FRETURN TO RESTRICTED REPORTS DESK -. D a r A lp* N a v'r, e WITHIN UkUjpU1 L INU. 2rf.-)D ON t. v Ve:-L- This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracv or cnmnleteneqs of the information cnntained harain I T IT VT D ATTT TAT DXA T7 An nr r r Nf- XTnr Ar Tr T3 A X T % T 7 % rTrr y - "- -Tr IaI IL N iiJ. I -FL IALNklL' D rk I. r 0iR. EAC0INS I UA1 10 IOIN AINU LD11EV P1 LLUVEI81N I THE ECONOMY OF THE FEDERATION OF MALAYA September 12, 1958 Department of Operations Far East f-TTTI T% T"V.TTY ' T"r/kTTTi AT T"T . L I LUL V JiLjrLIN 1 U.S. $1.00 - Malayan $3.06 M $1.00 - U.S. $0.327 M $1,000.00 : U.S. $327.00 &TABL OF CONTENTS Chapter Page No. Basic Statistics .......................................... i Summary and Conclusions ................... iii I. Social and Political Background ........................ 1 II. Production 2 Agriculture ....................0....................... Rubber ...... ............................................ 3 Other Export Grops ..................................... 4 Import Crops ............................................ Rice .................................................. Tin ..................................................... 6 Other inerals .......................................... o Secondary Industries .................................... 7 III. External Finance 8 Trade and Exchange Policies ............................. 8 Foreign Trade .......................................... 8 Terms of Trade .......................................... 9 Balance of Payments ..................................... 10 Invisibles .............................................. 11 Private Capital Movements ............................... 11 Balance of Payments by Currency Area ....... ...... 12 IV. Internal Finance 13 Government Budgets ........................ 13 Main Revenues and Expenditures ........................... 13 Sources for Financing Deficits ................. 15 Public Debt ........................................... 16 Money and Banking ...................................... 17 Prices .......................................... ....... 19 V. The Development Program 20 Financing the Plan ..................................... 22 VI. Prospects of the Economy 28 Rubber ................................................. 2A Tin ...................... .. ........... .......... ... 25 Other Prospects .................................. 26 Balance of Payments ................................ 27 Creditworthiness ................... .............. 28 Statistical Appendix 30 (Se next onae for list of tables) Man of the Malay Peninsula QMITA MTcrQMrnAT Ann"~ThIM-V MAMDTVC SMIS±J.iJ.LA ±AI .U ZAJJL ,j ul TaUble 11o. '-beNL- 1 Area unuer urops ......................................*. 2 Export of Agricultural, Fisheries and Timber Products ... 32 3 ubber Statistics .................... 4 Tin Statistics ................. - 3 5 Volume and Value of Exports ............................ _U 6 Volume and Value of Imports ......... 37 7 Direction of Trade by Currency Areas .................... 8A Estimated Balance of Payments, 1956 ..................... 39 Bb Estimated Balance of Payments, l990, bingapore ana Rest of World .............................................. 40 1. 9 Sterling Assets ........................................ 10 External Public Debt Outstanding September 30, 1957 ..... 43 11 Estimated Contractual Interest and Amortization Payments on External Public Debt .............................. 5 12 Commercial Banks' Assets and Liabilities ................ 40 - 1 - BASIC SALTISTTCS Area - Total 32.4 million acres (50,700 sq. miles) Cultivated - _.4 million acres Population - (Mid l97 estimate, in millions): Total - 6.4 Malays - 3.2 Chinese - 2.4 Indian - O Gross National Product (1955 estimate at current prices, in millions of MS): Total - 4,700 Per capita 775 (U.S.$258) Foreign Trade (1957, in millions of 4): Exports, foo.b. including re-exports: Rubber 1,304 Tin 439 Other Exports 437 Total Exports 2,180 Imports, c.i.f. 1,807 Balance $ 373 Sterling Assets of Official and Banking Institutions (December 31, 1977, in millions of MS): 1,541 Budset (1957 provisional actuals, Federal and State governments, in millions of M): Revenue 885 Expenditure: Defense 234 Other non-develop- ment expenditures 604 Development expend- itures 189 Total expenditures 1,027 Excess of expend- iture 142 - ii - rtL ...L LILJ. .LJI.~IA1J.L )Jj 172~ .L~IJJ. LAIU . .J-1 41LLLJ-LVi' of M$): Internal debt: Long-term 4-> Short-term 170 Total internal debt 3 External debt 331 (U.S. dollar equivalent) (0l7, 2) Total public debt 954 Money Supply (end March, 1958, in millions of Mj): Private demand deposits 302 Currency in circulation 562 Total money supply in the hands of public 864 Cost of Living Index for Malayan Workers (January 1949 = 100) - May 1958 127 - 111 - i. The Federation of Malaya is starting as a new nation under more favorabli circumstances than many countries which 1ave gained independence in the post- war period. When independence was proclaimed on August 31, 1957, in an atmosphere of political stability, the country, with a per capita income of about US$250, was among the most prosperous in Asia. ii. The country's financial position is strong. Sterling assets of official and banking instituticas at the end of 1957, excluding sinking funds, amountet to approximately M$1,439 million (US$480 Lillion), or about 80% of the curren- annual rate of imports. The main problems confronting the country are to build a nation out of a population composed of several different racial and cultural communities (the largest of which are Malay, Chinese and Indian) and to increase, or at least maintain, per capita income in the face of a popu- lation grovth of more than 3% per year. iii. The Federation has achieved its present hiGh level of income and con- sumption mainly by making extensive use of its natural advantage as a producei of rubber and tin for the world market. During the post-war period. the 'pro- portion of exports to gross national product has averaged about 50-; rubber has accounted for over 60% of total exports and tin for about 20%. The pro- ceeds of exports are used to pay for imports to supplement domestic food pro- duction and. to procure practically all requirements of fuel, manufactured consumer goods and capital goods. A significant part of export proceeds is remitted abroad as profits and dividends on the large foreign investment whicl is concentrated in the Federation's rubber and tin industries. iv. The structure of the Federation's economy is not likely to change radi- cally in the foreseeable future, and therefore the economic prospects depend to a large extent on the outlook for rubber and tin. The total world demand for rubber is expected to increase more rapidly than production of natural rubber and the market prospects for natural rubber are therefore favorable. Ir the case of tin the prospects for an increase in world demand are limited, and producing countries signatory to the International Tin Agreement have recentl3 cut their exports sharply. v. During 1958 export earnings are likely to decline significantly due to a fall in rubber Drices resultina from denressed world markets and from restric- tions on tin exports. Beyond 1958 the probable outlook for Federation export earninas is a aradual recovery to about the 3097 levAl In the early 1Q0O's a plateau at around this level until about the mid-1960's, and thereafter an increase of around 4 nAr venr on th svprncP mintninAd nimarily hv nn PYnnn9 ing output of rubber. vi. The Federation's development plan calls for Government expenditures of M1 -140 millinn nvwr +.h fia-ez r perIod 105-1090 T+is well cnceived with emphasis on (a) a program to replant part of the rubber acreage with new, fhi lildins oai ) the devlopmential ersportation A powe r facilities, 'and (c) the expansion of social services to-meet the needs iTT of the growing, multi-cultural population. It is likely, however, that completion of the development Plan 1ill h _ e laYed 1- r 1hout t1 Va-r c11 to technical as well as financial limitations. vii. Over the next five or six years, Twhben e-xport earnin-s are likely to remain down somewhat in order to carry out the development program, Howiever, in V _ t , U~ 11 W t;'I I L. Ul± I ,l~ U.LU -LCLJ. 8t=: 0 1 U U . I __LW ULA.t-LU1Q 1 - S the Federation should as a matter of policy try to maintain rather large .Loreign exange1: hold1-1s, herfor, somei foreil7n.LI '~ L~ justified in order to reduce the drain on reserves which is likely to take relation to present and prospective foreign exchange income, there is little doubt tha the FederaLion couLd without dLfficulty meet tne I- rviue ____mm_ on the existing debt and on the additional borrowing now under consideration, including that for the Cameron nighiands hydroelectric Project. Tn totait the peak service on these obligations would not exceed 2% of present foreign exchange income and in most years would De cobe juerI. J-.,o. vii in view of the present ravorable balance of payments position ith ne dollar area, which is not likely to change radically in the foreseeable future, additional debt could be in U.S. dollars. THE ECONOMY OF THE FEDERATION OF MALAYA 1. SOCIAL AND POLITICAL BACKGROUND 1. The Federation of Malaya lies on a peninsula of 50,690 square miles, extending southeast from Thailand toward the straits of Malacca, with the island of Singapore formaing a separate Crown Colony on its tip. The 6.4 million population of the Federation is comprised of 3.2 million Malays, who are mostly small-holder farmers and fishermen, and, civil servants; 2.4 million Chinese, who own small estates, tin mines, and are in business and market gardening; 800,000 Indians, the bulk of whom are plantation workers and shop keepers and clerks; and a multitude of other races, among whom about 17,000 Europeans. mostly British, are the most influential as high Government officials a..d. managers of banks, businesses and estates. 2. The independence of the Federation of Malaya in August 1957 came at the end of an orderly plan worked out between the U.K. authorities and the national parties over a period of years. It involved no major policy changes or violent reversals of trends. The government is formed by the Alliance Party, which won an overwhelming maiorit- of elected r2'ats and merqes the three large communal parties of United Malay National Organization, the Malayan Chinese Association and the Malaven Indian Conzress. 3. In the nursuit of ind.ePnd.nre. the Allinnnp hns achieved some measure of compromise between the divergent interests and aspirations of co-i7nnities, but there are strpse n nd straina ithin the Allipnnp on the n11estions of further unification of the party, the national language problem and the nhonntinn of Chinp.q nhe-lAJ '- I,-- -+--4-- 0 Atu Other Exnort Crons 17. Compared with rubber, exports of other aRricultural products are small. The most important are coconut oil, palm oil, spices, pineapple and timber. Coffee, tea and fresh fruit are minor exports. Some fish is also exported, but on balance the country is a net fih inporter. 18. The net trade in copra and coconut oil (i.e. after deducting the value of copra imports) is valued at from M$35 to 1$40 million per annum. The acreage under coconuts has declined by about 17 percent since prewar due to flooding of one important area and some conversion to oil palm. The crushing side of the industry has recently been expanded to a capacity of 250,000 tons of copra or 160,000 tons of oil. Production of copra, however, has been running about 155,000 tons. This is normally supplemented by copra imports However, due to high prices recent imports of copra have not been sufficient to utilize all the crushing capacity. 