rapid growth in vehicle registration. From 1954 to 1964, private cars increased in number by 183% while commercial vehicles roughly doubled and private motorcycles increased about eightfold. Thus the States ot Malava are far ahead of most Asian countries as to the number of private vehicles per person. However, there has been a serious lack of planning and little concern about economic justifications of the investments, re- sulting in some misallocation of public funds and too much emphasis on 7 1 Tlmt-mana MnInvnn RnilwAy Administration onerates 1.028 miles of meter-gauge track. The network extends northwards from Singapore to the Thai border, and comprisa_S twor TMainl I immsserving the most, impor tant areas and major ports. With 442 million ton-miles and 3-8 million passengeri e I si g oition fromeroad t r anspor How ev er to61 4, coninu to e R despite growing co)mpetition from road transport. However, to continue to -31- attract and maintain freight traffic the Railway has had to concede impor- tan rat reucis C PaDIS. ssen1ge-t raffIlc is dCIClig dlue tO the deltoLp- ment of other means of private transportation. Railway efficiency has improved appreciably up to 1961 to a large extent on account of the purchase of diesel locomotives, but in spite of efforts to modernize the railway there nave been increasing deficits since 1962. It is believed that in- creased competition from road transport is inevitable and will increase the financial difficulties of the railway, unless a radical reorganization of the facility is undertaken shortly as a corollary of a policy of harmonious development of the various means of transportation. Changes should concern both management and operations. Analyses of traffic trends suggest that concentration on bulk freight traffic and long-haul passenger traffic would permit considerable cuts in expenses which, combined with efficiency- increasing investments such as continuation of dieselization programs wouJd put the railroad on a good footing in fields where it can best compete with road transport. New investments in the facility would however be unwise un- less the management is given full autonomy and responsibility to manage the railway on a commercial basis. 74. Port traffic has been increasing rapidly throughout Malaya except for the Port of Penang which has been affected by a diminution of iron ore exports and Indonesian confrontation. Port Swettenham, on the other hand, has seen its traffic growing steadily with the bulk of expenditure for port de- velopment under the last Plan going there for the construction of four new deep-water berths. Minor ports have been handling increasing quantities of iron ore and petroleum products. As for air-transportation, the country is fairly adeauately covered with airfields. The major investment under the 1961-66 Plan was the construction of a new International Airport in Kuala Lumpur. Passenger traffic through Malayan airports has about doubled be- tween 1960 and 1964. 75. The major problem in the transportation field is the lack of opnt.r-O rirPnt.inn nf tzffrt)r+. nnri fo,nrr3inntion with rpsnonsibilitv for'nlan- ning being scattered among too many agencies. There is an urgent need for a comprehensi-ve a-n-rn%r ofr loncng-rm needsi for t.rnsponr-ttion w.hic,h might form the basis of an integrated master plan for future developments in the sector TI is ennournaing to note. +.hat it is nronosed to initiate such a study under the First Malaysia Plan 1966-1970. Hopefully, the study will make sp,eci al reference to rail/road coo-irdiinnaion, bring7 about an irnr) ment in data collection, particularly with regard to road traffic, and M$365.3 million on transport, or 12.3% of non-security expenditures. This is )U~b±e~vrin u rii ALW .L. LLV .&. - L V.-I jJLd.I -_1. .l ~ w~ rank first in regard to public expenditure. This appears to be a reasonable priority now that the basic transport inraseructure is well ieablise. However, it is difficult to evaluate the entire program because of the lack of detailed plans for some projects involved, and their economic Justifi- cations. 77. Highways will absorb M$255.5 million (70% of public investment in transport). M$64 million will go for improvements to existing Federal roads, mainly trunk roads. This seems well justified in principle since the main bulrdenn of inraigArfi illafc +1no "nl mt. Y$ni 1 1 ;nnnm allocated to new communication roads. This includes M$32 million for en- g- inering -rA cnS-1- -4-.n 4 n- A.P Nr4-, n L--.4--T.Tn-+ TY.T4 k-.,i ,4 - -r .L.i ".iAI"LJJ. VL U%, U.%JIL ofJ a. 11JJ WhenJ. I Q Lj-OVV.V U i" .LJVCJL.'Y between BnUltV ter. worth and Kota Bharu, to be completed during 1971-75 (total cost M$73 M4,11 4 __J~± * TL 4.L _* 14U 4 4. - I - !'± -U±.! ±L ! - L,L . I - - jJ* .9 ± j)-I[ U L A. the need has not been proven. Further investigation is essential if it is to be Justified on economic grounds. New development roads for the purpose of providing road access to various development projects including FLDA schemes w:il receive V1$45 million. There is certainly a need for such in- vestments provided that construction is timed with the progress of other parts of the projects. As compared with the previous period, expenditures for rural roads requested by states have been drastically reduced (M$6.3 million against Mi204 million during 1961-65). Such a curtailment was over- due since there are doubts about the economic usefulness of some of the past projects in this category. There is certainly a need for screening the jus- tification of projects. M$23 million will be allocated to municipal roads, including M$l million for by-passes and throughways within the Federal Capi- tal area. M$1.4 million will be allocated to staff and data collecting equipment for a Highway Planning Unit to be created within the Malayan Public Works Department for the purpose of planning road maintenance and improvement. It is hoped that the allocation will be adequate to carry out the urgently needed road inventory and traffic surveys. 78. The Plan recommends M$20 million expenditure on railways, out of which M$8 million will be for the purchase of diesels and rolling stock. This small allocation presumably is an interim measure until the results of' the survey of long-term transport needs are available so that a long-term rail- way program can be formulated. It is felt that higher expenditures might appear justified as a result of these studies particularly with regardl to the acceleration of the dieselization program. However, new investment in the Railway would be largely ineffective if not accompanied by measures to increase railway freedom of management. The reorganization of the Railwayas a public enterprise, announced for early in 1966-70, would be an important step in this direction. 79. The Plan calls for M181 million expenditure for Dorts. The major project would be the construction of three new berths at Butterworth. This investment seems nremature in view of the prpsent reduction of traffic han- dled in Penang/Butterworth, due to the falling off of iron ore exports through this nort and nnonesian cnnfrontation Finthpr investigntions. including the effects of the Northern East-West Highway, if it is to be built, are _n-nnrnnri!+.o Tf +ho wronii+Ann n f +.hiq highwaynrip,+ proec riPfprrP.(i -l qn - ternative for further development of northeastern Malaya as well as central Ponn-n(7 Tni",n+ )-,a +1,n ,rnn +Yn,-i r%in nf newn -r.Trr%+. i-h +Jip rpain cm cf' Xii_nt..qn_ Regarding Port Swettenham the further expansion contemplated also appears ou. me xuvenomenu neen,,nan. n.ummuni-i n au azznovpo with M$130 million in 1961-65 - reflect basically the distances between the main population centers, and the absence f vouter sLfacuory meano U communication. The bulk of the program is for microwave, radio telephone and tropo-scatter links between Malaya and the Borneo States, wian tne Borneo States, and between towns on the East Coast of Malaya. The separation - 33 - of Singapore from Malaysia appears to have highlighted the need to have direct communication with the Borneo States. These are in addition to the routine improvements to telephone and telegraph services. The bulk of the rest of the expenditure - twice that of 1961-65 - is on TV and broadcasting, including a new broadcasting center and other facilities. (c) Public Utilities 81. The bulk of the nrnnned investment will be in electric nower (i058$4 million) mainly in hydro and thermal projects of the National Eectricty expected to grow by 85% by 1970, compared with a growth of 75% between 1960 Andi 1 Q rnzni rvT Ainely ha An.eri Ind hmn 1Qnv7 n neiminakid will cover the central and northern parts of the West Coast - the principal consuwring areas. Johore Bahm, wh;ih ft~A4-"+ +^ in +)In 0^11+31 will not join the grid until load developments justify it. The opportunity to inteconnct Jhore~ ~ he011%,. - - JOV, VVMAI O1, considerably reduce power costs to the Southern part of Johore - appears to 44C.vr_ &J VLI .LVJ.-Ur IIu IA WITr WI. j V I:UAJ~ W V .'j JJWVIJJ.~LLIALJ6.9 CIIU p %_LL A policies are excellent, although there is a possibility that the utility may g4-ve concess-Ion r ---a tes to l arge industal_ users 82. The expansion of diesel generating capacity on the EaSt oas1 of Malaya and in the Bomeo States will continue. In Sabah the hydroelectric potential is very great, and it may prove economic to build either hyaro or thermal capacity to replace the existing diesels by about 1970. 83. The balance of expenditure - about M$200 million - will be on water supplies - mainly in Malaya and Sabah - which promise to maintain the high existing health standards. To date, water utilities, unlike power, have not been required to be self-supporting: the government's commitment to increasing water rates is a welcome move, which, in addition to curbing excessive demaid, will assist in improving the financial position or local governments. (d) Education and Training The Present Situation 84. Under the Malaysian constitution, Sarawak and Sabah retain control of policy for the time being even though education has there become a Federal responsibility. The reasons for this autonon are political rather than educational. It is thus not surprising that there should be no coordinated plan for the development of education but rather three independent plans which reflect pre-Malaysian aspirations. The three territories are all aware of the importance of relating educational development to economic needs, but in formulating their plans they have sometimes been diverted from this aim by other pressures both racial and social. In Malaya, for instance, the growing teen-age unemployment was an important factor in the Government's decisiLon to raise the school-leavina age to 15 and to give every child who wanted it nine years of comprehensive education. The danger of such a policy lieS in the risk of educational inflation. in the nrogressive lowerine of the auality of education when a system expands faster than its ability to recruit teachers -34- with at least the basic minimum qualifications and to train them adequately. Even though far fewer children enrolled than were expected, this is now the nosition in Malavq. Thp neliv hns f.hp fiirt.hpr disavant.na that it dissi- pates scarce teaching, teacher-training and research resources which could be used more ffct.irely elsewhereP As a onntribi+on +n connomic devonment, therefore, the policy was premature; moreover, as a move to end unemployment, it~ ~ ~~. ca-tbs ea t Inarwk on the other hand, fina-1cial limi1tationIs as well as the shortage of teachers have dictated a policy of strictly con- lowering of the promotion bars may soon be desirable. 