19. Trade in products of the oil palm (palm oil and palm kerners) has been expanding gradually and was \valued at M$50 .illion in 1957. Practically all of the crop is exported. The area under production (confined to three estates) has expanded 52 percent since prewar. 20. Exports of canned pineapple, which are mainly to the United Kingdom, in- creased from 16.5 thousand tons in 1954 to 26.2 thousand in 1957 when the value was MJ19 .8 million. Acreace has expanded in tIe -ast four years from 24 to 45 thousand. Both the growing and canning sides of the industry suffer from Door auglity of fruit. obsolete eauinment and unsatisfactory mana-ement. 21. The export of coffee. ten and snicAs anounteC! to MtA35 million in 1957. The most important item in this category is arecanuts, a spice whic' accounted for MAi8 million of R-rnortc last ver4 PP_ TiTnhP.r F--nT-t. wlinl n-niR. nlip-M-N nf' rn limhP.- rnt.hp.r t19nlo , have expanded from M$18 million to M$30 in the past four years. Import Crops 23. Imports of agricultural, fisheries and timber products account for 40 percn+ of +he vaue of +h FAdn+l-aionta +o+al 4prta 0---als represen about 11% of the value of total imports and one-quarter of agricultural, products, fruit and vegetables, refined sugar, copra and rubber. Rice 24. Current domestic rice production is 488,000 long tons and imports about '.X.- A , - .LL L4Jr_P . (f~0LC aJU U L ,L1C U 1.LX= iL .L. j , U(.LL rt UmV ~a 11U. .L IC .1iu .r j which maintains a stock of domestic and imported rice. Import Dermits are .Lssueu vuly u Jlceunse whoesalers who are alloweU ou import, tw touu Lor every one ton purchased from the reserve stock (a rotation measure). There is also a minimum guaranteed price for unlimted quantisn ou uumeutc adu y ou milled rice which is currently M$15 per picul of 133.3 pounds for paddy (equivalent rice price ex-mill is &4o.j per long ton;. ne Governmenu loses money on domestic purchases but recoups its losses on imported rice sold to merchants from the reserve stock. - 6 - 25. All t.he nt.uq1ral padv land of Mala is now utilized and is generally over-populated. Further expansion in production can only come about as a -ro ii I+n'in " n e r Av a n-n o-r4 +! n cy ~I Irl .n o - r1at~ro nr%ro+. n~f neya areas which need protection from salt water or require irrigation and/or drai tnge. Anysbtnia,nraernpouto is beiee toequ;r rather extensive public works programs. 26. In spite of the fact that yields are higher than in other tropical than those from alternative crops, particularly the tree crops. The policy 4JJ exa ndU± 1 J_n 4_ _.4-4 __AJ U V . J14 11 -~ P__-___ dL * -l -1 -~i 4-1___ fore, based mainly on if eas of national self-sufficiency and fear of an r. In 197 tin made up du; o tne total value of leaeration exports ana ranked only second to rubber. The Federation accounts for 35% of the free world production of tin. (See Table 4, Statistical Appendix). For the last half-century, 1alayan tin production has been practically stationary anthough it has fluctuated widely from year to year. Mecha:nization has re- duced the number of workers engaged in the industry from 200,000 in 1.13 to about 40,000 at present. The main problems have been how to cop .'ith a market characterized by extreme fluctuations in price, technologicai economies in the use of tin and the threat of surplus production whcn the U.S. stopped purchases for stockpiling purposes. Little prospecting has taken place in recent years. iany dredging companies do not have suffi- cient land on which to continue operations. Tin miners are critical of the policies of the state governments regarding the issuance of licenses for prospecting and the alienation of new tin lands for exploitation. Market conditions in the past year have depressed prices to the point where production has been sharply curtailed by agreement among the main producing countries (see paragraph 97 below and Table 4, Statistical Appendix). Other Mlinerals 28. The gross value of minerals other than tin at present represents about 15% of the total value of mineral production. In order of importance, these minerals are: iron ore, coal, bauxite, gold, columbite, ilmenite, scheelite, wolframite, monazite and China clay. During much of the post-war period new prospecting has been hampered by the Emergency, although this problem has become much less acute since 1953. Although still small, the value of production of these minerals, especially iron ore, has increased sub- stantially during the past several years, particularly since 1953. 1/ Yields in >alaya are 1,708 pounds per acre as compared with 1,409 in Indonesia, 1,393 in Burma and 1.182 in Thailand for the years 1950/51- 1953/54. -7- 2. The pater of industria-l development in te Federatincnssso a wide variety of small and relatively simple industrial organizations, and win a Lew excepulons it is associateu d1rectLy or indirectly with the Federation's role as a primary producer and trader. The Bank Survey mission in l951 estimated that nearly 4C7 of the industrial labor force were persons working on their own account and family workers; since then, conditions have probably not changed much. 30. Rates of growth according to this small scale pattern appear fairly high, but industrial Cevelopment of the Federation has not been very great, in spite of a number of favorable factors such as a relatively high level of income; a stable government; an efficient administration; reassuring policies regarding private and foreign enterprise; a high standard of public utilities and services; an intelligent and hard-working labor force; and a fair degree of managerial skill and enterprise. On the other hand, the size of the domestic market is small, and the F.-derationls main primary products are not of the kind on which large scale export industris could be built. Rubber normally gains in weight and bulk in the course of manufacture, and tin constitutes a very small part of the finished T-roduct. Moreover, the development of a steel industry based on known iron ore deposits is hindered by the absence of metallurgical fuels and che:- power, the scattered location of ore deposits and the large capital requirements. Finally, the high level of wages, the open character of the economy, and the lack of long-term financial facilities with reasonable interest rates also have tended to retard industrial growth. 31. A large part of the commercial agriculture, mining, trading and banking activities are carried on with British enterprise and capital. With only a few exceptions, the capital, management and labor of industrial enter- arises are Chinese, onprating mainly on a family basis. I-vels of techni- cal equipment and working efficiency vary greatly and industrial ventures 32. The Federation ;YnvP.rnmPnt. rpali7.P.. the- imnnrt.,n(-. of t1PvP.T()in17 secondary industries in order to create jobs for an unusually fast growing working nenitAnn and for absorbin t.he imnnt of fic+.utions in t.he fortunes of rubber and tin by diversifying the economy. As recommended by the Bank Si.Tey nir io them gnr"mn lk- +nLrn-n c4-nr,c J01~+~-1 ! special Division for Industrial Development, an Industrial Finance Corpcr- O.J4 ~ LLX~~ . A 306CU LI 11ICO~.UU O _ ±J 1IUUZ 4 2LL JV L UJi ' Division is already operating within the Minisry of Commerce and Industry anu trying tI sape and implementU an inu trial Uevelopment poicy wIAn substantial inducements to private domestic and foreign enterprise. The power generating capacity of the Federation is also being considerably expanded. - 8- Trade and E:change Policies 33. The foreign transactions of the federation are less affected by trade and exchange controls than most other countries of the sterling area. Nearly all imports are covered by an open general license, with the exception of rice imports and imports from the dbiiar area and from Iron Curtain countries (except mainland China). Some imports from the dollar area are, however, licensed freely and others are granted licenses on the merits of each case, the test being whether or not the goods are available on a reasonably competitive basis from the sterling area. Horeover, dollar area goods can be imported via Hong Kong, -provided payment to Hong Kong is in sterling. 34. Import duties are relatively lo,T and are levied for revenue purnoses, although a Tariff Advisory Committee has recently ben -.ppointed to ad- vise on protective tariffs for industry. At present the_ average incidEnce of import duties is less than 20% of net imports, which is considerably lower than in other South Asian countries. Export duties are also levied for revenue purposes. Schedules of specific duties for rubber and tin vary the amount of duty collected according to the rise and fall cf the export prices of these commodities. Duties on other exort items are very small, averaging about 5$ ad valorem. 35. There is no exchange control with the rest of the sterling area. Authorized dealers deal freely in sterlinf. but permission of exchange control authorities is r-quired for purchases and sales of other curren- cies. For trade transactions. aoDroval is given automaticallv after the issue of export and import licenses. For capital investments from outside the sterlin- area investors must first obtain anuroval from nhanoe cn- trol authorities for each project. The general policy is to give approval for almost. anv nrnipnt ecepnt the establishment ov ±"rHno firms Onon an investment is approved, the remittance of profits and repatriation of caDital is nermitted without restriction. Foreign Trade I( Thp Fdrn.inrn nnrmnliv -rsalionq a ishl +vrarl ciI Tmn +0 adjust within a fairly short period to changes in export earnings, because a In~rap rvmnn"AnY n : innnnmoc ic rloi~y-vr - fYn,-rq nzvnn-+c n"A1 m .~+i~ dollar is on a sterling exchange standard, which provides an automatic repos of th mny-~nt supp~1- tUn ch.~-nnEgesn b-anlaone of Shrt term fluctuations in imports, however, are less ironounced than in the case less rapid than the declien in exports, but the downward trend continued 1955-1957 period imports also rose less rapidly than exports but continued izing the recent trade position. -9- Jan. - March fr.~~~~~~~~~ nu[cer acou1 no accu ou7 01 toa eeaineprsaa nr'or 20 rs The Federatio 19h 1wo 25 2ares 2,262 2f1in a 7t seco Daorst eexorts cons0s - 4!:u tL 1L a Ly Balance 47 5) 1J47 30 82O 7 O--( fU. *-( 7I~ 37. Rubber accounts for about' 60% of- totalI Federation exports and tin foor 20%. The Federation if- the world's largest exporter of tin and the second .largest exporter of rubber. The remainder of the exports consist largely of other agricultural and forestry products, of Ttich coconut oil, palm oil, timber and canned pineapple are the most important, and other minerals mainly iron ore (see Table 5, Statistical Appendix), Exports generally have shoin a modest rise in volume since 1952-53. The volume index for all exports (1952 - 100) stood at 116 for 1957. The most notable increases have been in timber and iron ore; the latter has tripled in volume and value and has become the Federation's third largest export, although it still accounts for only abuut 3% of total exports. 