85. With the diversification of agriculture and the development of new .y±~ UIt', RV.UUULI D'YOU1110 ILIaVC%u:a U PuU ULL LitalcOu OIW u llz4 y ~1 L.Lj. adapted to meet. This is partly due to the world-wide shortage of teachers of the sciences and of technical and vocational subjects, but partly asu to the low esteem in which any form of manual, artisan and semi-skilled work is tra- ditionally heU. his is reflected in relatively poor raues vi pay U[ in a suspicion held by many employers of those trained in vocational institutions. All the territories must tnerefore lean heavily on overbea suppuru LUr Opu- cialist teachers and training courses. Because of the relative lack of in- dustry in Malaysia it is important that these training courses 5hould give experience of work under industrial conditions; and because the kinds of in- dustry Malaysia will attract cannot be accurately foreseen it is equally im- portant that most technical courses given within Malaysia should include general as well as specific training. 86. Under the circumstances, fairly good progress has been made in developing technical and vocational education, but it is at least as necessary here, as in academic education, to ensure that good standards are set and maintained. To give vocational education only the second or third best could be disastrous, as the failure of the continuation schools in Malaya in the early 1960's showed. The lessons of other Asian countries are quite clear - that expansion must proceed no faster than the supply of trained and quali- fied teachers, and that it is better to concentrate less on numerical ex-. pansion and more on quality. Traditional rote methods of teaching which are unsuited to a technological age are still common in the vernacular schools. The need for a modern approach is especially important in language teaching on which much time is now spent (and often wasted) and on the teaching of science and mathematics. With all secondary schools now being provide6. with laboratories it is important that they should be planned and equipped to meet modern requirements, especially as the cost might well be lower than if they followed the traditional pattern. 87. The deepest feelings are aroused in any discussion of the language to be used as the medium of instruction, yet it is necessary to refer to it as it affects the rate at which the education system can develop to meet the demands of the economy. In Malaysia, there are three main languages in use - Malay. Chinese, and English. Malay is used widely in Malaya, Chinese to varying degrees in "community" schools in all territories, and English in all tprritorip. esnecially ;t the secondary and higher levels. English has certain advantages at present, in that it is a language of wide communication I.Thiph nnhblo2 vcomirl in t.Pehing onl t.rnnm7 +.n hp monrin. P.jI uspd. Being the present language of most higher education in Malaysia, its use can be epaned airy esil. -4 the~ other hand ther is the strng _attacment 01 ll JL1 i.iSU Vo U11U.rL UW11 J-dWgUagU allU L;U.L.ULJW;: aw±U VN:UYi W-01 UU t--.eu1U the use of the national language. It is over language that the greatest disagreements occur, but in the near future it would appear that wiueUpreaU English usage will help the education system make the greatest contribution to economic development. Its displacement as the general medium of advanced instruction could have serious economic and educational consequences. The Plan Proposals 88. The capital expenditure proposals are summarised as follows: ($ millions) FAlaya Sabah Sarawak Malaysia PrimaLry .................. 55 8 12 75 Secondary ................ 189 l 29 232 Technical ...........*.... 31 3 3 37 University ............... 30 - - 30 Teacher Training ......... 29 2 1 32 Other education and training 35 - - 36 Total 1966-70 --------- 68 27 h6 hl Total 1961-65 ....... TT -17 73 277 89. These proposals represent a considerable reduction from the original targets which envisaged an expenditure of over Iva-MO million. Tie cutback is all to the good, and is due primarily to a reduction in secondary school construction in Malaya made possible by lower enrollments than were originally expected. The strain that the comprehensive schools put on the quality of teaching nevertheless remains, and is recognized in the Plan. Universal free Primary education is continued in Malaya, and should be attained in the Borneo States by the end of the Plan period. Secondary education in Malaya has already been discussed above. In the Borneo States there is a stricter control of secondary expansion through promotion examinations. Given continuous overseas help and an expansion of teacher training facilities, it might be practicable during the Plan period to relax the 30% primary to secondary promotion rate to 35% without any appreciable fall in standards. The relationship of the proposals for technical training to manpower needs is not entirely clear, but the decision to expand Serdang and establish a second college of agriculture is clearly a necessary step, as are the proposals for teacher training. Apart from the Technical College expansion, and that attie Faculty of Engineering at University, no specific plans are advanced for technical and vocational training, and it is clear that a sizeable gap between demand and supply will exist for some time. Conclusions on Expenditure and Planning 90. The above sectors account for over 80% of the proposed public exenditures; the remainine public sector expenditures will be for health, social services and administration. With the exception of health and hous- in. these exnPnditureR are lower both absolutelv and relativn1v than in the past and appear reasonable. In the health field a start is being made in thp fiplrl of fnmilv nlnnnina! tho mnyii in-rcqQ in ornanditurma in however for hospitals in the main urban areas in Malaya - facilities which appear to be long overdue in some cases. In the housing field the emphasis will be a low-cost housine for low-income families. from whom the demand for housing far exceeds the supply. This is a field which has probably received too littlP Pmnnhniq in the nast. 91. (in thp wholpe, the nlocatio)n ofr t.he pnropoedn expndnritures iZ good, and both the allocation and total investment in general reflects the needs of' t,hp- Pnnnrimy mad t.he priorit.ies within eacnh so." Theaeatv increase in emphasis on agricultural output and decrease on infrastructure in an imnrovPmnt over +.ho pnoitn +hin n in th ne,v 1QAC)1- Tn the transport field the government has resisted the temptation to continue a: highe-r imr+rnvmnt. rate, but^ th lack of+ dat aonroa use makes rat iorLl decisions difficult, and the various survey proposals deserve support. ?nning in th+ tiiis-il cont4n- st be-4- g-ood. Thin , the eu field it is not yet clear whether it will be possible to maintain the the country through technical and vocational training. In the field of agriculural triniu g, Uwever, te proposeu expansiv U agriutualschoousa, colleges, the University Department, fisheries, training, etc. is a large uLue Uuwau_ U ±1vjng the manpUwer OUUieniec in unaU sector. 1 ib nU clear however whether the output of these schools in, say, 1975 will be suicient to meet the demand from private estates, rFDA, the various agri- culture departments and extension services of the FedRral and State govern- ments, t.A.h.. the new MarKeting Authority, etc. In any case, the bulk of new graduates will have had little experience, so while the government is moving in the right direction, it will be several years before the joint research and training efforts can bring substantial results in the form of new agricultural output. The strain of existing and planned investments in FLDA, the major rice irrigation schemes, etc. on the existing extension services fully justifies the government's decision not to enlarge the scope of its "production promotion" schemes yet. In the meantime land alienation and forestry policies continue to stand in the way of private agricultur- alists - although this is not a problem within the direct competence of the Federal Government. 92. In policies towards the manufacturing, mining, construction and service industries a laissez-faire approach has been continued. The only service industry to receive minor attention is tourism. Apart from M.A.R.A., expenditure on industrial estates, industrial finance, etc., is actually less than in 1961-65, but it does include allocations for research and for F.I.D.A. These are welcome steps, but are unlikely to produce the more aggressive approach necessary if the avowed aims of, and demonstrated need for, import substitutuion is to emerge. There is no service for industrialists- along the lines of the Small Industries Service Unit in Singapore - which might be considered the equivalent of the agricultural extension services. Most glaring of all, there is no mention of the urgent need for economic cooperation with Singapore. While the political background discussed in Chapter 1, provides some explanation of the omission, neither the government's 1/ Majlis Amanah Ra'ayat - successor to the Rural and Industrial Development Authority. whith was intended to promote Malay entrenreneurshiD. -nn1inrv n~f +.h n n ,+. fln -tr - ., v, the*+ Pl- in icte _= al) ~ . , ,p e t 0: the benefits Malaysia could gain from closer cooperation. In view of the '.'A. ~ wL Y.'L V aAu ±Lki.~ L Al LIk.kVCLL L.L O'J 0 VL&.O .-D 1=1 omission. 93. Planning and its administration in Malaysia has shown a steady the National Development Planning Committee, an interministerial body eadeud by uhe Fermanent Secretary of the Prime ainister-s Department. How- ever, in practice the planning function is largely performed by the Economic PLannLig Unit which serves, in effect, as Tne secretariat to the NDrC and receives from it only very general policy guidance. Along with its increas- ingly important role as the actual planning agency, the Economic rlanning Unit has also become increasingly involved in a wide range of economic policy issues. Responsibility for advising the Cabinet on economic policy is divided among the Treasury, the N.D.P.C., the E.P.U. in the Prime Minister's Department, the Bank Negara, and other Ministries; the E.P.U. (through the N.D.P.C.) remains primarily responsible for the coordination and evaluation of the government's capital expenditure program and related developmental prices. For this purpose it remains as it long has been, seriously under- staffed, and consequently its effectiveness, while high, is less than it should be. This may reflect an inadequate appreciation in the government of the E.P.,U.'s role. This role is likely to expand in the future for two reasons. Firstly, the complexity of decision-making is increasing, and many issues - such as road/rail coordination - need to be explored in depth, and may involve more than one implementing Ministry. The E.P.U. can thus play a useful coordinating role: to do so, it needs to be as well equipped as the Ministries with which it deals. Secondly, the E.P.U. has a large role to play in expediting project-tied foreign aid - a field in which the government has not been strong in the past. For both these reasons a strengthening of the E.P.U. seems necessary at this time. - 38 - Chapter V INTERNAL AND EXTERNAL FINANCE The Financial Target 94. The public capital expenditure target for the 1966-70 period of M$3,800 million (M$L,550 million including defence and internal security capital expenditure) is considered to be a reasonable target, both from the point of view of the likely pattern of expenditures that may result, and as a macro-economic target. Tt represents a growth of only about '2 per capita in public capital expenditures, compared with perhaps 20% per canita during 1960-64. For privat. investment, the Plan estimates that it may cumulate to M$6,160 million, which represents, in effect, a continua- tion of the rate of investment increase of the recent pastz t is clear that public finance problems are going to be the principal constraints on the achievement. of these tar'gets during 1966-70, in contrast to the administrative and technical bottlenecks which held back public invest- ment in the early 1960's. Given these constraints, attentio+An is foue below on policies affecting the level and use of domestic savings, the net flow of resources from abroad, and the consequent feasibility of the investment targets. Related to these resource problems are questions on and the