38. The Federation's main imports are foodstuffs (about 30% of the total), machinery and transport equipment (13%), mineral fuels (8%), and tax-'Iles, clothing and footwear (7%), Chemicals, mainly for the processing and light manufacturing industries, and base metals consisting largely of metal semi-manufacturers for use in construction, are also sizable items, In addition tin concentrates, rubber and copra are imported from neighbor- ing countries, mainly for processing and re-export (see Table 6, Statis- tical Appendix). Rice imports comprise about one-quarter of the foodstuffs category, or 7-8% of total imports, and provide between 40 and 50% of estimated domestic consumption. Other important items in the food category are dairy products, fruits and vegetables, sugar, and other cereals. The volume index of all imports (1952 = 100) after dipping in 1953-54, moved up to 111 in 1956 and 110 in 1957. Terms of Trade 39. Folloing the Korean war boom, the prices of Federation exports fell further and more rapidly than import prices, with a consequent substan- tial worsening in the Federation's terms of trade. In 1955, however, while the unit value of imDorts continued doinward. the unit value of exports rose by more than 40% largely due to an increase in rubber prices, and the terms of trade imoroved markedlv. From 1955 through 1957 there was a gradual decline in the unit value of exports and an increase in the unit value of imnort.q_ As indicated in the table belowl the terms of traie rerdecl considerably from the 1955 peak, but they still remain well above the low nnin+. of 1n0 L anrl qliaht1v more fivornhlM than in 190- Tt. i. nrohahle that the terms of trade showed some further deterioration in the first pa:.t of 195R dueig to a decrline ofP rubbrl nd.inpres - 10 - Unit Value of Exports and imports and Terms of Trade 1952 1953 19514 1955 1956 1957 Exports 100 7 72 103 96 91 imports 100 97 87 80 85 89 Terms of 100 77 82 129 113 103 Trade Balance of Payments 40. There are no official balance of payments estimates for the Federation. Invisibles, changes in private short-term foreign exchange holdings. and private long-term capital transactions can only be infa.red. During the four years 195L through 19q7 the Federation's trade nonius Amouint,-,d to L42,017 million and foreign assets of official and banking institutions (which are all in sterliiip) incra.ed by U iO million.l/ Tirinr tr period also the Government received foreign loans amounfing to M:2?3 million ennivalent. Tnvisible and nrivate r,_ntl movemonti are u estimated to have resulted in net payments equivalent to M41,835 million, as ininnated below. Ti e+imated tha over one-half of +e nzt n ments were to Singapore. (millions of 1alayan dollars) 1954 1955 1956 1957 Total A. Trade Balance $306 ,827 7511 $373 2,017 B Rnvpr+ed Capial Ci-rarsco4nn Govrvn.m-nt brr'r n, I-A-1 4V O' n f .1.1 L±.L_L%.~LCL. CIIU UCUM,Ir. sterling assets $138 $399 4 47 -179 4 405 Sub-total 4 15 4339 $ 7 -179 $ 182 C. Invisibles and Private Capital -291 -88 -504 -552 -1,835 In _A A more detailed estimate of the balance of payments for the year 1956, with explanatory ntes indauictg the LUtatV:ios of ue dtaUa, is given in Tables 8A and 8B of the Statistical Appendix. movement of sterling assets at market value and on estimated cost basis. J_nV.Ls- 11U -L 41. The most important items of Federation payments for current invisibles are remittances of company profits and dividends, private remittances, freight and insurance. Remittances of profits and dividends are mainly from rubber plantations and tin mines, particularly the former, and they fluctuate with the changes in rubber and tin export earnings. During the Korean boom they probably exceeded M$600 rillion, and in 1953 they pro- bably fell to around M$lOO million. In 1956 they have been estimated at around M$195 million. No reliable estimates of private (family) remittances are available. However, these transfers &re probably more stable than profit remittances, al';hough still subject to considerable fluctuation according to the changes in the rubber and tin markets. 42. Invisible receipts have most likely been much more stable (and much smaller) than invisible payments. The largest item has been expenditure by Commonwealth Forces stationed in the Federation, which has been esti- mated at M$75 million in 1956. Although data for other recent years are not available, it seems likely that such expenditure has not fluctuated greatly since about 1953 when the emergency was brought largely under control. The remaining items are relatively small, and include U.K.. grants for development and defense (Ml$ll million in 1956), interest on the Government's sterling securities (A$16 million in 1956) and earnings from the repair of foreign ships (M9 million in 1956). Private Capital Movements 43. It is known that many trading firms operatine in the Federation hold balances both in Singapore and overseas which fluctuate fairly closely with the rise and fall of trade. However, while it is generally believed that these short-term movements of capital are large, it is impossible to estimate their size bi - Tnna-term nrivate anital mrATOmOniC nr"hably have nt bo n 1 wra in recent years; on balance there has probably been a small inflow of funds. Thp bicst. incoming item has most likplv himn rP-invPqmPnt. nf nrofits by foreign owned rubber plantations and tin mines. Investment in rubber and the actual investment cost of this operation to the companies is not acre. Similarly, foreign investment in tin mining has probably been quite smll productioney EuroL pe CLAn-Wned mines hlas beenIi faiily steady and J.Ulitl new prospecting has taken place. During 1956 and 1957 Japan is reported. to hav nvested M4m$0. million (abut U4 .s61. mI±iiUi, of which M\ 0 1 million was in the form of loans, for development of iron ore mines. Additional (unfran c- - munte realso reported oU nave been invested in iron mining by Australian investors in recent years. In addition there have been some foreign investments in secondary industries such as cement, pharmaceuticals and food processing. The most noteworthy item of long- termi private capital outflow in recent years has been purchases of foreign- owned shares in rubber estates and tin mines by Malayan residents, mainly Chinese; such purchases are believed not to have assumed major proportions Balance of Payments by Currency !rea h5. The Federation is one of the largest and most consistent net dollar earners in the sterling area. Daring 952-L9Yu mor, than JD, of total exports T-ent directly to the dollar area ihile less than l/ of imports came from that area (see Table 7, Statistical Appendix). invisible pay- ments to the dollar area are small and consist mainly of payments for oil and some profit remi&tances. The estimated current account oaIance of payments with the dollar area in 1956 is summarized below. (Millions of Malayan Dollars) Trade balance / 366 Invisibles (net) - 43 Surplus / 323 46. Aside from the dollar area. the Federation orobablv realizes a sizable current account surplus in most years with the OEEC countries. With Sineapore. except in boom years, the Federation's usual trade surpIns is probably approximately offset by a deficit on invisibles. A substantial current account deficit is most likely incurred fairly consistently with the rest of the sterling area. A deficit is also the usual case in current transactions with the rest of the world- 07 npqnite thp rnns in infnrmation it is clear that the Fpderation's basic balance of payments position at present is strong. Althoagh her formion mexhance earnin-s are stiect to wide fluctuations. there is also flexibility in her foreign exchange payments. Imports, invisible pay- ments nnr ni t Pinit.n -ri mvrpnpnt. folo f i rl v r-i Ns;l y the cianc7p.s in foreign exchange income. 48. During the years 1949 through 1957 the sterling reserves increased in ach o r pr-n qri IQ 7- At.t.h nd f 19Q7 thip rtill nmil intenIP to M1,541 million (US$514 million) and were equivalent to about 850 of can be expanded rapidly enough to pay for the volume of imports necessary to f-rTlA 'r i o- i ,-,rva - r rn.i~+ n IV INTEDINL.L FI .JNCE nvernment Budget. O. The aFedral Ciomernment. has - t.radrit+ inaIlyi f nlIo-,-arl co.nqerimat.ivup fi 5q r..q policies, and indications are that the present Government will continue to do o. T is the Gvernen+ s paliy to balance the budget, exclusive of capital outlays, not necessarily in each yTear but over a reasonable period. However, the Government -11 -1h4r. -; L,',,a --1j- 1, +r n APlnr for larger outlays on both current and capital account, particularly for recent years total public expenditures have averaged about M$900 million. one-quarter to one-third of total public outlays, have been covered by grants Iromn tlnu re1ut.LraJ_ oULvernmenot . 4ib 1i1W11 in Ulnt: oavieLt: on vabo- _L1 , co su ol.L- dated budget of the Federal and state governments tends to show a fairly large overall Cef.Lit wUen foreign trade is depressed, as in 195 ad 197T4j wu foreign trade is more favorable, as in 1955 and 1956, the deficit tends to be reduced to a small figure. 52. The budget estimate for l98 snows a decline in revenue of about "0 as compared to 1957 actuals and an increase in expenditure of about 13%. The overall deficit is estirated at 14J,U milion, more than twice the 1y57 deficit. In view of the expected tight financial position it was decided that no major new development projects would be started this year unless financing could be obtained from abroad. As a result, the provision for development is about 12% below last year. This decline however is more than offset by an increase of 16% in non-development expenditures, mainly for social services and defense. However, judging from the experience of recent years, the actual increase in non-development expenditures may well be considerably less than estimated. At the same time, revenue may prove to be lower than estimated because of a fall in trade and incomes resulting from the decline in rubber prices and restriction of tin exports since the budget estimate was prepared. On balance it is probable that the overall deficit will be smaller than estimated, with both revenues and expenditures at lower levels than budgetted. Main Revenues and Expenditures 53. The main sources of Federation revenue are customs duties and income tax, which in 1957 accounted for nearly 70%' of total public revenue. The rate of income tax on company profits is 30%, and about three-fourths of income tax receipts are derived from this source. The tax rate on individual income ranges from 5% on the first h41,500 of chargeable income to 40% on chargeable - 14 - Consolidated Budget of the Federal and State Governments ims 1954 N95 1L96 U 95 yl :L= Provisional- Actuals Actuals Actuals Actuals Actuals a/ Estimate Revenue 669 658 834 904 885 838 Expenditure: Defense 325 242 224 230 234 271 (of which emergency) (202) (147) (122) (126) (120) (128) Other non-development 458 508 531 570 604 730 Development 137 128 114 150 189 167 Total 920 878 869 950 1,027 1,168 Excess of Expenditure 251 220 34 46 142 330 Financing: External grants and loans 47 141 67 51 30 51 Long-term internal borrowing 83 94 40 - 160 60 Short-term internal borrowing 53 6 -33 -30 -80 33 Deposits and miscel- laneous accounts 68 56 -19 45 -30 115 Change in cash balance (increase -) - -77 -20 -19 63 7 Total Financing 251 220 34 46 142 330 a/ Development expenditures are provisional. N.B. The fiscal year coincides with the calendar year. income in excess of M$55,000. Only a small number of individuals pay income tax (about 30,000 in 1956) mainly because the scale of nrsonal allowances is very high. Other significant sources of revenues are rents and royalties from mines and forests. license and excise taxes, and net receipts from nublic enterprises. The percentage distribution of the main revenues in 1957 was as f'oll1ows Rubber export duty 14% Tin export duty 61,;, Import duties 33% Tncomea +15 56 Other revenue M2 Total1 - 15 -- 54. As a result of this structure of revenue, government income is dependent to a large extent on the fortunes of rubber and tin. Income from rubber and tin export duties, of course, depend directly on the exports of those items. In addition, however, collections of import duties are fairly closely related to rubber and tin exports since, as noted. previously, imports tend to follow the trends in exports. Finally, a large part of both company and individual incomes is dependent on rubber and tin, with the consequence that collections from income tax also tend to fluctuate with exports. 