impact of public policies on private sector initiatives to save andL ±ivest. ForL the~ nion.1 #as a whole, if these~ target are ach~ieLvedL, theL investment rate will rise slightly to 21% of GNP, although the savings rate is likely toJ remad±in at. about. I7% of. GNPX Thie Public Finance utlook A>. On the revenue side government receipts have already reached a high level although declining slightly in relation to GNP over the past five years, varying between 18.7% and 19.7% of GNP or between 20.2% and 20.9% after including social security receipts. Direct taxes on incomes have risen in importance from 18.1% of total revenues in 1960-61 to 19.4% in 1965, but taxes on production in the form of export taxes and excises have shown a relative decline, as have consumption taxes in the form of import duties. The tax structure at present relies heavily on taxes on trade, and the gradual reduction in the ratio of total trade to GNP from 91% in 1960 to 85% in 1964 and probably 75% in 1970 makes prospective revenue growth sluggish. Even after allowing for the impact of the new taxes on turnover and payrolls, the introduction of higher taxes in the Borneo states, and the gradual extension of social security taxes, the growth of revenue from the tax system at present rates is likely to fall behind GNP growth to 18% by 1970. The gradual changes in the structure of the economy will thus require a change in the rates and possibly also the structure of the tax system even to maintain the governments' present share of national incomes, let alone to increase it. 96. The overall economic limits to increasing governments' revenue are determined in effect by the impact of taxation on private incomes and consumption, on investment incentives, and by the government administrative capacity to assess and collect revenues. If there were no change in the existing tax system, private disposable incomes would rise by about 5.0% a year over the Plan period, compared with expected GNP growth of around - 39 - 4.8% p.a. Given the level of government consumption expenditure discussed below, however, the corresponding current surplus would then be negative, cumulated over the period. In other words, at existing tax rates the government would make a negative contribution to financing capital expendi- ture. At the other extreme, if taxes were set at an austerity level so as to permit no significant increase in real per capita private income, large government savings would accumulat. but government revenues would exceed 26% of GNP by 1970, 1/ and the burden would be likely to be politically unaccentablp- 97. RA+.PPn +hPqA Pv+rPPm +hn hm.t+. nAtinnhl lpp.1 of nnhlic revenues appears to result in only a slight increase in relation to GNP. The attain- ment o f alv1 r h n +.f qn-* nf, apP (99 innIiling net social security receipts) compared with 18.8% (20.8%) in 1963-65 would probably result in a gronwth i-n r%-v-,-r+m disoale incomo abou n1%^i i :4 a irnn" rnmmy + ln'n In period - somewhat lower than the 5.0% achieved during the 1959-1965 period. TPhis reve-nue- l e,veal -4 mn -,4--. 4 - 4-1-4 n -; 44- -;- -nr& --a 4-7-4- P4 - -j ,,vni.1 n,. 0 .s.a~~~~~, .Q C .AtA L~ a 1C ,iiL11v~i * L uaC&L U LJjjj.j%-Q VULflU ± ± U L LJJ available to the private sector would almost, but not quite, match the foreign transfers and capital flows. The summary public sector revenue A-4 AllLLi-.L110 kic LUU-L rd L. nUUVgt 1. 1'1 Je Lj'-Ln ltuua - 1i7- 195 1L6 1967 1968 1969 1970 1966-7 Government revenue at 1/ 1/ - 1 '10o, , .'n - , -" - 1 11 I -,a , 0 '^, n/n nn existing Tax rates 1401 1)o{ LO (U (U 1[1U {>Vy 10(U 1U fUUU Net social. security receipts 2/ .......... .1260 t40 15 >> 180 190 215. 910 Total current receipts 1607 1727 1825 1880 1970 2060 2175 9910 (as 0 of expectedGNv) (2u.2)(2u.3) u20." (20.2) (20.2) (20.1) (20.1) -- New taxation 3/ ........ -- -- 50 80 125 155 190 600 TOTAL .............. 1607 1727 1875 1960 2095 2215 2365 10510 (as % of expected GNP) (20.2)(20.3) (21.1) (21.0) (21.4) (21.6) (21.9) -- 1/ Excludes revenue derived from Singapore. 2/ 1966-70 assumes that 1$100 million of EPF resources will not be available for lending to the public sector. 3/ Includes revenue from all new taxes imposed after 1965. 98. If collections under new taxation were achieved as above, total government revenues during the Plan period would thus be 10% higher than under existing taxes and would grow at about 6% a year. This appears to be neither excessively high nor an insuperable goal, although the administrative machinery for tax collection is already under strain with the implementation of the new sales and payroll taxes and with tax harmonization problems through- out Malaysia. Given the gradual change in the structure of the economy mentioned above, it will require more than a change in tax rates to achieve 1/ I.e., assuming that total national expenditures would remain unchanged. - 40 - this increase if the burden on existing taxpayers is not to become excessive. For examnle the corporate ta rnte. nt )tM- is alreav the hihi-t. in the Fnr East. Given these problems some strengthening of the revenue collection ma- chinerv may he an ARqpntial npre-reniite to tho nchivement of the finanrs goals of the Plan. The Plan recognises the need to collect new taxes, and tay increase- fnt.alling MCD0 million wen in+"rounn in +hn 1966 1uCg+ increasing steadily at over 10% a year or roughly twice as fast as revenues whir-h rnn-inr+_ni rimeJ n eVrsI.,4h , --1n to that o-4,~4-~,- f r_1ArD The,, -Inu-ita,4+- le result has been a gradual decrease in public savings. The main factors behind this expend-it-r' growth have bee edLa.Ln and adminisrt S4- -4-4 and debt service. From 1963 onward, defence and internal security spending ~ 'u' .a. )4 5±± YC"~.10-LU1 U Al A1 Ul- CE'S , ~t3IUCE15.1 "OU E IVO .L 5J C U L W lI the initiation of the comprehensive school program, television and radio Malaysia brought new burdens. As has been discussed earlier, the provision ol developmental services such as agricultural extension, roau maintenance, etc. have increased at only about 8% a year, and have not contributed signifi- cantly to the overa.Ll increase. 10. Te trend towards increasing government consumption expenditure is thus firmly established, yet if these trends were to continue at their past rate of 10% a year - which was the collective result of the government'depart- ments' 1966-70 proposals - public savings would be negative even if the revenue level indicated above is achieved. The Plan indicates the govern- ment's awareness of this choice between public consumption and public invest- ment, and indicates that increases will be limited to 9% in 1966, 77 in 19b and 6% thereafter. It appears that this 1966 target will be achieved although the separation of Singapore eased the expenditure burden. However, it appears likely that a small budget deficit may in any case emerge in 1966, so even more strenuous efforts will have to be made to hold down the growth of current spending if any current savings at all are to emerge in the 1966-70 period. 101. The remaining sources of finance for public sector capital expendi- ture are the public authorities, principally the electric power utilities. Overall these agencies are already making substantial internal savings and are likely to continue to ease the government financial burden in the futurel about 80% of the current surplus' are made by the National Electricity Board alone. The achievement of operational efficiency in a revenue earning authority brings immediate financial benefits, and some progress could be made in Malayan Railways and the Malayan port authorities. The estimates shown below (projected operating surplus plus excess of depreciation allow- ances over debt service) assume unchanged rates and no cost escalations. There appear however to be a number of opportunities for increasing revenues by, for example, improving rate structures, without nullifying important social or economic objectives, so these may be regarded as low estimates. Opportunities for improving net revenues also exist in those utilities, such as telecommunications and water supply, which are still government depart- ments. The total surplus' over the 1966-70 period should not be less than M$300 million. - 41 - 1n? Thp nnn,vr+.nitiP_ for rinmAstir horrowinL other than from the banking system and the Employees Provident Fund have been limited in the past mnainr tn cmi overnmentrP.ncie nh as the Rubber Tndustrv Renlanting Board, and to private provident funds. Because of the general financial +viennnw fn- .h7wnoa nhlanl mny 4% tha cami-optronmont. napnnips are likely to be disinvesting in government securities. The R.I.R.B. and M.I.D.F.L. will rise. The same may be true of the alayan Municipal governments whose collective ± Lt1 L U .L . VV0_L'*L'.LIA~ L0 WVC" V UJ1IV UUII~.L 4LA1j L&A -A companies may slowly increase their holdings. At best, it appears unlikely LjLLCZL, l t, ILUW UUIfI~I ,.Q UU111ow±ing wi"4 exceed flM.A0 id,±JV lio over t -In .S at existing interest rates. 103. Given the resources discussed above, the aggregate position before considering domestic bank borrowing, USe OI accumulabeU asets cu a Vn f ig borrowing might be as follows:- Actual Est. Budget Projection Total 196 y65 1y66 1967 196d 1969 19701 9 ]~- O Government revenue ........ 1481 1587 1720 1790 1915 2025 2150 96oo = Current expenditure ..... 1383 1599 1745 1790 1855 1950 2060 9400 Current surplus ........ +9t -12 -25 0 60 75 90 200 Public Authorities' Surplus 41 4h 45 55 60 65 75 300 Social Security Receipts .. 126 140 155 170 180 190 215 910 Total current resources 26 172 1 227 300 330 360 1i10 less: Total capital expenditure on development and defence ......... 661 760 835 880 915 945 975 4550 Overall deficit: ......... 396 588 660 655 615 615 595 3140 less, domestic non-bank borrowing -----O......-0 25 15 20 20 20 25 100 = Deficit to be financed ... 396 563 645 635 595 595 570 30h0 104. The accumulated deficit, say M$3,000, will have to be financed by borrowing from .hp Einncin sr+.m and iie of accumilated aset - U -----3 grants from abroad, and if it is found possible, by increased use of domestic resources. To the extent that the use of borrowing from th4 bnin s--tr causes the increase in total bank credit to exceed the addition to savings pressures will emerge. Given the freedom to import offered by the Malaysia than continuous price increases. Reserves at present are at the heay JLve3 0. CLbuUt M2,UU MLL11Un, LjuLVCu.LtU LAV montuIIS _UjuV,Ijd' and substantial private foreign assets doubtless also exist. The rate at wiC ut=be aitsb coulu be urawn uown uepends on the one hand upon Tne sum which the country needs to keep as a contingency reserve against, say, export failure, and on the other on the period over which reserve use w11i be necessary to supplement other forms of foreign finance. This latter period is probably at least a decade. In this light, reasonable reserve use probably ought to be limited to M$800 million over the 1966-70 period. - 42 - 10$. The country's monetary, fiscal and credit policies will thus have to be manipulated so as to limit reserve use to this amount. Tota dcmestic credit could thus be expanded by M$800 million plus a rise in savings deposits estimated at Mp450 million, and a margin for non-inflationary monetary expan- sion estimated on the basis of a rise in G.D.P. of 5%, at M$500 million --a total of 11,750 million. The requirements of the private sector will probably account for at least M$700 million of this credit expansion, leaving a balance of MS1,050 million for bank lending to the public sector and use or existing Government balances. The remaining needs of the public sector thus amount to around M$1,950 million. Feasibility of the Public Finance Targets 106. By and large, the above analysis confirms the feasibility of the proposed public sector financing plan, but at every point the difficulty of achieving the targets is considerable. Given the probable revenue position (including M$600 million of new taxes from sources as yet unspecified) then the Plan proposals