55. The level of budget expenditures has fluctuated much less than revenues in recent years. The-e has, however, been a significant change in the pattern of expenditures. The burden of defense has declined considerably due to the improvement in the emergency situation after 1953; thus in 1957 defense out- lays amounted to about 23% of total expenditure as compared to 36% in 1953. Development outlays were cut back in 1954 and 1955 as an economy measure in view of the unfavorable revenue position following the Korean boom. With the adoption of a new five-year development plan, covering the period 1956-1960, and the improvement in revenue in 1955, development exponditures were in- creased in 1956 and 1957. In the latter year development outlays accounted for about 18% of the total expenditure, which was slightly higher than in 19'53. Non-develoment e7Denditures. excluding defense outlays, he,e shown a gradual and steady upward trend, and their proportion in total exp-nditures has increased from 50o in 1953 to 590 in 1957. The main increases have been for education and public health services. Sources for Financing Deficits 56. The main sources of finance for the overall deficits have been of a non- inflatIonary charRt~ Thpe mior Rmrc. havA hen external arants and. loans long-term internal borrowing, and accruals in various deposit and miscellane- ous accounts. External frants have come from the U.K. Colonial Dpvelonment and Welfare Fund, for development purposes,and from the U.K. Government, for defense pu-poses. External loans have come from sale of GovernmAnt bonds Ind direct borrowing from the U.K. and Singapore Governments. M$40 million (th 7 million) were raised through the al of hnds on t.'h London market in each of the years 1954 and 1956. In 1954 a long-term loan was also obtained from the Government of Singapore. in addition, oT_rnpAianF vrP1 vnr up to 1955 long-term, interest-free loans were obtained from the United gLLIUA- 0-_G-O, c rn,JmeL nth, ~.i - hw r sa e A" tA o , as Var d..aa, W-1 .. _-E5ec I- m- l- h- W .. f * 1 . L.L .L L 1%.K7 Vr L~ .5 .]. JLV V.L IJUX. - - - V -1,J _u_ L,.L _ g _....j..t the only source of long-term funds is the Employees' Provident Fund, which is Government also keeps a large number of reserve funds, revolving funds, trust fuds anu other acovunt-sY Such as tne -LUvvUr rep]_luing -uLnd. w1hLiC iso derived from the cess on exports of smallholders' rubber, the fund for the purchase of rice, tele-oununicatunn renewals und, deposits of various gvrnmeUn sor- dinate authorities, etc. Net accumulations in these accounts usually provide the GOvernment wth a signiicant amount of fund- which can be applied owaru covering an excess of budget expenditure over revenues. - 16 - 58. The Federal Government's total reserves in cash and investments increased in each of the three years 1954 to 1956. In 1957, however, there was a decline and they stood at P$515 million at the end of the year. Public Debt 59. The estimated total debt of the Federal Government, net of sinking funds, as of December 31, 1957, was M$927 million, of wnich MG271 million (US489.0 million) was external debt and the remainder was internal debt. The total was slightly more than the recent level of annual public revenue, and servicing accounts for about 5% of total public budget expenditures. In addition, the Central Electricity Board, a government agency, owed M$60 million (US$19.8 million) to the Colonial Development Corporation of the United Kingdom. The debt position at the end of 1957 is sur,mmarized below. (Millions of Malayan Dollars) Internal Debt (net of sinking funds): Long-term h26 Short-term 170 Sub-total Exernal DRbt (net of sinkinr funds) Federal Government 271 C,-ntral Eltntriritv Btarl 6n Sub-total 331 Grand Total 927 60. In the first half of 1958 the main changes were an increase of M460 nillion in +te intePrnal1 lnog-term- detlitroughl- t1he saleh ofP A%egstre stock redeemable in 1968-73, and an increase of Mi43 million in short-term 61. Al of t+ex ernal- debt is paable- 4in pou+ds trli, M$31 million owned to the Government of Singapore ihich is payable in Malayan k _L U.dJ.L ±\J, L fJ "L-N.J I IL AL#U d ebu is che u-1 to be entirely repaid by 1979. Estimated annual service payments -,ill average Uetween H2mill"ion and I'IQL: 11LLion(1 (btweentt-i UOS 4 m11i-Lll anlL UOQ.. mILLLil equivalent) during most of this period, except in 1960 and 1963 then service payments .ould rise to g -i m -illon L,uT-A'.o m ,%on; ana ,ey m±,on (US$12.7 million) respectively, because of the scheduled lump sum repayments of the Central lectricity Board loans from the Colonial Development Corpor- ation (see Table 11, Statistical Appendix). However, in the past few weeks a number of developments have taken place wnicn wil alter significantly the future payments schedule. First the United States has agreed to loan the .vederation uS$1u million from the Development Loan Fund for port development; the loan Aill be repayable in U.S. dollars at 3-% interest over 30 years. Secondly, on condition that the proposed Bank loan for the Cameron Highlands hydroelectric project is made, the Colonial Development Corporation has agreed to rene:I its loans to the Central Electricity Board with provision 1 At recent London quotations the yield on Federation of Malaya bond is 6.8%. - 17 - for repayment over 25 years. Thirdly, also on condition that the proposed Bank loan is made, the Commonwealth Development Finance Corporation has agreed to mTake a 20-year loan of 500,000 to the Central Electricity Board with interest at 6-3/4% and a 10-year grace period on repayment of principal. 62. The external debt service burden is small. Even under the present amortization schedule, the peak payment of M$51 million would be equivalent to only about 2.1% of the estimated 1957 foreign exchange earnings on current account. If the three agreements mentioned above become effective, the 1960 and 1963 peaks unuld be eliminated and debt service would be US36-7 million (about M$P20 million) per year during the 1260's, or less than 1i of 1957 foreign exchange earnings on current account. There would be a peak in 1970 of about US$12 million (M36 million), equivalent to 1--% of 1957 current account earnings, and thereafter the service would drop again to Hell under 1% of current account earnings. Money and Banking 63. The Malayan dollar is on an automatic sterling exchange standard, zad it is legal tender in the colonies of Singapore, Sarawak, 1,orth Borneo and the State of Brunei, as jell as in the Federation. It is issued and re eemed freely and exclusively in exchange for sterline at the rate of 2 sI'llinrrs and 4 pence by a Board of Commissioners of Currency located in Singapore. Sterling received by the Currency Board in exchange for the issue of currnoV is mainly invested in securities in London. Part of the profits of the Currency Board. uhich are derived from intprpst on it-q invP.t.mnt.q nd -* rom commission charges, is retained to allow for possible depreciation in the value of its sterlinrr investment-q Tn this way the sterling backing for the currency is maintained between 100% and 110%. The remaining Currency Board profitsq are- rist.rih1it.P.( angf t.heprtcni~goen ns +r% a formula TAhich is based mainly upon the cash held in the tills of banks and the nonl :,ti on ofI ni tJrrto ±J+y- efficient. The major part of the banking business is done by large overseas banks- althomgh there are several important local bank nh+ r rhii)n,n Four or five overseas banks account for about twn-thirds of the total deposits, for over 80%,- of no-versea assets of the banking5 system. and for about half of local advances. Interest rates follow closely the London rates. 65. The question of establishing a central bank has been discussed for a Federation Government announced its decision to establish a central bank for U'ZWC.C ~ .LJ5.Lo-LC.L-LQ1 LO 'Llvw v L UiaLu LU.L y1;UicuLi UUJ L i u1 Legislative Council in the Fall, and the bank is expected to open for business Q. us7 v-LmiI uJJ; J 7. u LU nuvu Wite LLne - JIax pU..± uaower ou a cerlliaL Uank, but the power to issue currency i-ould not be invoked im-ediately after its e sblshntU1. The proposed LegiLation All contain accession clauses to per- mit the extension of the bank's jurisdiction to Singapore or to any other terrtory which entered into an agreement mdth the Federation Government for - 18 - this purpose. Meanwhile the Currency Board has been asked to prepare new currency notes for the Federation, which would have the same value and backing as the present notes, but would have a different appearance. Thus the eatablishment of a central bank will not result in a major change in the currency system in the immediate future, and it would not in all likelihood result in any significant modification of lending practices for sometime to come. Gradually, however, with the Growth in production and trade for the domestic market, a rising proportion of the assets of the banking system may be used to provide credit for the Federation economy rather than invested abroad, and thus support and supplement long-term capital formation. The central bank, on the other hand, could provide moderate amounts of credit to the Government. 66. As a result of the present institutional framework, movements in the money supply are highly dependent on the balance of payments, and through the money supply mechanism, any disequilibriura in the balance of payments - wheth- er toward surplus or deficit - tends to be self-corrective. For instance if a fall in export prices leads to a balance of payments deficit, the amount of currency in circulation and demand deposits will decline. The economy will thus become less and less liquid until expenditures by households, firms, etc. must be reduced, and the balance of payments deficit is eliminated. It is conceivable that the commercial banks could mitigate the effects on the money supply of the balance of payments deficit by using their large sterling reserves to expand credit. In practice, however, when export pric S begin to fall, the banks adopt a cautious attitude and bank credit tends to follow the course of exnort earninas. 67. The most imnortant fAntor which my work against these trends is govern- ment financial operations. In fact, what has happened since 1948 is that the r,overnment 'by follotri-ne nr)nervativP. nolices. has ndded to its cash balan- ces and investments (mainly sterling securities) in more years thanit has dawn on them. nvr +he npiyv PR q whole the Government's 1i0lid assets in the form of domestic bank balances and sterling holdings have risen consider- ably. 6,8 Money unnlv in the hand of the public has been estimated as follows: (Millions of Malayan Dollars) December December December December Mhrch 1 155 1956 1957 1958 Private Demand Deposits 334 369 346 309 302 Currency in Circulation 450 564 564 557 252 Money Supply 784 933 910 866 864 69. The changes in the money supply shown above reflect clearly the effects of the sharp rise in export earnings in 1955 and the operation of the self- correcting mechanism in 1956. The increase in the money supply in 1955, which resulted largely from the rise in sterling holdings, brought a quick response - 19 - in the form of an increase in imports, which halted the rise in sterling holdings and in the money supply in 1956. Private bank credit increased in line with the growth in trade, and in 1956 the banks drew down their balances abroad in order to finance the exiansion of credit in the Feder- ation (see Table 12, Statistical Appendix). The Government accumulated bank balances and sterlina investments during this uzriod and thus pre- vented the money supply from rising as far and as fast as would otherwise have occurred. In 1957 exnort earninas fcll slightly but a hih level of imports was maintained, mainly by drawing down existing bank deposits; bank credit expanded but at a slower rate than in 1956. reflecting increased cau- tion by the banks in te face of weakening export prices. Sterling holdings and the money supply bath declined. The Government incurred a deficit during 1957 which prevented a further decline in the money supply. Prices 70. Information on the domestic price level in the Federation is rather limitmA Thpirn -n nol whol1.nal nvira 1ndor alf.bonr th~-~ vpro a nnimbr of' cost of living indices. However, in an open economy such as the Federation's, pricesnd to be h fair!71r stabl,~e~4re sic,-n,~ar-'r~a'r rrr n1ifi-Il-' in response to demand. During export booms higher income and demand ara met followed by lower imports and less goods in the shops. Because th- Federa- the domestic price level is sensitive to changes in the cost of inmported goods. .'