for keeping current expenditure growth to 9% in 1966, 7% in 1967 and 6% thereafter will not quite suffice to produce the planned cumulative current surplus of M$200 million, mainly because a small deficit is already likely to emerge in 1966. A greater effort to control current expenditures (by unspecified means) or improve the revenue position will thus be necessary. It is considered that a current surplus of M$200 million could be achieved, but it might require policy decisions to rephrase the education program, or to curtail the rapid growth in administrative and security spending, if the burden of the cuts is not to fall on essential developmental expenditures on. for example, agricultural services. Some relief from these financial strains might be sought by curtailing EPF lend- ing to the private sector--at present an allowance of M$100 million is made for this. 107. The bulk of the remaining M$1,950 million will have to be sought from abroad. ThF Plan nontemnlates nublic sector borrowing. net of repav- ments, at M$1,000 million and grants of M$900 million. To foreshadow the overn1l onineniia-gns heInw thp niihlin sptr hnrrowinr tnv-t is nons dered to be realistic; grants might approach M$800 million on the assumption that a considerable nprt of the military nanital exnenditure will continue to be financed by grants. The balance of M$150 million is likely to be borrowed from nrivate zector savings which miaht. otherwi.qe have hen invsteed nhroad. If these aims are achieved--as discussed in paragraph 119 below--then the oveal millifianeonsior coul-d be9as6ollm Alt I Q 1 _('K IQA_0 Foreign borrowing (net) 286 1,000 Local borrowing and use of assets, etc. 893 1,340 - 43 - Private and Overall Finance 108. As was pointed in Chapter II above, private investment has been increasing steadilv at about 85 a year, and has been heavily influenced by continuing foreign investment which has accounted for perhaps a third of totAl nrivqt.- inrvoqtmPn. in raon+ irrq_ yorn n inmro.+.mnt (includr ina reinvestment) is expected to continue to be an important element in the privat scor, assuming that invesorscotnfidence is unchanged but relatively it is likely to fall to around one-fifth of the total, reflect- and the gradual decline of the mining industry. On the other hand, investment ~L. LIS~UO.LU.d. . U ±I LJ dUL _Lu 1~ l ptL,W Uj_;:j11_CLL U1LIO _L0 -L-LAUX... L UW U Ll±± , especially if the new land alienation policy is successful. The possible patter UUI 'Lu U.t 11L±~ Lilves t _L0 diuwll UU.LUW; Mmillion l96-) 196/6-70 Rubber /6 (28%)N 27" 2'' .uoeDJ> kt 407b) > ]6 Other Agriculture 130 (10%) 200 (170) Mining 28o (2on ) 22k (20%) Manufacturing 115 ( 9%) 200 (17%) Banking, Trade & Commerce Zo5 (22%4) k 300 (251) Others 120 ( 9%) ( Total 1,300 1,200 109. If this level of private foreign investment is attained, then a total investment in the order of M$6,200 million, as contemplated in the Plan is probably achievable. This total implies an average growth of around 8% a year, as in the recent past. Private savings, as in the past, are likely to be sufficient in the aggregate to finance this total, but some transfers from the public sector may be necessary to alleviate bottlenecks. Such transfers should, however, be kept to a minimum because of the acute public finance problem. Despite a savings rate which is unlikely to rise significantly, savings of business' and individuals out of after-tax profits are likely to rise from around M$5,500 million to M$7,100 million in the 1966-70 period, of which about MZ5,200 million will be available for direct irvestment within the privute sector via self-financing, the stock market, etc. and perhaps M$1,050 million 7rill be invested in government securities and the bankin- syst2m. of which around M700 million could be relent in the private sector. The schematic illustration on page hh shows the nossible trend in nrivate sector fin;;npe. 110. On the whole. it thus annears that the Plan target for nrivate investment (M$6,160) is reasonable. It might be possible to be a little more ontimistic about the net flow of nrivate foreign investment and reinvestment. However, the achievement of an inflow of M$1,200 million (,s is qssimpr hirp' or Mi10 million ns is issumpri in +.hp Plqn nrr- supposes the maintenance of an investment climate at least as attractive n- in +-= rcan+ nn'+ Tn nar11i+inn +r main+nininr in+-,znnl finnnil stability and freedom of capital movements, it will be important to continue a form of cOmm.on curnyarrangement with SiJngapo1re- thlat ret-ains th'n advantages of the existing Currency Board arrangement. A trend towards tLer ioopaation iVJnJ JLIO4)LJ.L ULL oLuta sJLLtd U.LWI10 'WLL CL.L LAsija .CJ 10 the adverse impact of the security situation in Southeast Asia. LW4 IT..T.qPTT \j OF h.qqTTMTPD PATT7DAJT r(P qATT-n AI\TT hVT1M rT1''?T P~Tnl,Tc:z IN THE PRIVATE SECTOR L7W.~ 7-.ertinAn ofSaVirg ij[MG M41ncomes Less, Private Consumption 24,600 31,300 uus Oavngo 11 rivaue OUUuvr f I,UU Less, Private Transfers and Remittances 0en' "vroad /-ve \ ,1UU 1,ygru Gross National Savings in Private Sector 3,410 5,150 II. Use of Private National Savings Direct Investment in Government Securities (Net) 25 50 Deposits in Post Office Savings Bank 50 5o Acquisition of Currency 215 265 Acquisition of Demand Deposits 165 235 Acquisition of Time Deposits 420 450 Subtotal: Net Investment in Institu- tional Financial Assets 900 1,050 + Investment within Private Sector (derived) 2,485 4,100 Total 3,410 5,150 III. Sources of Finance for Private Investment Self--finance, and Other Private Non- Bank Sources 2,485 4,oo Borrowing from Banking System 475 700 Transfer from Public Sector 140 200 Subtotal: Locally Financed Private Investment 3,100 5,000 + Private Foreign Capital (Including Retained Earnings of Foreign Companies) 1,300 1,200 Total Private Investment 4,400 6,200 1/ Includes unrecorded transfers and capital movements. - 456 - ill. Overall. it appears probable that the phenomenon of the ex:ess of private savings over private investment, which was a significant feature of the 196(-A ner-ind- may start to disappear during the rest of the decade. It was this surplus which enabled the public sector to run a deficit without affecting the exrvnal noi.ion nf th noiintrv as a whole. There are three main reasons for this: firstly, the major profit-makers in the economy - the ruhbr and the mi11ning, industrie _a-n likealy io mee at4nnnt net earnin-s. Secondly, the relative importance of direct investment out of local savings n+lhcr' thln nyv - m- tc wmAocrPy.7 4 P -"Ali +h,o cin rmnr+.h in nrivnte savinps is a reflection of the increase in the tax effort. The overall balance is illustaed, verw rouhly, below: 1/ Total Mt m iIIi toAA - OA7 1OAR IQA0 1970 1966(-70 01 AT D A nnn, 0 Inn 0 '77n I 1 IC 1n 70n 1,o nI10 less, net tax receipts, etc. 1,800 1,960 2,100 2,250 2,400 10,510 =T:) ' -,~4,. 1-1-~ T____ 7 100 n 7 .11 n ~ .7 , 0 nnn Q -3no 1. 1. o less, private consumption 5,690 5,950 6,240 6,540 6,870 31,3Co =n _- ,_- I -1^ % In^r -1 1. 1r -1 I.Zn -i r"nn 1; Inn -rr.vaut: tia.L16o _L,L4-LU V L, _L4U IL4uuJ -L,.)CV ( , LJ less, private capital formation 1,070 1,150 1,240 1,320 1,430 6,200 Net tax receipts, etc. 1,o00 1,9o0 2,100 2,25U e, .UU0 :0,51 less, public consumption 1,715 1,825 1,930 2,050 2,175 9,695 Public savings 8) 135 170 20 225 015 less, capital formation 700 725 750 800 850 3,825 =Public sector balance - 615 - 590 - >80 - 00 - 62> .-3,02 Approximate current balance on goods & services - 265 - 350 - 390 - 44o - 535 --2,000 less, net transfers, etc. - - - -.I,UU =Current foreign balance - - --3,000 112. The implication of these rough aggregates is that a current deficit in the order of M$3,000 million may emerge in the 1966-70 period to pose a more serious financing problem than did the deficit of about M$1,000 million of the past five years. This deficit is confirmed by an analysis of the expected movements in trade and invisibles. In Chapter III the prospects for exports were assessed, and a slow growth of under 1% emerged as being the most likely trend. Given the limited capacity of the government to mount a crash import substitution drive, it is almost inevitable, given the expansion of expenditures that imports will continue to rise. Any attempt to rigidly control imports runs the risk of generating inflation. 113. Estimates were made of import requirements for the 1966-70 period. At a minimum, imports are expected to rise to M$4,150 million in 1965. The reduction in the annual growth rate to 3.6% from 4.2% reflects in general the end of the spurt in public and national expenditures of the 1962-6h period, rather than any significant results in the field of import substitution. 1/ This table is an approximate continuation of the table on paFe 10 of this report. Slight numerical differences between theseedata and the public finance data result from the use of national income rather than accounting concepts. - 46 - Annual Annual Change Ch:ange M$ millions 1960 1965 1960-65 1966 1970 1966-70 Food .............................. 762.0 986.0 5.4 1015.0 1150 3.0 Machinery and Transport Equipment . 396.1 690.0 11.7 7h5.0 975 7.0 Manufactured goods ................ 580.8 801.0 6.7 855.0 1000 4.0 Chemicals ......................... 166.1 220.0 5.8 230.0 250 2.0 Petroleum ......................... hl6.5 371.0 -2.3 380.0 400 1.5 Others ............................ 475.5 359.0 -5.8 365.0 375 0.5 TOTAL ....------ P797-0 1Th70 h.2 790.0 T-75 3.6 The most. buovant imnorts are likely +. be machinery qnri transport Pniiinment which are expected to grow by 7.0% to accommodate the growth in investment. Thp mnm_riif-tia1rPdi* n~+~s rip flvr i+P-mPeii_ntP ant+rq_ qn q10rq in import substitution in rice is expected during the period. Payments for tures. Interest payments on assets held abroad will decline as the assets delne, wieint-ees payments riewith teepce nraei h amount of foreign borrowing. Investment income payments will probably stay hw*z w dl pdU . .4 v a ve u LIA J C LA 10a.~.u capital grants will probably decline slightly. The balance of payments picture t14at emre is as follows:- - ,~PrU ±. .. . . . . . . _U ,V _LU Imports c.i.f. ......... 15,980 19,CO nalance of Trade ...... +030 -1,1Uy Invisibles (net) ...... -1,750 -1,900 Current account deficit -920 -3,0U l1. It should be noted that this estimate of the external deficit is approximately M$500 million larger than that assumed in the Plan. The latter would appear to be inconsistent with the Plan assumption on the growtn of gross national expenditure and product. It implies either a much more rapid growth in output by import-competing industries than is likely, or, import controls which would lead to an inflationary situation. Overall External Finance Requirements 115. Before discussing ways in which the probable external deficit of about M$3000 million could be financed, it is worth considering the policy alternatives open to the government should it wish to affect the size of the current deficit. In the first place, the level of exports is fairly rigidly determined by past investments in the sector on the one hand, and world price trends on the other: in the short run, no policy alternatives are available. Merchandise imports and imports of services can of course be affected by the overall level of demand or by trade controls. However, if either of these influences is brought to bear, then either inflation could result, or the expenditure targets considered reasonable above could not be achieved. The third and most promising way of affecting import demand is of course through import substitution, on which the government has placed rather too little - h7 - emohasis - as is discussed in Chanter TV- T4wever_ the nroieted imnort growth rate of 3.6% is already considered to be a minimum, and could well be larger. The lArge invi.ible ntffwn in the nm of nrivate remittan n nrl pension payments on the one hand, and investment income payments on the other, are likel v tn ntal perap nn Mt n ni llion over +he nmi nf fi wZr4v d are a heavy burden on the balance of payments. However, more than half the inveteR.nt+ inconme pay-%mntso are reineste in4-sa The remainder of the outflows are, in effect, payments for the heavy investment and immigration of JJL W SA - ~ - -U L, %a, CtaLAJ ..L.JP,hO Vi. L tALI i-IMLCLJ COL L .L Q IiU .L 3.L A.uture- prosperity. 