. ~ ~ J. L.I I ±±IU.±U,t c -LU..L cI, '.±.LLM:Zt C.LU _L UIiu 1 WU-LIVr.. s indicate that prices rose sharply between 1949 and 1952. Thereafter, they declinjed steaLdily utlykJ 95 uIltthe endI of 1936,the osti U Of Ulivn -.VLinJIcesLWU increased rather suddenly by about 5%, probably due mainly to the Suez crisis, and they have since remained at tat level. Cost of Living Indices Malayan Workers Chinese Workers Indian Workers (Jan.1949 -loo) (Jen.1947= 100) (Jan.1947 =100) Annual Average 1949 98 82 90 Annual Average 1952 138 120 131 Annual Average 1955 122 106 109 Annual Average 1956 123 107 ill Annual Average 1957 128 112 118 May 1958 127 112 115 - 20 - V. Ta1-1, DEVE LOUPi&MENT PRUGRM 72. The Government's plans for public development expenditure for the years 1956-1960 were announced in a Report on Economic Planning in the Federation of Malaya in 1956. The development progrom, which is based to a large extent on the recommendations of IBRD Survey Mission, calls for Government outlays of M$1,140 million during the five year period. In b2oad outline, it is generally well conceived with emphasis in the right places -- rubber replant- ing, transportation, power and social services. The Government's plan and the recommendations of the Survey Mission are summarized below. Summary of Levelopment Programs (in millions of Malayan dollars) IBRD Federation Survey Mission Five-Year Plan 1955-1959 1956-1960 Agriculture 211 (300) 256 (221) Transport and Communications 177 (25%) 292 (26") Power 87 (121) 16c (14$) Social Services 100 (14%) 149 (13%) Municipal- Development 79 (11%) 160 (14%) Government Buildings and Miscellaneous 51 (70) 123 (11) Total 703 (100%) 1,140 (000%) N.B. Excluding "unallocated" sums in both programs. 73. As seen from the summary, the total program of the Federation is about 60% larger than that recommended by the Survey Mission. The decision for this large increase was based mainly on political factors associated with the im- pending independence of the country. At the time of the Survey Mission report, independence was thought to be still several years distant. When the Feder- ation plan was drawn up the decision had been taken to speed up the schedule, and the date of independence was imminent. Elections had recently been held (in July 1955) in which 52 members out of the 98-man Legislative Council had for the first time been elected by popular vote. There was considerable political pressure to expand development outlays, particularly for social services, in order to strenothen and consolidate the sunnort of the newly elected Government by the various racial and economic groups in the population. Moreover, when drawing up the Plan it was enticinated that a substantiai amount of assistance would be obtained in the form of loans from the Government of the United Kingdom. When this subsenently proved not .o he the case, the plan was published with the proviso that the execution might take six to seven years, instead of five years, in presenting the 1058 develonmen+bu ge+ +he Finance Minister reiterated the point that the Plan would have to be extended beyond the lQAO target unless financial availabilities improved. in this light the Federation Plan appears less ambitious. If it were spread over seven years, it - .J.- would require an average annual outlay of about autoj million, Trnicn is about 15% above the average outlay required for the Survey Mission's program. 74. In agriculture the main item in the Federation Plan is ml'160 million for subsidies for the rubber replanting scnemes. R further 1'.1OU million is allocated for irrigation and drainage schemes mainly relating to rice production. M1l5 million is included for development of new land. Projects to develop about 30,000 acres have been started, including one of 4,100 acres in which the Colonial Development Corporation is participating in both a financial and advisory role. 75. The major items in the transportation and communications program are roads (IM75 million), railways (M lo3 million), ports (M'49 million) and telecommunications (M'R5 million). The Federation has a good system of paved trunk roads particularly on the west coast. The road development program is essentially the continuation of a program started under emergency conditions; it appears to concentrate rather too much on trunk roads as compared to secondary or feeder roads. The main part of the railvay program is replacement of steam locomotives by diesel elect-icz, Provision is also made for improvements of signalling equipment and permanent way. The laryest port development project is construction of a new harbor in the !'orth Klang Straits -o relieve congestion at nearby Fort Swettenham, the port for Kuala Lumpur. Improvements are also planned at the other main ports of Penang, H1alacca, Port Suettenham and Kota Bharu. The telecommnunications i:rogram aims at providing 16,000 new lines with necessary exchanges and transmission systems. 76. In the Doer sector. the main orovisions are for a neT- 00nn kM n4nOTer station at Penang, completion of the 20,000 k' steam station at Plalacca and exDenditure on the first sta!7e of thce (pmern Hi.bhlan&s Evarna1nrie scheme through 1960. 77. The proposed outlays on social services include MS95 million on edUcation, with n :nl nf nrnviinc nrimary edcation facilit.ie for l rf school age, and M'53 million on health, mainly for new hospitals and training facilities for octors dentists anr nblic health -nrkers* 7R- Thp Arannt, p)roiedr fo-r rninioinnl fevelopent -i rn iYi-I,r-'- items the most important of Thich are the improvement of uater supplies in +nrnzc , o-l nrc imn1 -1fllon"(7crna+. r%-P c+-ynn++ of ne-,c, T nt, a ke places, some public low-cost rental housing for lo-income groups, and the Lumpur. 79. The smooth execution of the development program is likely to encounter some padjstrativ e and technical difIcl hties or n y in,ince, he polnsy for projects in some individual sectors have not yet been i.orked out in any dAil, a -nd th1,ere is a shrtg ofP qul4e and exerene -eroA to do---- - 22 - this in rk. This shortage has recently increased as a result of the Malay- 0. nohrpr-ouem1 is3 the estngldlicy 0LY IUdr thle Constituuuti the states retain absolute control over public land. They are jealous of this prerogative and appear extremely hesitant to "alienate" land fOr any purpose. Consequently, f:hile there are large areas of potentially productive land, there are a number of areas hich are overcrowded and mhere a real land hunger exists. This policy also restricts prospecting for tin and other minerals. 81. The schedule of erpenditures on the development plan called tor a substantial increase in 1958-1960 over the actual rate achieved in the first to -ears of the plan perioc. It now appears that expenditures in 1958 will iall below the rate of expenditures in 1957. Altogether it seems likely that the development program will take closer to seven years to complete than five years., The sectors where the delays are likely to be greatest are social services (e.g. construction of new schools and hospitals), agriculture (particularly drainage and irrigation schemes, develo-pment of cooperatives and extension service), and probably roads. Development of power, ports, railways and telecommunications are likely to be less affected; i these sectors most of the project planning has been completed, the execution of larger projects is being assisted b,, foreign consultants, and a substantial part of the e-penditures will be for imported e;uipment. Financing the Plan 82. During the five year plan period it is estimated that development expenditures may approximate 11q850 million instead of the planned N1,il,10 million. During 1956 and 1957 about M1'q340 million have already been spent. Thus during 1958-1960 roughly M5l10 million will need to be financed. 83. The possible sources of financing are (a) Government surpluses of revenue over non-development expenditures, (b) profits and reserves of public enterprises. such as the railays and the Central Electricity Board, (c) internal long-term borrowing, (d) external loans and grants, and (e) draw- ing on accumulated government balances and investments. During the next several years there is little likelihood of any revenue being available, since non-development expenditures will probably rise for such purposes as building up the permanent defense establishment, education and other government services. On the other hand the Emergency may be brought to an end fairly soon. This would, in due course, result in a savings for the Government of well over M6100 million per year. Some grants for defense our- poses may also be received from the United Kingdom. Finally it should be quite possible to raise additional revenues through amendment of the income tax, increasing the rates of import duties, etc. In view of these nossibilities and the qeneralvly conservative financial policies of the Government, it is reasonable to assume that during the next several years, reveii-!- and depfense grants 'rm thep United-( Kingdlom 11l on the averquge beP - 23 - sufficient to cover non-development expenditures, but that there iil be no surplus which could be applied toward development. 84. Of the M$510 million required for development during 1958-1960, the Government should be able to raise about MCe!,00 million from domestic sources and from disbursements on external grants and loans T!hich are already cornmitted or likely to be committed in the immediate future. The sources and estimated amounts of these funds are summarized below. (millions of Malayan dollars) romestic Sources Internal borrowing: Employees' Provident Fund 200 Other (Post Office Savings bank, Government trust funds, etc.) 75 275 Profits and reserves of public enterprises 63 External Sources Colonial Develonment and !W1fare Grants 15 Develonment Loan Fund 20 International Bank 23- ommf-nwealth1 nflpr# nmenlt 1,- Finance Corporation hoo a/ Estimated disbursements for Cameron Highlands Project. 