116. The suggested pattern of balance of payments finance is as follows: M$ millions 1961-65 1966-70 Long-term public borrowing (gross) . 374 1,350 ~ Lep~)'iII~iiu~..................................0 Long-term borrowing (net) .......... 1,000 ruregi grans, etc. ............... e ouu Use of reserves (-increase) ........ -192 +800 Private capital inflow ............. ...1,3u 1,2uu Other monetary movements ........... -230 -310 Other items; errors and omissions .. - 50 -90 TOTAL ....................... +920 +3,000 117. The use of reserves (M$800 million) and private capital inflow lr&-,uu m11in;nfl niave already been discussed. Other monetary movements (including short-term loans to Singapore Banks, etc.) are expected to increase slightly, but other private capital ana recurrent outflows are projected to decline. This leaves public capital inflows totalling D1,800 million, net of repayments - a level of inflow which would succeed in financing the remaining gap in public finance requirements and the balance of payments. Before discussing the implications of the suggested capital inflow to the public sector of M$1,80C million, two further comments on the pattern of balance of payment finance are necessary. The First Malaysia Plan assumes, in effect, that there will be no significant use of reserves during the Plan period to finance the balance of payments gap. It has already been pointed out that this is inconsistent with other assumed trends in the economy; a larger external deficit is likely to exist because of more rapid import growth than is assumed in the Plan. Additional financing is, however, likely to be necessary to meet other invisible outflows that have long been a consistent feature of the economy. These net unrecorded payments are believed to include unrecorded imports (such as rice from Thailand), portfolio investment abroad and other private capital exports, and unrecorded private transfers. These, and the various recorded invisible payments, are an integral part of the Malaysian economy, and exchange control over such capital movements would probably be self-defeating in that it could have a deleterious effect on business confidence and introduce serious political problems among the non- indigenous part of the population. The balance of payments problem is viewed in this context. 118. The absence of exchange controls is seen to be an integral part of the economy, and probably is the principal force contributing to the sound- ness of the private sector, with its excess of savings over investment which has enabled the public sector to expand its activities. However, as was discussed in Chanter II. the eovernment has not vet succeeded in canturine - 48 - for its own use any large part of the balance of private sector savings. Raising business and personal income taxes further would tend to have the effect of reducing the total suolv of savings. It is thus suggested that consideration be given to raising the structure of interest rates on public bond issues so as to attract savings that might otherwise go abroad. The recent difficulty the government has had in selling its >4 defence bonds, and the fact that many of the holders of the 1963 6% London bond issue are Malaysian, are eloquent testimony to the inadequacy of the present level of rates. An increase iR suggested, and it is assumed that it will be nossible for the government to attract N$150 million in new subscriptions as a result. This meets the remaining gan in nublin sector finance (qs was mentioned in paragraph 107 above) and is one of the main factors behind the assumed reduc- tion in nrivate apnital nuf1wq in 19AO_70 1-n Mtb,90 million from Mt$hO million in 1961-1965. Conclusions - External Capital Requirements and Creditworthiness 119. An inflow of M$1,800 will be difficult to achieve. The level of because of unusually large repayments due on the London and New York market however be possible over the period. The use of medium and long-term s, pnJ U; e.r,, I c d- 4- P',' a4 n - 1- --4- 1,--a --n,.n nA an i-.,1c . exists given the proliferation of government - guaranteed credit schemes in *~.IA UJ. ,WULL US L' Q . 1.U L .111JU.LJI U~L U LIdLK- V -± U . LI.,L LM41 V' Ll mentary rather than replace bilateral and multilateral project-tied lending VyLij.CLL Ls ~'J-.k .y UU J;-- ULe Vad UL M;IJL VL _LV1t,LSL.L WU1L'LJL6 C.~LO J_ L L Me L _,_L JJCLU. To date, the administrative capacity of the public sector to generate projects .ULUie J.U.E- ±U1-t:;LG.L 11ILA±gId Ut;:1Zi OUVU1-t;_L UL± L UZU, WiU U±.L~LcLUerl sources of finance have also been available only in limited amounts. Given an auequate project luentifuation anu preparation effort by te government, aided by technical assistance, it appears feasible to attain a gross volume of disbursements under project-tied Lending and long-term suppliers*credits of perhaps M$1,100 million within the plan period. However, in view of the difficulty that is likely to be experienced in generating suitable projects as vehicles for lending, it may be necessary to include some local currency financing in this amount - as has already been done in the case of the nBRD loan for the Muda River irrigation project. 120. This would imply that about 29% of capital expenditures during the Plan period (excluding military spending) would be externally financed. Assuming that external sources could on average finance 60-65% of the cost of a given project or program, this would mean that 4U-5%6 of the capital program would have to be of a kind suitable for external finance. The capital expenditure of the major public authorities alone are likely to be around 20% of total capital expenditures, and given the widening of the scope of bilateral lending and project lending by multilateral agencies such as the IBRD and possibly the forthcoming Asian Development Bank, this lending target should, with effort, be achievable. The remainder, military assistance grants (which recently have reached M$100 million a year), the British recurrent, grants for Borneo development, and other non-security grants might cumulate to a total of M$800 million if military aid remains high: but this target will be difficult to attain. Committments on loans and grants totalling around M$700 million should be sought in 1966-70 if these disburse- ment targets are to be met. The debt service burden is not likely to be a - 119 - nroblem frr the foreseeable futurer If dht is incurred on the ahove .rale partly by means of suppliers' credits and partly by bilateral and multilateral aid on TRD terms +he ein ernal ublic debt ernvicn rtin is unlikely ft exceed 6% by 1970 or 8% by 1975. 121. In conclusion, the Malaysian government's development effort is well a balance of payments problem. In order to alleviate these financial strains, more effort nee t-o ve mau-o t-0 de-C10P tIue loCal kasn ---4c 4-- Ie4 ou as ou improve the prospect for government borrowing. Capital transfers to the P1 -LvaCut; jz;.;oUr SLIUxU-L vt At.PU U ci m1lU1um, and in tiliS k;UnUq"nUo n direct lending to the private sector by the EPF might be postponed. The continued financial heal1 of te private sector is nowever essentual to te acuevement of the Plan's goals, and the avoidance of direct exchange controls is probably essential. Positive steps to improve economic cooperation with Singapore would appear to be an essential prerequisite to the maintenance of private foreign investor's confidence. STATISTICAL APPENDIX Tnle o fn Contents II. Estimate Contractual Debt Service Payments on External I .tUL J-UJLL)U 2. Population by Age-Group and Race a. nevuer ovauistics, i93-, 4. Tin Statistics, 1953-1965 5. Consumers Price index 6. Production of Export Commodities 7. Agricultural Production Indices 8. Gross National Expenditure and Product 9. Industrial and Regional Origin of G.D.P. 10. Balance of Payments 11. Gross Savings 12. Consolidated Public Sector Finance 13. Consolidated Current Revenue of Governments 14. Consolidated Current Expenditure of Governments 15. Consolidated Capital Expenditures 16. Honey Supply 17. Foreign Assets 18. Changes in Foreign Assets 19. Direction of Trade 20. Composition of Exports 21. Composition of Imports 22. Import and Export Price Indices and Terms of Trade 23. Export Projection 24. External Debt Service Projection Table I MALAYSIA - External Public Debt Outstanding As of June 30, 1965 1/ 2/ Debt Repayable in Foreign Currency (In thousands of U.S. dollar euivalents) Gross Net-of sinking funds I)Ie- O. A-..L~LLUUI6 14 e U OL U-LLU - "4r,J Item undisbursed undisbursed undisbursed undisbursed TOTAT. TERNA T.PHT;T DET 1 gol1A Inq Rol 991171 97-- Q) I -L U ~ UU£ U14,L7 043J.±7 ______ Loans from governments le,9- u Y28,513 116,67 12113 Drunei ou,>>u oULu (U,Uuu Germany 975 5,250 975 5,250 Hong Kong 6,122 0,122 5,595 ,5> United Kingdom 40,730 41,024 40,730 41,024 United States 15,567 15,567 15,5o7 15,567 /1 Debt with an original or extended maturity of one year or more. /2 It has been assumed that the following debts, contracted by the government of Malaysia during the period in which Singapore was a member of the Federation of Malaysia, will be repaid entirely by Malaysia: $25,000,000 External Serial Bonds, 1965 $ 5,000,000 loan from Chase Manhattan Bank, 1963 $ 5,250,000 loan from Kreditanstalt fur Wiederaufbau, 1963 $10.400.000 6g Stock of 1963. Statistics Division IBRD-Economics Department Ontohr 29. 196q T nhe TT MAT.AYSTA - E4n+a d CtnA o,+atl Service P--nmts onm 'E+em- Public Debt Outstanding Including Undisbursed as of June 30, 1965 /1 Debt Repayable in Foreign Currency U1Li LUA-.C&1U,' L).L V. J. t.V±.LU ~Uuvi"tL ui 'MIUL~~ -4. nJ 4. L--2--- Beginning of Period Payments During Period LJJILUU.Lng undisoursea Year Gross Net/3 Amortization Interest Total 1965 303,638 273,693/2 7,085 9,633 16,717 1966 301,079 269,y32 10,35U 12,040 zz,j5y 1967 292,236 258,541 11,957 12,679 24,637 196 281,795 2)44,286 16,178 12,129P 29,107 1969 267,133 226,891 20,630 12,121 32,752 1970 246,578 204,973 18,c)06 11,046 29,052 1971 213,946 185,848 9,527 10,324 19,851 1972 2o5,1649 175,355 12,758 9,753 22,511 1973 192,203 161,616 22,860 8,642 31,502 1974 168,157 137,781 8,184 7,696 15,880 1975 160,998 128,623 8,304 7,392 15,696 1976 153,718 119,274 19,432 6,465 25,897 1977 113,549 99,048 6,879 5,520 12,400 1978 107,240 91,648 7,201 5,173 12,375 1979 100,607 83,881 7,539 4,808 12,347 PUBLICLY- ISSUED BONDS Debt Outstanding at Beginning of Period Payments During Period Year Gross Net/3 Amortization Interest Total 1965 84,119 61.551/2 572 3.559 4.130 1966 84,119 60,922 3,1142 4,127 7,270 1967 81.619 57.056 h.hOL 3.956 8,359 1968 77,869 50,720 6,904 3,681 lo,584 1969 71,619 )13.01h 6.90l 3,337 10.2L1 1970 65,369 35,260 10,146 2,703 12,850 1971 39.799 2hji53 Ihl 22hp 2.683 1972 39,799 23,555 441 2,242 2,683 1973 39-799 22694 1oJ8 1-787 12-215 1974 28,986 11,675 371 1,332 1,703 197 58 QAA 10,775 371 1 1,9 1703 1976 28,986 9,8462 4,809 914 5,723 1077 7 RQ- )AR. 70 L.OA c7C 1978 7,893 4,87 79 496 575 1070 7 RO1 . 07A 7o LOA 7f (Table I! continued) -2- MALAYSIA - Estimated Contractual Service Payments on External PuliC Debt VuUcanaiUg ne±uaLg unalsoursea as 01 Oune Ju, yU J/ Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) PRIVATELY-PLACED DEBTS Debt Outstanding at beginning of Period (including Payments During Period Year undisbursed) Amortization Interest Total 1965 4,000/2 1,000 220 1,220 1966 3,000 1,000 165 1,165 1967 2,000 1,000 110 1,110 1968 1,000 1,000 55 1,055 IBRD LOANS Debt Outstanding at Be,inning of Period (including Payments During Period Year undisbursed) Amortization Interest Total 1965 87.261/2 867 1.0L 1.h8L 1966 86,821 1,038 2,992 4,030 1967 85.783 1.303 3.963 q_266 1968 84,480 2,941 4,659 7,600 1969 81.539 3.1LL ).502 7,646 1970 78,395 3,318 4,325 7,663 1971 75.077 34C10 -n137 7._Nt7 1972 71,567 3,709 3,938 7,647 1971 (7 ,9A 1 1 1797 7 -)C1 197 63,9 5 3,905 3,509 7,1h 1975 A0 ),n 3 ,7 , 980 7 ,27 1976 56,072 4,198 3,065 7,263 1077 Cl,A7) h1.h 2 ,82 7 OAn6 1978 47,40 4,686 2,575 7,261 1979 1.0 71M~ 1, 0:1 2,309 7 pAr, (Table II continued) -3- MALAYSIA - Estimated Contractual Service Payments on External Public Debt Outtanding Iinlding ITn hiror a m nf June 0 1 9( 1/ (In thousands of U.S. dollar equivalents) LOANS FROM GOVERNMENTS Debt Outstanding at e 4XJA41 ± . L t: L -LVU d.yIia!!.h p i PeriodJ~I~* Year Gross Net /3 /A Amortization Interest Total 1965 128,257 120,880 /2 5,073 4,808 9,881 1967 122,833 113,701 5,250 4,652 9,902 -Lo 0±,414/ :u,uo,333 41,*.oI 1969 113,975 102,338 10,582 4,283 14,865 1970 102,06T4 91,3180 4,5542 4,0108 80. 