85._ Thepre ar a numb)er of possJIilities fonr i-_q.qnrY then remaining MA110 million. The Government's uncommitted reserves (including cash and invest- men.aq Tn-a fto matA A+. MA97 millinn nt +Jh pn(i nf 1Q7 ine .he Gnvern. ment would be justified in using a modest amount of them for development nX nn However, since the Government t income is highl dependnt on the market for one commodity (rubber), fairly large liquid reserves should be kept against market £1_ +ations tis also conceivable that additional external assistance may be obtained; for instance, before the end of 1960 + n ark -Pets.;'-f'- f ine Govrnrn,cnt to sel another n the London market. - 24 - 86. Aside from the above possibilities, the Government if necessary could probaly arrange to borrow additional funds from Lhe commercial banks and insurance companies ihich then would hold some of their assets in Federation Government securitLes instead of in sterling securities. Finally, there is the likelihood that a central bank ill be established, which could make a modest amount of loans to the Government. o7. Taking into account all of the above possibilities, it may be con- cluded that the prospects are reasonably good for the Government to obtain the full amount of the M4510 million which is likely to be required for development over the next three years. 88. During the early 1960's, development expenditures are likely to rise to perhaps 1, 200 million per year, At the same tiye internal resources available for development should increase. Government revenues should rise gradually with the expected increase in national output, i-hile the rate of increase in non-development expenditure should taper off, once the permanent defense establishment is built up, the compensation to expatriate officers is paid, and the initial expansion of social services, now in progress, is completed. Consequently it should be possible to finance some of the future development expenditures from revenue. Mioreover after the establishment of the central bank, a market for government securities should be gradually developed, However, the need for external assistance and possibly some further rejuction in reserves to finance part of development outlays would still remain until the prospective expansion in export earnings, expected mainly from rising rubber income after the mid-1960's, materializes. VI. PROSECTS OF THE ECONOMY 89. The Federation has achieved a relatively high level of income largely on the basis of its natural advantage as a producer of rubber and tin but also through steady growth in other lines of primary production, in small-scale but extensive manufacturing and in a variety of service and commercial activities. It is to be expected that this diversified pattern of develop- ment will continue. But such a course of development must depend on adequate basic support from rubber and tin production. 'Idthout this, other lines of development are not so promising that they can be expected to maintain a rate of economic expansion which is satisfactory in relation to the rapid Prow.th of population. Therefore an arnoraisal of the prospects of the economy hinges in large measure on the outlook for rubber and tin. Rubber 90. Market prospects for natural rubber are favorable. Free world consumotion of all t-voes of rubber has been increasinr at an annnal av(ra;e rate of h.5% a year and it is reasonable to expect that requirements by 197 will b! abot douhI the nrntqnt. ivpl Jip.v o the inrP in supplies in recent years has been in synthetic rubOer. Natural rubber rduntion h ardly risen at ll c ran 1QCfl Anpe ana bcu mosthnica advantage of natural rubber for certain purposes, and also because most of thea Tyorldi ou -.id T q nnr Cannaa cniue to +rel alnImost- enti rely ornn - 25 - natural rubber supplies, there is a price premium for natural over synthetic rubber exceut in deDressed business Qeriods. 91- Ti. i unlikely that this favorable market nosition for natural rnhbr will be adversely affected by any major e.xpansion in supplies. Among the InrHd-s largesP.t. MIduq-xiAaa hasq th.bstprspct for inreasqing- production. But these prospects, together with such additions to output as Pnn bez ex-np-eted fromn otheor natural-.q supplirs,- are nnot likeplyN tor bec on a qscPI which oull :aint&in the present volume ratio of natural to synthetic in an synthetic rubber seems probable. 92. On the other hand it also seems probable that this premium A11 not synthetic rubber and as synthetic capacity outside the United States and kJanada, is expande('. AtU theU saiU1te tieU, itU hasZ Utet:1 et '_imated thatU becuseIO of the high cost of new synthetic rubber equipment the long-run price of syl-u.lleb.Lc -IJ-L.L LU ige Ut!lu the1 presentu lee Of± I'p..~~JU.L PULLIU CtUma reach around US$0,25. 93. In view of these considerations, a longer range forecast for natural ruober prices may be based on a figure equivalent to synvinetic prices of US$0.23-0.25 per pound or around T$0.70 f.o.b. Malaya. On a cost basis Malaya wTuld have no difficulty in competing at this price. rossioly this level would be reached around the mid-1960's. Meanwhile, it may be assumed that natural rubber will continue to receive some premium, except in pericds of depressed business activity in the consuming countries, and for several years then a price on the average of around fM40.O0 seems reasonable. 94. Regarding rubber production prospects, the Federation has an active re- planting program for both estates and smallholders. Because of the time lag between replanting and maturity of neoi trees the full effects of the program will not be realized until the period beginning in 1962 or 1963, Until that time an increase in rubber production is unlikely to be more than about 31 a year on the average. Thereafter, the rate of increase should go up to 4 or 5% a year and even more if some of the difficulties experienced in the program for omallholders can be overcome. There are also substantial opportunities for increasing this rate still further by expanding the total area under rubber. Land and labor are available and market prospects are satisfactory. Efforts in this direction are only beginning and they should be stepped up signific- antly. This could not be expected to have a substantial impact on production, however, until the late 1960's. Tin 95. 1brld tin consumption since the war has been marked by a very slow rate of expansion, due to the widespread adoption of the tin-saving electrolytic method of plating in the United States, the development of plastics, the sub- stitution of aluminum and the general high price of tin. 1,brld production was maintained, until recently, in excess of consumption largely as a result of the U.S. stockpilinE program. 96. The immediate short-run oosition is dominated by the cessation of U.S, - 9A " stockpiling, the current business recession which is reducing world consump- V.LJ LIL ndta nc±iy in ±impor b_Lt, cu LUU lJ _U3 U I~' %=:UUC= Ut JI VE-1DI L:E; III ZLItLUIIP- ation of lower prices, and the possibility of further increases in exports .Io U~11% U 00. * j 160 71 0 Ilit: ±I1LA_.L11cL.Lond.± ILJ1 UQLUjk;L.L k_±!'O/ il- : IIUI L4 U LU~. U l,l1t re p wiL of maintaining tin prices at a price range of 730 to 1880 per long ton f.o.b. T -M . - -_ rr - , _ . - _ _I - - - I Iondon. Ixu±: -L being done by bu±ter socK operatlons and by control over ex- ports from cuntries signatory to the International Tin Agreement (iho account for 9uy of iree iarld proauction). urrently the price is at the lower imit of this range, and experts in the first three quarters of 1958 have been restricted to of the October 1956-September 1957 rate of 150.5 thousand -tons; for the fourth quarter 1958 they have been restricted further to 52%. 98. Assuming that by 1960 world economic conditions will have recovered from the current recession, it is to be expected that %orld consumption will expand to the 1957 rate of 160,000 tons. illowing for exports from the U.S.S.R. and from free world non-signatory producers of around 25,000 tons, the Tin Agree- ment countries may be expected to produce 135,000 tons or 15.5 thousand less than during the base period (October 1956-September 1957). 99. The Federation's net exports of tin in recent years have been at an annual rate of about 60,000 tons. If Tin Agreement countries are restricted to 135,000 tons the Federation's share in the market would be reduced to about 54,000 tons. After 1960 a gradual increase to recent levels may be expected. 100. The Tin Agreement might fail to hold prices at the 6730 level, if par- ticipating countries for various reasons, such as labor unrest, are unable to hold production down to the levels of their export quotas. In such a case, a reduction in minimum prices to L640 per ton is possible. This was the original minimum level set when the iagreement was signed. Other Prospects 101. The bazis for a general and diversified expansion of the Federation economy should be provided by the prospective long-run expansion of rubber production and some long-run growth in tin output. Given these foundations and the potentialities for further development of rice and other subsistence and commercial agricultural products, of timber and fishing products, possibly some further mineral development, and continuina growth of manufacturing, commercial and service enterprises, it should be possible for the Federation to maintain a pace of economic expansion at least equal to the prospective growth in population. 102. There are, however, some uncertainties in this outlooke It will be unfortunate if the effectiveness of the essential role of Government in the Federation's development is diminished because of unnecessarily rapid Malayan- i,.atAnn of flhip nimini.qtratirp. n~'~ r tY51~r-oc-n rI rnc9s for social services at the expense of productive development or financial stability or both A deterioaton or Singapore, tthnuh Tp eeib f nvr srsh e basic consequence to Singapore than the Federation, 77ould nevertheless have adv,er,se effectS On. t1ne economy of the l atter through unn,-eces-1,exed+m~i - 27 - duplicating raclitiles availacle in ingapore and tnrougn interference w1n the market and services which Singapore provides for the Federation. A separate and independent monetary System in the Federation, coupled wazn restrictive exchange practices between the two Governments, could also lead to a capital outi.Low from the Federation to Singaporo or some other oterling haven in the event of uncertainty concerning Federation currency. 103. Dut while these adverse eventualities are possible there is as yet nj basis for concern that they will materialize to a serious degree. While some temnorairy loss of administrative efficiency is -robably ine-itable the Federatisn is nevortheless following a moderate policy in the Malayanization of its services in a congenial atmosphere. Some concessions to demands for substantial exp.nsion of education and other social services are to be ex- pected and these may divert some resources from public investment and pro- ductive development. There is however no indication in pronouncement or practice that the independent Federation Government Intends to depart from the Malayan tradition of sound and conservative fnance. And while the present expenditure program is be--nd prospective resources, it is conceded that the necessary adjustment will be made through an extension of the period of the program rather than through resort to inflationary financin3. There i.s little scope for the latter so long ac the present monetary system Is maintained and, as noted previously in connection with establishment of a central bank, it has been decided for the time being to continue wibh this monetary system. 104. This decision also included continuation for the time bein7 of the common currency with Singapore which is a most encouraging development in connection with the maintenance of satisfactory economic and financial re- lations betw.een the two governments. It suggests a willingness to work out Droblems arising in connection with these relations in a mutually satis- factory manner. Currency separation involving a break by the Federation with the automatic sterling exchanra standard may result in some outflow )f liquid funds from the Federation to Singapore. But a substantial movement of canital from the Faderatin seams unlikly so long as its currncy is supported with a high foreign exchange reserve and with fiscal and monetary -olicies conductive to confidence tht a high reserve nosition will be main- tained. Balance of Payments 105. Foreign exchange earninGs are not likely to rise appreciably above recent levels for the next five or six vears. Thereafter they should begin to increase at a fairly good rate. 106. This year export earnings can be expected to be down from the 1957 level because of the adverse effect of world businses conditionq -n ruhhr prices and the sharp restriction on tin exports. Some recovery in rubber p)ricps spAns nrnh.qhle but. it is r1if-Pirm1f to n -es-p r, -ri'n t-yv' 1 price of almost M$0.90. As noted earlier, a reasonable price forecast is av'ouin9 IMk0_- fnn' the nort Fou reame -all< A hu a to aboutM 70 by the mid-1960's. Additional production at a price of M4$O.80 should +7q In -,7 - 1t --PJ -t-~. irv-'-i~3 -- -inz4. A-U ----I)C ---4t~ . - 9A - ron.YihI i -nrdiiio n is Qp--n)rob1bl afti-r 16 bu )hit, t1 ''h~ t P 0f f.h iS n earnings may be delayed for two or three years because of the expected A~,,1 ~ -~in, rvv-4- , +n - m A L7tC 1.70 I-Tnn,~on m ~ YnIInr nnr cil+n~inrl -Pito in rubber export earnings can be foreseen only from about the mid-1960's. 107. Tin prospects are less favorable than rubber. Some growth in the to restore 1957 levels of production until around 1962. Continued growth thereafte _LI ±1 O J.-U UtMfiand1 ad~ . UA1 i' Od aidl.U LVULt ULO±1 au C liu t:D CLVIU .CL6U annual rate seems a reasonable expectation. 108. Some steady increase in earnings from other exports is also to be expected, especiaILy from palm oil and posuiby from cacao, pces, timuer and pineapples. 109. On these bases the probable outlook for Federation export earnings is a drop this year, a gradual recovery to about the 1957 level in the early 1960's, a plateau at around this level until the mid-1960's, and thereafter an increase of around 4% a year on the average sustained primarily by an expanding output of rubber. 110. For the next five or six years, then, the earnings from exports will probably not be adequate in tnemselves to maintain both per capita levels of consumption imports and investnent import requirements. Nevertheless, it should not be necessary to curtail either in view of prospective foreign grant and loan assistance and the possibility for some reduction in sterling reserves (corresponding to government budgetary deficits). The necessary scale of the latter should not be such as to disturb the Federation's strong reserve position. Regarding invisibles and short-term capital movements, it may be assumed that the pattern of past years will be followed and that they will adjust to the change in eXport earnings. And.in the longer run the basic economic factors for growth in export earnings are of sufficient promise to permit an increase in imports at a rate somewhat faster than population growth. Creditworthiness. 111. The sterling holdings of official and banking institutions at the end of 1957, excluding sinking funds, amounted to M$1,439 million, or 80% of imports. Over the next five years, however, ihen export earnings are expected to rise relatively little, these holdings are likely to be drawn down someiat in order to carry out the development program. Fairly large development outlays are necessary during this period in order to maintain the present standard of living and provide for the rapicdly growing population. At the same time, in view of the characteristic large short-term fluctuations in export earnings, the Federation should as a matter of pol:icy try to maintain rather large foreign exchange holdings. Therefore, some foreign borrowing would be .iustified in order to reduce the drain on reserves which is likely to take place during the next few years. Consider- ing the small size of the oresent debt service in relation to present and prospective foreign exchange income, there is little doubt that the F-HrntAon could without difficulty met the service nnyments on the proposed borrowing for the Cameron Highlands power project and other existing and proposed external indebtedness previously discussed. In total exchange income and in most years would be considerably less. 112. In view of the favorable balance of payments position with the dollar area, whic[ is uct likely to Uchnge rauiuly in tne foreseeavle Auure, there should be no currency problem in making loans to the Federation. - 3A - STATISTICAL APPENTDIX - 31 - Area Under Crogs ( thousand acres) Commodity 1939 1950 1955 1956 1957 Rubber 3,373 3,358 3,525s/ 3,517a/ 3,5502/ Rice 747 931 891 876 897 Coconut 599 509 495 517 517 Oil Palm 76 96 111 115 116 Total L,795 A391 5.022 5.025 .Q80 her iood urop s 97 102 n.a, Frui ts 174 176 196 212 21/ Spices 70 56 51 54 51 IISCellaneous 77 59 70 7U 74 Total A1L Crops 5,198 ),265 5, 36 5,L65 _.a. a/ Estimated Source: Federation of _aleya, 'Ministry of A'griculture Exports of Agricultural, Fisherics and Timber Products ( in millions of laiyan dollars) Commodity 195 1955 1956 1957 Ribbed smoked sheets 552.6 960.0 857.3 737.0 ep- 162 296 . 9 Liquid laex 159.5 316.2 231.1 254.6 n) ,-i n t )no nl 14 n u tI1I 2. _ 96 __ 29.9 _i2 r-6 Sub-Total 903.0 1,584,3 1,378.1 1,301.5 Coffee, Tec, Coca, Spices: Arecanuts 12.9 . 2.4 Coffee 11.8 6.0 7.8 7.8 Tea 7.8 9.1 5.0 Other 1.7 2.6 __2.4 3.1 Sub-Total 3L.2 34.9 39.2 34.7 Oils and Fcts. Palm Oil 31.6 36.4 43.2 45.5 Goconut 011 9.5 )U.u 5U.7 Other 1.1 1.6 2.1 0.8 Sub-Total 68.2 88.6 102.0 93.6 Timber: Lumber 11.8 18.3 19.9 19.1 Saw and veneer logs 6.4 7.9 9.8 11.0 Fuel and chnrcoal 2.0 2.0 2.0 1.9 Sub-Total 20.2 28.2 _31.7 32.0 Fruits and Vegetables: Pineapple 14. 17.3 19.2 20.0 Other _142 12 13.9 15L Sub-Total 28.6 31.5 33.1 35.4 Fish and Fish Preparations 16.1 13.9 14.6 14.5 Oilseeds, copra etc. 13.4 6.3 8.2 15. All other 14.6 15.6 14.2 12.7 Sub-Total 4-4. _35.8 37.0 42.9 TOt-al Exports of1L u , Agric,Ultural, Fisheries and Timber Productsl,118.3 1,803.3 1,621.1 1,543.1 Grand Total, All Exports 1626.9 2,360.0 2,264.1 2,182.2 (Perentge, AÄgricultural, Fisheries and Timber Prod)ucts) (68 (76) (72) (71) Source: ovrment of the Federation of alaya, Depnt. of Statistirs ------------------------- -------------- - 33 - TAELE 3 RUB3E STATISTICS Planted Acreage Production Yield per Small- ,-, Sall- Year Estate holdingsi/ Total ELstates holdings Acre - Estates (o0o acres) (000 long tons)T Tpounds) 19h7 1,9,5 1,500 646.h 360.5 285.9 570 1948 1,96L 1,500 698.2 403.6 294.6 560 19h9 1,983 1,500 671.5 400.8 270.7 550 1950 1,977 1,500 694.1 376.7 317.4 510 1951 1,975 1,500 605.3 328.8 276.5 L60 1952 2,009 1,500 584.2 341.7 242.5 480 1953 2,Ohl 1,500 57h.h 3h1.8 232.6 170 1954 2,028 1,500 586.5 3h5.5 241.0 480 1955 2,025 1,500 638.7 352.5 286.2 )91 1956 2,017 1,500 626.0 351.6 274.4 496 1957 2,050 1,500 638.7 369.8 268.9 Jan.-Apr. 1957 208.8 115.8 93.0 1958 206.6 119.7 86.9 1/ Accurate figure are unavailab le. Year Exports Imports Price R.S.S.#1 1917 '711. 5å.537. I Q) %r 1948 731.9 4544 h2.2 1950 780.0 86.6 108.2 1951 691.6 99. 169.6 1952 608.8 28-3 96.1 i ~ o Qr A 1954 612.1 37.1 67.3 i Ocý1 -] l. n~ 1955 59.5 3.3 14.2. 1956 649.4 43.7 96.8 IC5-7 6rc 5.1 '7 . Q. 0 J->ýl-.1 7 uu. u Jani.-A.4ý. 1957 220.2 11.4 92.4 9527. 1.o 77.4 Source: Federation of MIalaya, Departnent of Statistics. - 34 - TABLE h TI,, STTSTTCS World Production and Consumption (thousand long tons) Production Consumption of Tin Tin V;etaql TPin in WnrldU..A Year Concentrates Total 1950 l7h0 166.5 152.0 71.2 1951 167,5 167.5 114o.0 56.9 1952 168.5 171.0 132.5 45.3 1953 181.0 177.0 134.5 .0 1954 184.5 177.5 142.5 544 955 17R .5 177. 1. 59 C 1956 177.0 175.5 160.5 60c5 195 7 16. n-173.' 127 n 4 Federation o Mialya - rLuc.ULuionlu and Tde (thousand long tons) Year Prouctl Impjor:[-s- Exports Concentratesl/ Metal Tutal 1950 57.5 9.8 29.2 46.1 75.3 1951 57.4 7.6 28.8 36.2 65. 1952 57.1 5.7 27.0 37.2 6_2 1953 56.4 6.0 27.1 35.1 62.2 1954 60.9 8.2 31.5 37.3 68. 1955 61.2 10.8 33.9 37.9 71.9 1956 62.3 10.9 2.6 52.14 73.0 1957 59.3 13.9 19.4 50.4 69.8 Jan-Apr. 1957 19.6 3.8 9.8 1. 21.2 1958 15.4 3.0 3.2 15.1 18.3 1/ Tin content of concentrates. (continued on next page) - 35 - TAKEa 4 k'cont*') Tin Prices Year London Few York Singapor- (L/long ton) (US cents/1b. (Malay cents/lb.) 1950 744.6 95.6 271.3 1951 1,077.3 128.3 390.1 1952 964.4 120.4 354.5 1953 731.7 95.8 2oo.1 1954 719.4 91.8 260.6 1955 740.1 94.7 270.5 1956 787.7 101.2 285.5 1957 754.8 96.2 273.0 1958 Jan. 730.7 92.8 264.2 Feb. 731.5 93.8 266.4 March 731.3 94.3 270.6 April 730.9 93.0 265.5 May 730.8 94.5 269.6 Source: International Tin Study Group and Monthly Statistical Bulletin of the Federation of Mala TABLE 5 VOLUME AND VALUE OF EXPORTS (Quantity in thousand long tons; value in millions of Malayan dollars) Jan-Mar. Jar-Mar. 1952 1953 195b 1955 1956 1957 1957 1958 Quantity Value Quantitr Value Cuantity Value Quantity Value QuPntity Value Quntity Value Qu ntity Value Quantity Value Rubber 609 1287 596 896 612 903 6r9 15Rb 649 1378 655 130h 171 357 170 29h, Tin a/ 64 511 62 383 69 l4o 72 h3h 73 472 70 b39 18 11F 14 85 Coconut oil 54 43 58 55 61 56 70 51 81 57 66 07 19 13 13 10 Iron ore 1007 23 1018 21 1060 21 1592 33 2376 51 2920 66, 267 6 204 6 Palm oil 46 45 50 31 50 32 55 36 59 3 61 L6 15 12 lb 10 w Tiber 122 19 133 20 116 18 165 26 187 30 200 29 h2 6 53 8 Canned pineapple 7 7 13 11 17 15 21 18 23 19 26 20 5 h 6 4 Fish & preparations b b/ 16 14 15 15 I Other exports 19 121 160 17h 198 21 62 lotal 213h 1598 1625 2370 2262 2180 578 468 Volume Index, all exports 100 99 103 109 113 116 115 n.a. a/ Includes tin-in-concentrates and tin metal. Quantity of' tin-in-concentrate is included in terms of netal content. b/ Included in nOther Exports". Source: Federation of Malaya, Department of Statistics, Monthly 3tatistical. Bulletin of the Federation of Malaya, and Federation of Malay IrVorts qnd Exports - 37 - 17^\T 77 Ä kl'\3 P T TTV~ ni, AiVDT~ iiLU j vhND r V,LU O U ViMlRT ( vauiie in millions of ilalavan ) Jan- Jan-Aar. iMar. 1o9 101 IQ9. lQr- 1966 1957 1957 1958 Rice 160 204 94 126 3 13 36 n.a. Other cereals and Preparato treof 5a7 i51 48 2 53 1 n. Dairy products 75 73 69 79 88 89 3L n.a. Fruits and vegetable6 89 63 64 63 75 72 20 n.n. Sugar 72 55 45 49 58 74 17 n.a. O. ther f-oodstuffs _ 110 1-07 19n9a. Total foodstuffs 578 568 406 478 525 529 142 139 i-Machinery and trans- port equipment 219 172 149 174 2 n 15 1n C5 1 1 1 D/-~ i £: M1Lieral fuL 93 10-L 16 16 1563 Textiles, clothing and footwear 149 108 115 134 133 130 35 Beverages and tobacco 104 85 76 80 83 89 20 21 Chemicais 76 62 73 885 104 112 30 24 Base metals 59 44 44 53 64 67 19 2/ Tin concentrates 46 36 48 64 70 88 20 14 Rubber 46 26 44 59 69 57 14 19 Copra 6 6 15 11 23 21 5 6 Other comodities 285 237 235 276 314 327 88 117 Total imports 1,660 1,451 1,319 1,543 1,751 1,807 471 L33 Volume Index, all imports 100 95 84 107 111 110 116 a/ Included under "Other commodities" Source: Federation of Malaya, Department of Statistics, Monthly Statistical Bulletin of the Federation of jalava, and Federation of 4alava Imnorts and ExDorts. (in millions of Malayan dollars) Exports Imports Balan.ce p_,_n-Semt Jan-Sept Jan-Sept 1552 1953 1954 1955 1956 1957 1952 1953 1954 1955 :1956 1957 1952 1953 1954 1955 1956 1957 MMpore 881 678 694 997 631 606 651 556 509 587 696 534 1 229 1 121 1 185 1 410 1 135 ' 72 Jnited Ringdom 426 227 182 324 284 182 380 283 261 295 333 250 1 46 57 - 79 1 29 - 48 -6 Yther Sterling Area 72 74 96 103 116 90 180 198 142 178 192 137 - 108 - 125 - 47 - 75 76 - 47 Inited States 293 232 201 327 345 233 32 25 16 18 22 20 r 261 1 207 1 185 1 309 323 1 213 )tIher Dollar Area 27 25 31 L 47 34 9 3 2 3 4 318 122 29 137 . 