1971 99,070 86,318 5,575 3,946 9,521 1972 93,783 80,233 8,08 3,574 12,182 1973 84,546 71,133 8,519 3,129 11,68 1974 7>,226' 62,161 3,908 2,855 6,7631 1975 71,972 57,808 3,965 2,770 6,735 1976 68,660 53,360 10,42b 2,00 12,912 1977 53,782 42,489 2,367 2,198 4,565 1978 51,906 39,720 2,436 2,102 4,538 1979 49,960 36,849 2,509 2,003 4,512 1 Includes service payments on all debts listed in Table 1 prepared October 29, 1965 except a $256,000 Colonial Development and Welfare Fund loan for which repayment terms are not available. /2 Outstanding is as of June 30, 1965; payments are for the entire year. /3 Gross debt less applicable sinking funds. A Loans from Brunei and Hong Kong are being redeemed in part by con- tributions to a sinking fund. Statistics Division IBRD-Economics Department October 29, 1965 Table 1 MAIAYSIA - Land Use and Area 1962-1963 (Sq. miles -) Total States of Malaya Sabah Sarawak Malaysia Rice ...i4.................. 1,5ho 143 14o 2,123 cocorlut . 800 14:2 86 1,028 Oil Palm .......... ....,....... 275 10 -- 285 Pepper ................................ -- -- 11 11 Sago ................................ 6 ho l143 F,ruits ................. 09* 16 365 Shifting Agriculture l . ...... - 1,000 8,450+ 9,450 Cther crops and fallow land ..... .... .. 600 68 169 837 Forest Reserves ................ 13,350 9,98sk 11,550 34,880 All c)ther land ................. 27,545 18,568 26,818 72,034 Total ........................... 50,700 29,388 48,250 128,338 * Rough estimate + Excluding hill padi Source: Infornation from Agricultural Departmernts of the various regions. Table 2 MALAYSIA -- Estimated- Population by Age-group and by Race, end-1963 States of Malaya Sarawak Sabah Malaysia Total No. No. No. 6 No. 1% A., AGE-GROUP 0-j.................... 1,326 17.3 151 18.7 95 18.9 1,572 17.5 5-9 l........... 1,173 15.3 133 16.4 79 15.9 l,385 15.4 10--14 ................ 988 1:2.9 84 10. -48 9.6 1,120 12.5 15-19 .................... 741 9.7 72 8.8 41 8.3 854 9.5 2C0-29 .................... 9 9 1,127 J4.7 115 14.2 814 16. 8 1,)236 13.8 30-39 ........... 813 10.6 96 11.8 65 13.0 974 10.9 40-49 .................... 651 8.5 72 8.9 44 8.9 767 8.6 50-59 .................. 467 ý6.1 46 5. 7 24 L.8 537 6.0 60 and over ...... .... 374 4. 9 41 5.1 19 3.8 434 4.8 TOTAL ................ 7,660 100,0 810 100.0 499 100.0 8,969 100.o B. RACE Malays lf ............. 3,837 50.1 142 17.5 32 2 6.4 4,011 44.7 ødnese ................. 2,841 37.1 255 31.5 117 23.5 3,213 35.8 Indians and Pakistanis . 843 11.0 -- -- -847 9.14 Sea Dayak .............. -- 254 31.4 254 2.8 Kadazan ............ -- -- -- -- 160 32,0 160 1.8 C)ther indigenous ....... 4 - 150 18.5 177 35.5 331 3.7 Other nori-indigenous .... 135 1.8 9 1.1 13 2.6 157 1.8 TOTAL (all races) .... 7,,660 100.0 810 100,0 499 100.0 8,969 100.0 Percentage Distribution ...... 85.4 9.0 5.6 1.00.0 17 Inclules Indonesians 2f Mainly Indonesians Source: Adaptation of official Projections based on latest census in each region. Net migration is excluded,. Table 3 STATFS OF MAIAYA - Rubber Statistics 1953-1965 Planted Acreage Production Yield per Small- Small- Tapped Year Estates holdings Total Estates holding s Acre - Estates (000 acres) (000 long tons (pounds) 1953 2,041 1,614 574.4 341.8 232.6 47) 1954 2,028 12,629 586.5 345.5 241.0 480 1955 2,025 1,650 638.7 352.5 286.2 490 1956 2,017 1;686 626.0 351.6 274.4 496 1957 2,020 1,710 637.5 368.6 268.9 535 1958 1,989 1,766 662.9 390.1 272.8 586 1959 1,950 1.839 697.8 h08.0 289.8 6h1 1960 1$942 1,892 708.4 414.1 294.3 676 1961 1.945 1,968 736.7 429.5 307.2 719 1962 1,933 2,064 751.6 439.2 312.4 745 1963 1.925 2.1h5 78l.7 455.5 329.2 780 1964 1,918 2,235 819.1 471.7 347.4 817 Jnn/Sep 19.1 n.a. Averagre qinornepnrp .nr+. Tni. Year Exports Imports Price R.S.S.#1 Value3 n lng tons) (Malayan cents per 1.) (Mayn i e. ton) 1954 612.1 27.1 67.3 1,476 1955 659.5 33.3 114.2 2,402 1956 69.4 43.7 96.82, 1957 655.1 37.9 88.8 1,991 198 602 618. 1,735 1959 782.9 53.3 101.6 2,199 190 766. 7n.7 108. 1 2385i: J-,7 U V I v ofiý%/ØL ,ý ý. 1961 790.6 64.9 83.5 1,824 192 ( 7.0 67. 78.2 1 ,7 1963 841.5 53.2 72.4 1,63*3 .14 UU 1(lbu 14vu. OU,. Jan/Sep 1965 6ý5.4 n.a. 70.8 1,606 Source: Departnent of Statistics, States of Hlaya. Note: Production of Rubber in the States of Malaya accounts for about 92% of total Malaysian production. Comparable Malaysian data are not yet prepared. TABLE b "tb>tes Of M2ya -n c.itc19-96 A. P.oduction and Trade (thous.anc lon7 t,onF) ~J 1x o t s Y.ar Production / Iorts / Conentrat 1/ Ttal Total 1953 56.3 6.0 27t1 3 ,2.2 54 60.7 3.2 5 ¯) 55 61.2 10.8 33.9 37.9 71.9 56 62.3 10.9 20.6 52.4 73.0 59.3 13.9 19.4 -0. 69.8 38- 7.9 6.3 38.5 44.8 59 37.5 8.7 .7 44.1 44.8 1960 52.0 20.7 . 3 76.3 76.6 61 56.0 10.6 .4 74.2 74.6 62 58.6 25.0 .5 81.3 81.3 63 59.9 20.1 .5 4.6 81 64 30.0 1o... . 71.2 71.7 1965 (Jan- ept.) 47.1 7. 5 n. a. 57.1 n. a. 1/ Tin content of concentra.tes B. T.in Prices London - Cash .!ei York - nrompt ingapore x-,,orks (./l( cent7lb.)( p:r picul) 1953 731.7 95.0 363.9 54 719.4 91.0 353.6 55 740.1 94.7 365.5 56 787.7 101.2 387.0 57 754.8 96.2 373.2 58 73. 9 95.1 369. 3 59 785. 4 102.0 396.9 .Tin Price2: (Cont,ld) Ycar London - Cash 11e~ York - riompt Singanore -. ex orks J, /Ilon'g ton) (U, cents/lb.)(i per picul) 1960 796.6 101.4 393.8 61 888.6 113.3 447.7 62 896. 5 114.6 447.8 61 909." 116.6 455. 4 1964 Jan 1041.4 134.0 523,3 June 1183.1 147.5 583.2 1965 Jan 1254.6 163.1 621.1 June 1499.1 189.1 747.2 Iov. 1386.4 177.0 710. 2 Source: Department of Statistics, States of iinlaya N,otc: itl1 domestic tin production is in the States of -iala, and virtually all the entreport trade in tin is via ialayan ports and -melters. TABLE 5 State3 of Ialava-Consumer Price Index 1959=100 1960 1961 1962 1963 1964 1965(June) Food 100 99 100 104 104 102 Drink and Tobacco 100 99 100 101 101 102 Clothing 102 102 102 100 101 101 Household Goods 100 100 100 100 100 101 Fuel and Power 98 98 97 97 96 95 Transport 102 102 102 103 103 109 Services and Entertainment 100 100 85 8 8 P8 Sundries 102 106 108 107 108 113 Rent- Ppnnirq 100 101 inn 101 ini inm TnTAL/1 9. 99.6 99o7 1029 10 i2 . 101.9 S eights are from the 1957-58 Household Budget Survey Source:. Department of Statistics. TIBLE 6 Malaysia - Domestic Production of Selected Export Commodities, 1955/58-1965 Annual Gr owth 1955/58 /o 19U9 1,6o .961 1962 1963 196h 1965 to 1965 Average --- Rubber 699.6 762.2 778.0 805.1 815.6 860.3 885.h 900.0 4.0 Tin 55.3 37.5 52.0 56.0 58.6 59.9 60.0 62.8 1.5 Timber 2/ ('000 tons of So cu. ft.) 2,h66.0 3,147.0 3.143.0 h,524.0 .,803.0 L,674.0 6,369. 7,000.0 16.3 Iron ore 2,19.,5 3,76o.7 5,640.0 6,733.0 6,507.0 7,265.0 6,466.0 7,200.0 15.9 Palm oil 60,,2 71.5 90.3 93.3 106.5 123.7 121.1 lho.0 14.,0 Palm kernels 15.7 19.3 23.7 2.?.2 27.8 30.1 30.0 34.0 13.0 4opra h9.1 45.6 h6.o 47.5 49.5 49.7 45.8 47.0 -0.7 ] Estimate based on first three quarters data. 2/ Consists of round and sawn timber. TABLE 7 Malaysia: Agriculture Production Indices, 1960-65 (1960=100) Arnrual growth rate U.oit WtY. 1961 1962o _019 -9L0 1965 Itlu0 RLubber 62 103 1.05 10 T 117 3.2 Palm oil and kernels 2 103 117 135 132 149 8.3 Copra 4 94 84 81 76 71 -7.0 Padi - 8 108 103 ill 99 112 2.3 Pineapples 100 109 118 139 152 8.7 Tea 103 110 106 111 117 3.4 Jago flour 122 156 180 222 241 9.2 Pepper 210 239 228 180 236 18.8 Hemp 11 111 92 97 108 116 3.0 Fresh fruit n.a. n.a. n.a. n.a. 120 3.6 Fresh vegetables n.a. n.a. n.a. n.a. 118 3.4 Tobacco n- - - .na. n.a. n.a. _n.a. 122 4.1 Livestock (incl. poultry) 4 112 124 133 142 154 9.1 Fish 5 109 122 132 138 144 7.5 Timber (round) 4b 107 114 137 155 166 10.8 Aggregate production index 100 105 107 115 120 127 4.8 Export production index 75 104 107 115 122 128 5.1 Domestic production index 25 107 108 114 111 121 3.8 * The weights selected are the value-added by each commodity expressed as a proportion of the total net outnut of the agricultural sector in 1960. Source: First Malaysia Plan 1966-1970. Table 8 Malaysia - Gross National Expenditre and Product, 1958-1965 (if, million, currfent prices) Regonal Breakdown -- 1963 J93 1959 j960 19_1 19j62. 196 _1964 6 Ma.a,1a _Sabnah Sarawak Total Prelim. Est. Malay-sia Total Consumption 4434 4684 5057 5324 5ý636 6072 6495 6900 5334 289 449 6072 Private 3595 3831 4176 4369 4611 4889 5137 5395 4289 234 336 4889 Goverrment 839 853 886 955 1025 1183 1358 1505 1055 55 83 1183 Total Fixed 0apital Formation 6 66 _81 l0/ 125 1371 l4 6_ 19_4 _91 836 171 Government 1/ 194 174 33 376 569 583 615 638 494 40 49 583 Private Enterprises 471 512 648 665 716 788 869 931 100 51 37 788 Stock Changes 2/ + 34 -60 +120 + 80 + 78 + 64 +76 + 51 + 64 n.a. n.a. + 64 Total Gross Gapital Formation 699 626 1001 1121 1363 1435 1560 1655 1258 91 86 1435 Gross Domestic Expenditure 5133 5310 6058 6444 6999 7507 8055 8520 9507 Statistical adjustment / - - - - 14 - 41 - 21 - 49 - 60 Plus: Current balance on goods and non-factor services +467ýt/ +970C4 +883ä/ +447 +229 +166 +162 +280 Gross Domestic Product at market Prices 5600 6280 6941 6877 7187 7652 8168 8740 Plus: Net factor incomes from albroad -150 -220 -285 -230 -172 -182 -208 -240 Gross National Product at market prices 5450 6060 6656 6647 7015 7470 7960 8500 1/ Includes public authorities and go-vernment enterprises. 2/ States of Malaya only. / Represents the small statistical difference between the estimate of GDP by industrial origin, and that derived from total expendi- tures and the trade balance: The former is taken to be the definitive series. / Rough estimate. fote: These data are anrnximation based en fairly coprehens official data for the States of ',alaya in 1958-1963 and Sarawak in 1961, but rough estimates for other regiions and years. TABLE 9 Malayi- Estimated Industrial and Regional Origin of Gross Doestic Product (M4 million, current prices, 1960-1965) Regial Breakdown- 126 960162 1963 1964 196 5 Malaya Sarawak Sabah Total Prelim. Est. Malay:ia Agriculture: of which, 249 2 30 23j 2380 2395 2521 2005 206 169 2380 Rubber ) ..1017) Rubber 1569 1303 1267 1243 1205 1276 17) 72 Rubber proce ssing) 107026 Forestry / 175 190 206 239 250 264 83 35 121 239 Fishing 97 112 133 142 154 161 136 6 2 144 Other 708 725 717 754 786 820 639 95 20 754 Mining and Quarrying 344 418 430 457 536 615 419 34 4 457 Manufacturing 1/ _/ 314 333 383 446 519 565 401 37 8 446 Building and Construction 175 210 263 302 353 390 274 16 12 302 Electricity, Water and Sanitary Services 76 84 94 106 122 135 98 5 3 106 Transport, Storage and Communication 219 223 234 245 258 273 206 25 14 245 Distributive Trades 888 929 973 1056 1124 1183 979 45 32 1056 Banking, Insurance, Real Estate 76 81 92 98 103 110 91 4 3 98 Ownership of dwelling 281 293 304 319 336 349 277 25 17 319 Government and defense services / 653 677 715 784 869 942 723 35 26 784 Other private services 363 400 443 475 529 583 429 25 21 475 Total: Gross Domestic Product at factor cost 5938 5978 6254 6668 7144 7666 5902 457 309 6668 (Per capita) (730) (713) (723) (749) (778) (809) (776) (571) (614) (749) Plus: IndIrect taxes, net 1003 899 933 984 1024 1074 880 53 51 984 Gross Domestic Product at market prices 6941 6877 7187 7652 8168 8740 6782 510 360 7652 i/ Saumilling is included in manufacturing. g2/ Rubber processing both on and off estates is included under agriculture. 3/ Includes education and health services assisted by the government. 9ource: Based on official estimates for Malaya 1960-1964 and Sarawak 1961 and mission estimates for the remaining data. Bornec States data are rough approximations. TABLE 10 Malavsia - Balance of PayTmnts 1961-1965 7million) Current Account 1 9 6 1 1 9 6 2 1 9 6 3 1 9 6 1 9 6 5 Goods and Services R P N R P N R P N R P N R p N Herchandise Tr.o.b.) 3,212.4 2,6412.2 +570.2 3,236.2 2,887.9 +348.3 3,301.1 3,016.2 +284.9 3,366.1 3,125.0 +21.4 3,695.0 3,320.0 +375.0 Non-Monetary Gold 0.2 25.6 - 28.h 0.2 3.2 - 3.0 0.2 2.6 - 2.4 0.2 3. - 3.2 - - 3.0 - 3.0 Freight and Insurance 15.2 1111.4 -129.2 11.5 157.0 -115.5 11.1 161.0 -152.9 16.8 170.1 -153.3 17.0 185.0 -168.0 Other Transportation 26.8 22.8 + 1.0 29.0 25.8 + 3.2 29.9 27.3 + 2.6 41.9 33.2 - 8.7 3.0 36.0 + 7.0 Travel 9.7 76.6 - 66.9 11.9 82.1 - 70.2 16.8 85.9 - 69.1 20.1 93.8 - 73.7 22.0 97.0 -- 75.0 Investment Income 133.1L 363.7 -230.3 16h.8 336.9 -172.1 172.0 35L.0 -182.0 170.5 378.6 -208.1 172.0 412.0 -240.0 Governnent (n.i.e.) 162.3 10.7 +151.6 155.0 9.7 +165.3 166.2 8.1 +158.1 215.0 8.9 +206.1 225.0 10.0 +215.0 Other Services 16.8 71.2 - 54.4 17.3 66.h - 49.1 15.9 70.8 - 54.9 13.3 77.7 - 6h.4 14.0 85.0 -- 71.0 Total Goods and Services ,57 3,36).2 +217 9 j75 +6 3,713.2 3,2.9 - 717 '7-EIS.2 -1T7 77 1,293.0 177Th4o 1 Transfers rMvaT Transfers -205.0 -207.6 -205.8 -201.0 --200.0 Government Transfers 1/ - 38.6 - 28.3 - 32.5 - 30.0 22.0 Total Transfers -2IT.6 -2 -231.0 -222.0 Balance on Current Account - 27.0 -179.0 -254.0 -277.5 -182.0 Capital Account Private Long-Term Capital +190.0 +270.0 -290.0 +300.0 +250.0 Private Short-Term Capital - 66.0 - 65.0 - 78.0 - 42.0 - 60.0 Commercial Banks Assets (- = increase) + 15.0 + 7.0 + 7.0 - 42.0 - 0.0 Public Sector Borrowing (net) 33.0 77.0 90.0 57.0 100.0 Foreign Capital Grants h9.0 32.0 21.0 83.0 88.0 Change in Official Foreign Assets (- increase) -151.0 - 63.0 + 26.0 87.0 Portfolio Investment and Errors and Omissions - 73.0 - 79.0 -104.0 -166.0 )-156.0 Total + 27.0 +179.0 +25L.0 +277.5 T72.(5 1/ Excluding public capital grants. Source: Data provided to mission by Department of Statistics. 1965 estimates based on first three quarters' data. %A AT A VOTA ,- - --- v-/ ~iVI e)-n 4i Mnmwoln- UYUNG OavTayb nbunnIausl -~- .'jv-w. (MSilion, current prices) 1960 1961 1962 1963 1964 1965 Vest.) - est.; Gross Capital Formation 1,001 1,121 1,63 1,430 1,560 1,620 less: net capital inflow from abroad 2/ - 363 41 219 275 326 24 Gross National Savings 1,364 1,080 1,144 1,160 1,234 1,378 plus: net factor payments to abroad 285 230 172 182 208 240 plus: net remittances and transfers to abroad 3/ 235 244 235 238 231 222 Gross Domestic Savings 1,884 1,554 1,551 1,580 1,673 1,840 of which: public savings h/ 396 378 355 245 268 108 private domestic savings (residual) 1,488 1,176 1,196 1,335 1,h05 1,732 Gross National Savings as fo of GNP 20.5 16.2 16.3 15.5 15.5 16.2 Gross Domestic Savings as % of GDP 27.1 22.6 21.6 20.6 20.5 21.1 1/ The data in this table are derived solely from the relevant national accounts aggregates. No independent estimate of savings exists. 21 Comprises reserve use, loan receipts net of repayments, private capital inflow, public canital grants, and some unidentified canital movements. ./ Co~mpris~es privae remittace a' nd- public sec~tor transfers excludiing capital grants. -/ Approximation derived from Table 12. TABSLE 12 mou- uunco±iuateu ruouc ceLcur riuance. w,7uu-±yuu; (M million) Summary Accounts of the Central and State Governments and Public Authorities 1960 1961 1962 1963 1964 19651/ 19662/ Revenue and Expenditure Current revenue 1276 1309 1302 1h39 1600 168 172 Current expenditure 3/ 956 1025 1111 1251 1461 1639 1765 Current surplus 320 204 251 100 17Y- eu Public Authorities surplus 29 36 41 38 41 44 46 Increase in Employees Provident Fund assets 4/ 70 86 105 106 126 h0 1155 Total current resources 419 406 397 332 3 1T 230 711 Capital expenditure by governments 5/ 213 365 5hh 600 585 682 719 Capital expenditure by public authorities 6/ 41 39 67 70 76 78 105 Total capiTal expenditure -2 5T 7 611 670 ET 7 760 73T Overall surplus or deficit +163 + 2 -214 -338 -347 -530 -63 Financed by: TnnnI hr'rrwne e + 7/ 100 39 141 118 AA 200 11 Foreign borrowing, gross 73 46 69 103 31 120 125 Less, repan.ments 01 10 1R 12 1 A 90 Foreign borrowing, net 79 -T 91 ---1 00 100 ,iss of assets (increase -) 8/ -370 -130 70 107 230 97 Other receipts + L4 + 17 +L24 -3 -3 0 ~ Total sources of finance 163 -2 721 4 +339 +3147 730 73 1/ Preliminary estimate r/ Budget est-Muae 5/ Excludes foreign loan repayments 4/ Neu o Err lending outide tne public sector T Including loans and equity contribution by governments to public authorities or Rxcluding loans and equity contribution by governments to public authorities 7/ Excludes lending to government by EPF o7 Sinking funds are assumed to be outside the governments' accounts Nto: Current revenue and expenditure for 1964 and 1905 include some transactions with Singapore. For details see Tables 13 and 14. Qource: Derived from Tables 13 through 15. TABLE 13 Current Revenue of Federal and State Governments, 1960-1966 (M$ million) 1960 1961 1962 1963 1964 196' 1966 Prelim. Latest Buaget est., Direct Taxes 209 258 265 269 270 308 360 Income Tax 1/ 20 -26 9 - -72 262 300 3 5 Estate Duty 5 4 6 5 8 8 15 Export Duties 321 248 234 229 232 248 212 Rubber 216 130 103f 92 7882 Minerals 68 82 91 97 118 114 89 Others 37 36 0 ), 36 52 (1 Import Duties and Excies )37 Mål :7 )A2 gnA 559 62 Tonacco 12r 127 125 132 133 133 l4h Petroleum pducts 92 97 102 111 117 127 1,3 Alcoholic beverages 59 59 59 63 61 68 72 n+hers 2/ 162 161 17 176 197 211 901 Othr Reeit 3n 3CR Ln .6 [fyl 171 1.72ý 50?- Ilconses, fees, etc. 90 106 108 131 133 15 1~7~~ krading depar i/ 37 39 45 52 40 60 77 Interest 43 70 77 76 70 55 L9 Surrency Board Surplus 22 27 14U p 54 ) 37 Cthers 118 116 135 147 170 168 171 Subtotal 1,276 1,308 1,360 1,436 1,481 1,587 1,721 Federal Revenues from Singapore 4/ 120 88 - Total 1,276 1,308 1,360 1,136 1,601 1,675 1,721 Special receipts other than grants 5/ 1 2 3 7 10 4 1/ Includes tin profits tax in 1965 and 1966. 2/ Trclrudes turnnur tax and nayrol tax in 1965 and 1966, also tin and timber t oyalties. 3/ 1e å reciptsq nf -^.-+..s nd le mmntions, ros rreipt_s from TV, nommercial broadcasting and aviation. Current expenditures on posts and telecommunications were as follows: 1960 1961 1962 1963 196i i 1965 1966 ~32 'T9~ ~~37~ ~7ö~ ~6W~ ~6~ 6 1,1 P -tr ~-^ - e~ ö ~ ~ o -,o ^^1, - ebA i-n q ?i!7 i-, lntr un.ö? .Tn ily'T IQ ) nr-4 tf/ Fot percent_~ of Federal revnue colete-n-inapr bet-eenJnay-6 n August 1965. (f / Inc«lu-d remreets for expenditure J -iapore4 i19. TABLE 14 Recurrent Expenditure of Federal and State Governments (1960-1966) (M$ million) 1960 1961 1962 1963 1964 1965 1966 Prelim. Latest Budget Est. E-onomic Services 175 185 199 201 233 242 286 Agriculture, Rural Development, fisheries, forestry, survey, etc. 62 65 73 78 86 100 100 Commerce, Industry, Mines 5 3 b 8 5 6 Public Works and Transport 108 116 123 119 139 137 10 Soci.al Services 283 314 363 405 453 508 557 Education 178 200 238 261 285 322 355 Health 85 90 95 103 116 126 132 information, Radio and T.V. 10 12 15 17 24 30 37 Water Supply. Social Welfare 10 12 15 24 28 30 33 Gcvernment Services 517 5L3 566 656 816 905 959 Administration and Others 1/ 163 175 189 238 271 329 333 Defense 2/ 75 84 85 98 155 190 238 Tnternal Spciiritv 2/ 108 91 95 111 168 160 1L5 Debt Service 3/ 93 116 126 135 158 152 179 Pinnnsin,n rei fNrtinitn 78 77 71 72 6L 69 6k I/ Excluded are the current expenditures of ports and telecommunications (which are treated as offsets to revenue), and contributions to statutory funds. 2/ Excluding items of a capital nature. If such items are included (from Table 15), total defense and internal security expenditure is as follows: 1960 1961 1962 1963 1964 1965 1966 194 198 209 273 395 475 563 3/ Includes sinking fund contributions, and amortization and interest payments. h/ Includes Federal non-defense expenditures in Singapore amounting to M$78 million in 1964 and M$h0 million in 1965. TABLE 15 Malapsia - Capital Expenditure of Federal and State Governments and Public Authorities 1960-1965 (iàmillion) 1960 1961 1962 1963 1964 1c;65 Est. At?ricllture T.ndt Deveome nt5 1. A .7.0 398.9 2.3 r56 Rubber replanting 42.9 35.7 29.1 20.8 23.8 32.0 Drainage and Irrigation 6.9 19.1 26.7 24.8 20.8 21.5 Other 3.8 9.9 12.3 13.7 38.6 28.5 Sub-total 50 n 7 11. 1 9.2 125.5 138.- T-,ansportatiOn Loads and Bridges 33.0 55.3 113.7 111.4 0. 29 1 Railways 8.0 6.4 8.7 11.2 13.4 12.8 D-r ö. 3 -1 -- n N^. r> ni 5 % , Ports . .3LV; 2U.8 1.87 8.9 1.4 Civil Aviation 1.6 2.6 9.3 17.4 18.1 26.4 "l fi nn I, ,' I 1 1, fl^ fl fl nl if l ll ~ ruL rLant and Equipment -14.5 ?LL 2 3.,9 -. u 12. ._ Sub-total 65.4 117.9 184.4 176.8 143.0 147.1 %ommunications Telecommunications 8.7 14.0 17.7 16.3 20.8 27.9 Broadcasting and Television 1.2 1.9 2.2 5.2 11.1 7.3 Posts 0.7 0.9 2.0 1.8 0.7 o.8 Sub-total 10.6 16.8 21.9 23.3 32.6 36.0 industry Site Development 0.0 1.8 0.4 0.0 8.8 4.4 Industrial Finance, etc. 0.0 0.6 0.0 22.5 0.0 1.0 Other 4.1 1.2 0.4 _.4 1.0 0.7 Sub-total 4.1 3.6 0.8 25.9 9.8 6.1 Social Services Education 17.8 32.8 50.6 58.1 51.2 84.8 Health 6.8 11.2 32.5 20.7 30.5 33.2 Housing 20.5 31.2 32.0 46.6 20.6 16.7 Social Uelfare, Administration, etc. 5.7 12.3 17.6 23.5 43.4 46. Sub-total 50.8 87.5 132.7 148.9 145.7 181.4 Utilities Electricity 38.8 46.2 86.4 88.6 89.8 85.2 Water and Sewerage 14.3 29.7 40.3 42.0 43.3 43.4 Sub-total 53.1 75.9 126.7 130.6 133.1 128.6 0(- -ens- e 9.2 21.1 25.0 55.5 52,3 91.4 Police 1.7 2.1 4.8 10.8 19.2 30.7 TOTAL 253.9 AOL2 611.4 670.n 661.2 760. of which, public suthorities 41.1 39.2 67.7 70.0 76.4 78.0 i;e: Ece:onoijc Planning Unit. TABLE 16 Malaysia - Analysis of Money Sunply 1960-1965 (MT milion) 1o6n 1o61 1o04o9 0A iA Monev Supnv Curec in1 ciclto 2/L 78 . 782 84 803J 943 1000' Private demand deposits 3/ 486 496 534 591 612 665 ~~4~~Jj~~4'Cu *CI .L'IO ±)L)±4)4 &pop±UU (Currency as % of Money Supply) 61.6 61.2 60.8 59.3 60.6 60.1 Fa3tors Aff2cting Money Supply A. Governments net position / Government securities held by Bank Negara 8 11 13 35 38 35 Government securities held by Commercial Banks 103 10o4 118 162 218 325 Gross bank credit to government 112 115 131 197 -2 _360 Less: Government Deposits at Bank Negara 100 53 95 94 114 125 Government Deposits at Commercial Banks 109 127 106 103 116 125 Total 209 150 201 197 230 50 Net credit to Government - 97 - 65 - 70 0 + 27 +110 B. Private Sector 3/ Commercial Bank Credit 564 651 812 955 1057 1175 Less, Time and Savings Deposits 478 559 607 700 793 900 Net credit to Private Sector + 86 + 92 +105 +255 +264 +275 C. Net Domestic Credit - 11 + 27 +135 +255 +291 +385 D. Miscellaneous Items (net) including asset revaluations - 61 - to -160 -163 -lo9 -150 E. Net External Banking Assets 1339 1278 1383 1361 1373 1430 Currency Board 930 954 1065 1101 1142 1210 Bank Negara 143 112 153 150 189 180 Commercial Banks 266 212 165 111 41 to F. Total Money Supply 1267 1277 1358 1454 1555 1665 (Change between periods) - (+10) (+81) (+96) (101) (+110) 1/ Rouah estimate. 2/ Total circulation in area covered by Currency Board, less estimated circulation 3/ Includes public authorities. Ql/ Central and State governments. Sourc: Baed o dat ppae byT Bankd %gr Malaysia. TABLE 17 LIalayla: Official Gold and Foreign Excharge Reserves 1959 to, id-1965. (i$ Million) Mid-market value as at t-srrr 'ist June 30, 1959 1960 _961 1962 ;L963 196, 165 1. i1 F Gold r-,nhe - - - 10.4 22.0 22.6 42.1 2. Currency Board (Lialaysia's share)/ 924.8 950.8 969.6 1,065.1 1,101.2 1,142.1 1,187.8 3. Bank Negara ialaysia 113.0 143.2 113.5 154.8 150.2 219.7 262.7 4. Central Government 607.2 916.0 1,094.9 1,036.3 993.7 791.8 765.7 (of which sinking funds) (131.2) (149.1) (184.0) (229.0) (271.3) (285.0)* (n. .) Total (official) 1,645.0 2,010.0 2,178.0 2,266.6 2,267.1 2,176.2 2,255.3 5. S'tate Governments 68.6 107.4 117.8 115.7 95.2 79.4 91.8 Sarawak 56.4 86.8 85.7 77.9 47.2 39.9 54.4 Sabah 12.2 20.6 32.1 37.8 48.0 39.5 37.4 6. Government Agencies 87.7 81.9 67.2 75.5 72.7 68.9 67.8 Malaya 84.1 78.5 63.8 68.8 68.7 64.8 64.0 Sarawak 3.6 3.4 3.4 3.7 4.0 4.1 3.8 7. Pu*blic Authorities 2laya 6.3 12.4 19.2 22.6 18.9 11.5 9.7 Total (5+6+7) 162.6 201.7 204.2 210.8 186.8 159.5 169.3 o ..Total gf Reserves 1,807.6 2,211.7 2,382.2 2,477.4 453.9 2,33 4. TABLE 17 (Contld.) jaaysiLa: OffIcial Gold and Foreign Exchange Reserves 1959 to Hid-1965. Mid-market value as at December 31st June 30, 1959 1960 1961 1962 1963 1964 1965 Other Private Pension Funds 25.6 26.9 29.1 33.6 31.1 30.0 30.0 CoMMercial Banks 190.7 223.1 176.0 167.2 163.2 150.0* 150.0* ialaya 150.0 166.6 125.7 132.7 133.3 - - Sarawak 23.9 25.9 20.4 20.6 21.9 N.A. N.A. Sabah 16.8 30.6 29.9 13.9 8.0 - - Total 216.3 250.0 205.1 20C.8 194.3 180.0 180.0 Grand Total 2,0239 2,461.7 2,587.3 2,678.2 2,648.2 2,516.0 2,607.6 LT Halaysia's share of the exchange assets of the Currency Board, which has varied between 73/6 and 75'- in recent years. * Estimate Source: Data provided to the mission by Bank Negara, Malaysia. Sizeable private holdings of foreign assets are also thought to exist. TABLE 18 Malaysia: Annual Changes.in Gold and 1/ Foreign Fxchanwe Reserves. 1961h to July 19r;. (Y$ Million) Annual change in foreign reserves at+- transation value July) .L7 J. ' JL 11 -L7L A* Al uuJ u 'J auUUG - '.Lve; ''JU.'Jo L7 A/ 2. Currency Board (Malaysia's -, [.,L ,,n .,7 r'nr' ~ ' * .4 -14 .4 ' y( ' y ~ 21.. 3. Bank Negara Malaysia - 30.9 +32.8 - 3.4 + 70.7 + 63.6 Li. Uentral. uvernmen, i(y.4 -).1 -. rJy).) - . Total (official +151.9 +68.2 - 5.0 - 62.7 +103.6 5. State Governments + 7.2 - 7.6 -16.2 - 15.8 + 10.7 Sarawak - 4.8 -12.1 -26.5 - 7.3 + 13.3 Sabah + 12.0 + 4.5 +10.3 - 8.5 - 2.6 n. Government Agencies - 14.9 - 0.5 - 1.0 - 0.7 - 1.> Malaya - 15.0 - 0.7 - 1.3 - 0.8 - 1.2 Sarawak + 0.1 + 0.2 + 0.3 + 0.1 - U. 7. Public Authorities Malaya + 6.8 + 3.0 3.4 - 7.3 - 2.L Total (5+6+7) - 0.9 - 5.1 -20.6 - 23.8 + 6.8 Total Offical Reserves +151.0 +63.1 -25.6 - 86.5 +110.L Other Private Pension Funds + 2.4 + 2.2 - 3.0 + 0.4 n.a. Commercial Banks Malaya 40.9 + 7.0 + 0.6 + 25.8 n.a. Sarawak - 5.5 + 0.2 + 1.3 + 4.6 n.a. Sabah - 0.7 -16.0 - 5.9 + 10.7 n.a. Total - '4.7 - 6.6 - 7.0 + 41.5 n.a. Grand Total +106.3 +56.5 -32.6 - 45.0 n.a. 1/ Does not include changes in private exchange holdings. q Malaysin's hare of the exchange assets of the Currency Board. which has varied between 73% and 75% in recent years. + . nora.-, - Decrease Source* Da+n nrnvided o +.h + mission h Bank Neara yIa. Table 19 Mala Direction of Trade 1960-64 (Mb Million) Imports Eorts 9_60 21 j962 1CI -964 19OL_ j961 1962. 9 194 äler, Area 552. 4 612.4 625.3 630.6 608.7 424.6 362.1 308.1 264.9 311.0 United Kingdom Australia 113.3 108.7 130.2 145.4 L67.2 152.2 94.8 131.8 94.9 99.9 Brunei 1/ 241.0 191.5 195.5 174.4 179.0 2.5 4.1 3.8 4.8 14.7 Hong Kong -119.8 124.6 134.3 146.8 137.2 31.6 24.4 33.6 36.4 38.8 India 45.2 71.9 51.0 68.0 58.7 82.4 72.1 75.5 66.2 67.8 Singapore 226.8 243.1 283.5 287.0 327.8 858.3 697.0 672.0 699.3 770.4 Other Sterling Area 96.7 56.8 76.4 95.9 161.6 42.8 31.9 38. 56.4 77.3 Subtotal 1,395.2 1,411.0 1,496.2 1,548.1 1,640.2 1,594.4 1,286.4 1,263.2 1,222.9 1,379.9 fddeEast Non-~StgrIin Countries 11.2 16.3 24.4 47.2 45.2 9.7 10.3 21.7 19.8 33.0 Continental Europe W. Germany 76.9 83.2 84.0 94.5 107.0 243.8 178.5 115.5 125.7 131.9 France 23.0 26.7 28.6 27.4 29.6 113.4 100.9 98.4 77.3 83.8 Italy 12.6 19.5 24.0 26.0 25.6 115.3 105.8 102.6 114.1 100.1 Netherlands 48.2 56.6 65.2 59.4 59.0 54.0 51.7 52.7 40.3 3.9 Belgium 22.9 27.5 29.3 26.8 23.5 46.2 37.4 54.3 44.0 21.1 Other 32.5 42.4 41.9 39.9 37.5 57.3 38.0 38.9 34.0 34.4 Subtotal 216.1 255.9 273.0 274.0 282.2 630.0 512.3 462.4 435.4 415.2 Eastern Eupopean Countries 5.8 14.7 8.2 12.7 10.3 121.2 66.4 48.1 82.5 83.6 Fer-East Countries China-mainland 91.6 105.8 118.4 173.4 223.5 8.0 0.8 - 2.0 Japan 199.8 211.9 246.3 295.0 308.7 568.1. 560.9 532.1 600.5 587.4 Thailand 271.0 275.3 269.3 269.3 311.5 2/.4 23.6 25.4 23.5 30.4 Irdonesia 349.6 272.4 315.9 236.7 50.9 23.1 38.7 26.5 6.0 2.9 Other 28.3 23.0 26.6 40.3 57.8 19.4 29.8 43.7 60.6 44.3 Subtotal 940.3 888.4 976.5 1,014.7 952.4 643.3 653.8 627.7 692.6 665.0 U.S.A. 117.5 145.2 185.2 186.4 185.? 308.1 338.9 36.1 393.0 411.3 U.S.S.R. 3.1 4.4 6.1 5.4 5.0 110.9 158.8 225.3 209.3 127.2 Others 2/ 102.8 109.7 106.3 127.3 194.3 208.1 191.4 223A4 26_ 251.2 Total - World 2,79,.4 2,845.6 3,075.9 3,215.8 3,314.8 3,625.7 3,212.4 3,236.2 3,301.1 3,366.4 1/ Primarily import of erude oil piped from Brunei to Sarawak for refining. / Includes import of Borneo states from Continental and Eastern Europe. TABLE 20 Halaysia: Composition of ExTorts (IncludinLy Fe-Ecorts.) (HiQ jHillion) - Percentage share Average Est. of total exports 1lQ8 1959 1960 1961 1962 1963 1 195 1955758 1960 97 Rubber 1,475.0 1,877.8 2,001.1 1,566.9 1,476.9 1,475.61,396.1 1,440.0 53.2 55.0 41.6 Tin 404.8 298.9 507.3 553.1 6:20.3 642.4 728.3 887.0 14.6 14.0 21.6 Timber 1/ 78.3 124.8 189.0 185.9 210.6 268.9 296.9 338.0 2.8 5.2 8.8 Tron Ore 53.0 99.9 140.2 163.8 166.2 176.3 162.5 177.0 1.9 3.8 4.8 Palm oil & kernels 49.0 60,9 71.6 68.4 71.9 76.3 87.7 114.0 1.8 2.0 2.6 Total major exports 2,060.1 2,462.3 2,909.1 2,538.1 2,545.9 2,639.52,671.5 2,972.0 74.3 80.0 79.4 Other exports 2/ 714.5 722.1 725.7 674.3 690.3 661.6 694.9 739.1 25.7 20.0 20.6 Total exports 2,774.6 3,184.4 3,634.8 3,212.4 3,236.2 3,301.1 3,366.4 3,695.0 100.0 100.0 100.0 of which: re-exports 139.0 169.0 307.0 24.0 303.0 243.0 172.0 197.C domestic exports 2,635.6 3,015.4 3,327.8 2,971.4 2,933.2 3,058.1 3,194.4 3,498.0 1/ Round and sawn timber. / Consists of pineapple, pepper, copra, coconut oil, various minor exports of the Borneo States and a variety of small items. Table 21 malaysiaComposition of Imports by SITC Secti.on 195558-196 Actuals (1tmill7ion) .1955/58 1959 1960 1961 1962 1963 1964 1965 Food 592.1 595.2 647.1 665.1 670.0 783.1 836.0 860.0 Beverages- & Tabacco 102.7 1030 10.3 127.5 125.5 130.1 114.5 126.0 Crude Materials, Inedible, except Fuels 215.3 240.8 379.5 310.8 361.4 307.3 2h1.2 272.0 Mineral Fuels, Lubricants & Related Materials 448.8 451.0 416.5 358.7 376.0 355.6 363.8 371.0 Animal & Vegetable Oils & Fats 9.6 15.1 15.h 15.5 15.8 14.4 15.3 17.0 Chemicals & Products of Chemical Industries 119.8 138.0 166.1 181.8 173.3 189.9 201.4 220.0 Manufactured Goods 343.6 336.7 430.2 472.-1 533.6 54.0 544.5 583.0 Machinery & Transport Equipment 253.4 290.2 396.1 4 58.2 568.7 624.2 659.1 690.0 Miscellaneous Manufactured Articles 121.0 127.0 150.6 163.3 174.8 .191.9 210.8 218.0 Others 49.8 52. __80.6 92.6 76.8 75.0 69.2 70.0 Total 2,256.0 2,39.9 2,791.4 2,845.6 .3,075.9 3,215.8 3,314.8 3,527.0 1/ Imports are given on a c.i.f. basis. Estimated military imports after 1963 have been added to the total. TABLE 22 import and Exwort Price Indices_ ad. Terms of Trade. f Staten of alaya _928,-100 Ist_Quarter 2nd Quarter 1959 1960 1961 1962 1963 1964 1964 1965 1964 1965 Price Index Rubber 126 135 104 97 90 85 82 90 86 91 Tin 107 107 121 122 123 168 145 170 148 200 Total 120 127 105 102 99 100 98 102 98 110 Volume Index Rubber 115 110 114 114 124 127 135 135 113 117 Tin 98 151 157 154 176 166 176 169 173 163 Total 108 123 133 136 146 146 139 150 142 146 ]412rts Price Index 98 101 100 101 101 102 102 99 101 97 Volume Index 106 128 133 152 151 149 144 160 151 161 Terms of Trade 123 126 105 101 98 98 96 103 97 113 Sonxce: LIF - International Financial Statistics Talle 23 Malaysia - Projection of Export Volume, Irices and Value 1966-70 Cumulative Percentage share Est. Projeeted Total of Total Exports 1965 1966 1967 1968 1969 1970 1916-70 1965 1970 Rubber Production (;000 tons) 1/ 900 970 1,025 1,03 1,145 1,210 Export voluMe ('000 tons) 2/ 920 998 1,052 1,11o 1,171 1,236 Export unit vralue (M¢/Lb) 3/ 70 66 63 60 57 55 Export value ($VIP million) "I/ 1.,4h0 1,475 1,482 1,493 1,500 1,52 7,474 39;0 140.4 T in Production . . . . . . . JZ.. 63 61 60 0 595 Export volume. . . . . . . . 75 63 61 61 60 58 Export unit value . . . . . 11,800 11,500 i,5O0 11,000 10,500 I0,s500 Export value . . . . . . . . 887 725 702 660 640 610 3,337 24.0 16.2 Round Timber Production ('000 tons 50 cu') 5,550 5,665 5,810 5,950 6,100 6,250 Export volume ( " " ) 2,920 2,915 2,945 3,030 3,090 3,120 Export unit value. . . . . . 76 80 84 87 91 94 Export value . . . . . . . . 222 233 247 264 281 293 1,318 6.0 7.8 Sa-,n Timiber Production ('000 tons 50 cu') 1,45,0 1,516 1,595 1,625 1,675 ],745 Export volume ('000 tons 50 cu') 620 650 680 675 675 69$ Export unit value. . . . . . 187 200 205 210 215 220 Export value . . . . . . . . 116 130 139 1142 145 153 709 3.7 14.1 Iron Ore Production . . . . . . . . . 7,200 5,000 4,000 3,700 3,500 3,500 Export volume . . . . . . . 7,200 5,000 4,000 3,700 3,500 3,500 E:port unit value 246 24 23 22 21 20 Export value . . . . . . . . 177 120 92 81 74 70 4.37 5.2 1.9 -2 - uulativ Perinntage ohar- ECt. Tro iected Tto t:l of E::-crts _-65 1966 1967 1968 i969 1970 1966-70 1965 1V70 Palm Gil Production ................. 140 156 183 217 270 332 Export volme .............. 136 152 179 213 266 328 Export unit value........... 772 730 690 650 600 555 Export value ............... 105 111 124 139 160 182 716 2.8 4.8 Palm Kernels Production ......... 34 39 46 53 61 70 Export volume............... 19 27 34 LO 48 57 Export unit value .. ..460 430 410 390 368 350 Export value ............... 9 12 14 16 18 20 80 0.2 0.5 Other Major Exports 6/ Export value ............. 95 105 107 110 115 118 555 2.1 3.1 Total MaJor Exports Export value ...... 3,065 2,911 2,907 2,905 2,933 2,970 14,626 83.0 78.8 ~iinor Exports and other 7/ Export value .. ..... 630 662 695 730 765 800 3,652 17.0 21.2 Total Exports ............... 3,695 3,573 3,602 3,635 3,698 3,770 18,278 100.0 100.0 Production unit is '000 tons unless otherwise specified. 2 Export volume unit is '000 tons unless otherwise specified. O F e Bexport unit value in M$/tonunless otherwise specified.Equivalent price units, 1965; rubber--Hew York US¢ per ib. 25.0; and tin--London cash 4/ton 1,405. Expcrt value is given in M$ million. Projection of cut,put fcr 1969-70 is prc:bably en the low side and actual output may be higher. Includes pineapple, pepper, cepra ceconut. cil. Z/ Includes numerous minor exports from the Berner, States and from Malaya. Su,ci. Based en data provided to the missicn by the Economic Planning Unit, Kuala Lum^fpur and mission-'s projecticns. The assumptions are discussed in the text. TABIE 24 ~Ixternal Debt Service Projcctions (U3 nillions ) Cunulctive Total 2 '1<) i-o, 1_92;, 19 1970 1966-1970 97 Zxis,tinr: Lcans AM0.rtizatian 35.0 37.0 50.0 63.0 55.0 240.0 107.4 Interest 36.1 37.8 38.7 36.3 33.1 182.0 66.3 Total 71.1 74. 88.7 99.3 88.1 422.0. 173.7 Procet and Fnuinent Loans (150.0) (200.0) (200.0) (200.0) (300.0) (1,050.0) Anortizc.tia - - - 7.5 17.5 25.0 25.0 Intereet 8.6 19.6 30.,0 39.7 54.6 152.5 54.6 Total 8.6 19.6 30.,0 47.2 72.1 177.5 79.6 Iarkt Loans - ('0.C) (70.0) (80.0) (70.0) (300.0) - Aortization - 10.0 18S.0 25.0 32.0 85.0 30.0 Interest - 4.4 7.7 11.2 13.6 36.9 12.7 Total - 14.4 25.7 36.2 45.6 121.9 42.7 TotnI- lonns (150.0) (2 0.0) (270.0) (280.0) (370.0) (1,350.0) - Service PaMýents on ,ternal Public Debt Anortization 35.0 47.0 68.0 95.5 104.5 350.0 162.4 Interest 44.7 61.3 76.4 87.2 101.3 371.4 133.6 Total 79.7 108.8 144.4 1U 2.7 205.8 721.4 306.0 Public Service Debt 1ternal Pvtio2 2.2 3.0 4.0 4.9 5.5 3.9 7.5 TABI 42 c ',rt1 FOOTi?OTE~S 1/ The table vas constructed on the basis of the Oeneral pattern likely to encrge in comimg years and does not indicate specific magnitudes. All -oc Loans vore assmned to average 20 years at 6,0. interest rato with three years Crace pcriod; iarlmt Loans vore ascumed to be for 10 years at $ ith no grace period. The loans were assumed to have been raisod and dioburscd at the begnin of the year. 2/ In constructing the 1975 figures it wac Cesmed that external borrowing will continue at the 1966-70 level. Service payments cn all loans constructed prior to 1971 are included under "hi,isting Loans"o 3/ In calculating external public debt service ratio the denominator used was merchandioo exports foo.b, MAP 1 ~3 4o I 419 b '0' yJ -~ I