43 1:30 >EEC Countries 267 222 263 379 374 230 82 66 73 90 113 107 1 185 1 156 1 195 1 290 1 261 1 123 ýeiat of World Japan 52 61 65 90 120 142 42 24 27 44 46 32 110 37 338 146 173 ,1109 Thailand 42 35 25 31 39 37 125 134 121 161 171 156 - 83 99 - 96 4-130 - 132 - 119 Indonesia 13 4 6 11 8 7 101 106 134 133 130 106 - 88 - 102 - 128 *-122 - 123 99 Other Countries _6 _ _10 88 2 _5 3 -- . -U 44 44 -10 14 j 5 J2 I All Countries 2,133 1,598 1.625 2,372 2,264 i,649 1,652 1,451 1,318 1,543 1,751 1,390 / 480 1 147 1 307 1 828 1513 1 259 Source: Government of the Federation of Malaya, Ministry of Commerce and Industry TJ LE BA ESTITATED BPL NC OP P YM.NTS, 1956 (in millions of M-') Current A.ccoyunt: Receipts Falnents Net Trade (Export fcb, imports' cif) 2,262 1,751 5 511 Expenditure by Cononwealth Forces 75 - / 75 U.K. F,rants for defense and development 11 - / 11 Interest on Government invest- ments and debts 16 / 12 Government pensions -- 16 - 16 Private remittnnces - 0 - 50 Profits, dividends, etc. - 195 - 1 Oil transactions not included in visible trade 61187 - Tourism 5 10 - S Other invisibles 120 1 Total invisibles 3 37 - 199 Total, Current Account 2,!dL5 2,133 / 312 Errors and Omissions - - - 306 Capital " ccount: A ssets Liabilities Net Pssets Private Lonf-term Capital - / 1 - 1 Government Lon r-term Txo,ns - ,n - bn Increase in sterling balances qn.dB. tS notesri t. a end of7 -T7 Tta1- C'Anitpl Annnt ),7 L LI 6. N.B. See notes at end of Table T BLE 8B EST'mTET! RFL Ct OF ?1Y.ENTS, 1956 Singipore and Rest of world (in millions of MT) Sinfapore ?esT 01 Worla Total Curront fc-ount: Exports, fob 8113 ,6 Imports, cif 696 1,055 1,751 Trade Balance 77i35 b7 511 p!Ot Invisibles -199 -199 Net balance, current account / 135 / 177 312 Errors and Omissions - 170 - 136 - 306 Capital Account: Private long-term capital -1 -1 Government capital 40 -0 Sterling Lssets - 35 / 82 / h7 Total, Capital Account -35 /1.1 / 6 Notes to Thbles 8A and 8B 1. Ihese statements are incomnlete in a number of important respects. Imong others, data are tntally lacking or very in- complete on (a) invisible transactions with Sinr.apore, (b) private capital transactions with the entire Sterling Area, including Singapore, (c) private (family) remittances abroad, and (d) the division of company profits between those remitted abroad and those retained in the Federation. 1.'I Notes to Tables 8A and 8B (cont'd). 2. The estimates of invisibles were taken from two main sources: (a) A state.ment prepared by Government of Singapore Department n'f ,.-i .r- '~ 4r v~ri I)~ ivvmrie c -enr-ei n+.cz nnrl nn,rp _L~ QweTre3 firt+ OCsti- mated on a Pan-M4Jalayan basis (i.e. Singapore and the Federation together) ndH thepn Hi j i, A n thei, basis of various 'assuc-mPtions between Si3ngapore and the Fexeration. (b) Infomation on a number of specific items obtained from the 1. J rVIII 'Po *1(.A -J thl i nf r at o pr v e 11-1.~ L~ Federation Ministry of Finance: U.K. grants, Government interest receipts items were taken from the estimate prepared by the Singapore Department of 4. Remittances of profits and dividends was the only item in the Singa- pore estimate which was not divided as between Singapore and the Feleration. However for the purposes of Tables 8.A and 8B approximately 8U of the total was allocated to the Federation and the remainder to Singapore. This dis- tribution was based on a comparison .of the incomes (after taxes) earned by non-resident companies in each territory. The entry includes the whole of the estimated-profits earned in the Federation by non-resident com- panies; re-investment of profits should appear in the capital account, although this information is not available. Estimates of dividends pay- able to non-resident shareholders in Federation companies are also in- cluded in this entry, together with other types of income payable abroad such as pensions to retired company employees. 5. The entry for private long-term capital is based on exchange control information which extends only to non-sterling areas. 6. The entries for government long-term loans are based on information obtained from the Federation Ministry of Finance. 7. For changes in sterling assets, see Table 9. - 42 -! TABLE 9 STERLING ASSETS (in millions of M$, end of period) 1952 1953 l9-4 1955 1956 1957 Government Hc1din,gs Sinking fuid i-vestinents 64 75 87 98 103 102 Other investments and cash 442 326 401 460 554 456 Sub-total 506 401 488 557 657 558 Currency Board investments 506 575 648 651 660 Commercial banks balances abroad 346 343 513 424 323 Total 1,253 1,406 1,718 1,732 1,541 Total excluding sinking funds (1,178) (1,319) (1,620)(1,629) (1,439) Notes: 1. All of the investments included in the above table are at market value ns of the dates indicated. ecent sinkins fund investments which are not available at market value and are shown on a cost basis. Government invest- ment other than in sinkinr funds are not available nn q nost hsis. A rough estimate of the value of these investments at cost was made by the following mnth.n: the nrnipo aiffA-iAnn- hotupmn the in 'nny Rnnrd's investnents at cost and at market value was determined., and this percentage was then aynli + fn the rvoYwnn I z J neten+.v at ,mrv'ket n Yninna+ A+fter mn1r this adjustment to Government investment, and using the data on Currency Board in- V-S+M + + - 1 -4J +- -.ll4 u4m.a+4m-+ a . --P +.i- +n+ l . a I ne' - n fa.l. ' Jnr? assets were obtained (in millions of Myf): 1953 L954 1955 1956 1957 1,262 1,400 1,799 1,846 1,667 2. The assets of the Currency Board belong jointly to the Federation, Singapore, Brunell andC Q---,-i nnT1*l,- A a+4lny, te in this table was derived by allocating to the Federation the proportion of Drofits which have been distributed to the Federation. The Federation's share in uno - Curueny Eoarcl prif-t nas eO n as fol.lms: L>) U_L.Jup 1954 64.46fp 1956 65.63% Information on the Federation's share for 1957 has not yet been received, and the 19506 percentage was used to obtain the 1957 Ilgure. - 43 - Table 10 External Public Debt Outstanding June 30, 1958 (In thousands Gross Estimated Net debt outstanding debt out- sinking fund In currericy In U.S. dollar [tem standing accumulated of payment equivalents TOTAL EXTERNAL PUBLIC DEBT 107,182 STERLING DEBT 1 34,664 97,057 Publicly issued bonds 1 16,845 4_h,011 , 12,834 35,935 : 6,900,000 Federated Malay States 3% Stock, 1934/54 - 1960/70 6 6,900 2,7711/ L, 4,129 11,562 5 9,945,000 Federation of Malaya 3% Sterling Loan, 1949/h - 1974/76 T 9,945 L 1,2hO- i 8,705 24,373 Loans from U.K. Government , 17,221 48,218 Debentures of the Central Electrical Board held by Colonial Development Corp oration T 3,580,000, 4%, 1951/60 2/ 1 3,580 10,024 5 567,950, 4-3/4%, 1951/63 Y 568 1,590 , 830,000, h-3/45, 1953/63 2/ 3/ - 830 2,321 1 800, (7, h-/;, 122/63 2/ 3/ 1 800 2,2h0 L 1,300,000, h-l/h%, 1953/63 27 3/ L 1,300 3,6h0 46- 600,000 Colonl-l Development Corp. Loan to Federal Land Development Authority 2/ L 600 1,680 . 15,536,666 War Damage Loan, no interest, 1956-1975 / , 9,543 26,720 Loan from the Government of Brunci 4 ),667 58 , 4,609 12,904 S ,7 e a -f -an (195h) rue 3% Sterling Loan 1971/76 2/ É/L 4,667 T 58 4,609 12,904 N.B . See footnotes at end of table (next page) Table 10 (cont'd) External Public Dobt Outstanding June 30, 1958 (In thousands) Gross Estimated Net debt outstanding debt out- sinking fund In currency In U.S. dollar Item standirig accumilated of payment equivalen te MALAYAN DOLLAR DEBT MQ_30,981 10,125 Loans from the Government of Singapore nm$ 11,900 M$ 10,919 M3 30,981 10,125 kg 35,000,000 Straits Settlements 35 War Loan 1952/53 - 1959/60 7/ i& n,900 D4 10,919 M 981 321 M$ 30,000,000 Loan from Government of Singapore, 1954-1979 8/M 30,00 9,804 1/ Estimated by IBRD. 2/ Guaranteed by the Federation Government. 3/ This loan is repayable either in Malayan dollars or in pounds sterling at the rate of M1 = 2s. hd. This amunt was undisbursed as of June 30, 1958. 3/ This loan is guaranteed jointly and severally by the Government of the Federation of Malaya and Singapore. A total of 1.5,536,666 (4 h3,782,665) was drawn against this loan. The Government of the Federation of Malaya is resonsible for 75% of this loan and Singapore for 255. The amount shown in the table is Malaya's share of the debt. 6/ The interest rate on this loan is 3% per annum up to March 31, 1966. The tenns for the remainder of the life of the loan wIll bo m:h subject of negotiation between the two Governments at a later date. 7/ The original funded debt amounted to M,35,000,000 (U.S.$11,h37,650). It was agreed betwecn the Governments of the Federation of Malaya and Singapore that 34% of the liabilities (M$11,900,000) of the former Straits Settlements woula be taken over by the Federation of Malaya. This loan hai a 10 year grace period cn both interest and principal. Repayment terms for the following 15 years will be negetiated but have- not yet been agreed upon. - 45 - TABLE 11 Estimated Contractual Interest and Amortizatior Payments on External Public Debt (in thousands of U.S. dollar equivalents) Debt Outstanding June 30,Debt after Prosed Changesi_ Total Debt Dett outstand- Payinents during year Debt outstand- Total Payments Year ing JarLuary i Amortization Interest Total ing January 1 during year 1958 107,182 a/ 2,128 2,774 4,902 107,182 / 4,902 1959 106,092 2,277 2,793 5,070 143,092 5,441 1960 103,338 14,018 2,804 16,822 150,338 6,491 1961 88,917 2,274 2,265 4,539 146,990 6,455 1962 86,208 2,272 2,265 4,537 143,552 6,442 1963 83,467 10,478 2,265 12,743 140,o60 6,433 1964 72,686 2,273 1,899 4,172 136,506 9,438 1965 69,675 2, 273 2,389 4,662 131,908 9,916 1966 664829 2, 274 2,389 4,663 127,191 9,906 1967 63,943 2,273 2,389 4,662 122,344 9,891 1968 61 C 2,305 2,389 4,694 117,368 9 914 1969 58,027 2,310 2,387 4,697 112,222 9,905 1970 $,982 7,339 2,385 9,724 106,922 15,o58 1971 L7,299 2,099 1,803 3,902 96,721 9,ZL7 1972 44,827 2,102 1,801 3,903 91,619 9,197 1/ Debt as of June30,1957,plus the follwing changes: (a) Negotiation of Central iectric ity Board debentures held by Colonial D,velopment Corporation (b) Proposed Commonwealth Development Fina ce Corporabion loan to Central Electricity Board. (c) Proposed I.B.R.D. loan to Central Electricity Board. (d) Proposed Development Loan Fund loan for port devclopment. 2f Amounts outstanding sho-,ån for 1958 are as of June 30, 1958. 2ymernts å own for 195,8 are for the full year. - 46 - TAILE 12 CO=PCIAL BANKS' ASSETS AND LIABILIIIES (millions of Malayan dollars - end of period) April April ost, 1.95ý 19i n9-7 -9 i 19gg Assets Cash 50 47 52 59 39 63 Loans and ad.vances 162 194 252 279 288 30 Treasury bills 5 - 9 9 9 9 Other local investment 55 50 40 51 40 52 Balance due from local banks 65 81 71 80 61 79 Foreign assets 343 513 424 323 377 303 (of which Singapore) (214) (305) (270) (134) (148) (122) Other assets 34 _46 49 51 50 _0 Total Assets 714 931 897 82 _ 8_6 Liabilities Demand deposits: Private 334 369 346 309 317 294 Government 97 120 160 125 158 154 Public enterprises _3 3O 2 30 28 Lh54 526 596 466 505 476 Time and savings deposits: Private 128 168 175 173 173 187 Governent6 56 21 32 27 3R Public enterprise _ 2 40 14 10 14 15 Total 136 264 210 215 214 240 Balance due to local banks 66 86 74 90 65 82 Foreign liabilities 23 16 31 32 35 51 (Of which Singapore) (7) ( (13 (1) (19) (38) Other liabilities 35 39 46 49L 45 __ET_ Total Liabilities 714 931 897 852 864 896 Source: Monthly Statistical Bulletin of the Federation of Malaya MALAY PENINSULA - aarLEGEND 11 THAILANROADS SHOWN THUS - L-T-mp- RAILWAYS lor Star \,.j K a iIMrALJ Grik KuaLa rúâ ýlt.Mert-am (y u PENANGkE AN/AN KEala Tr n9yanu ( TRENGGANU 7;71p1n5 Tg.ARambutn - 4,,6an & pah-r aon .tokLemÉ < gxin ~ ~81Raub ~JKuantan -tnv -[ \\ELANGOR B-7ton; Port Swetteah Ät ban K U A'LC4RLU P Rm p in rc. of iand allnater b c MALACC\J OlH Oesnj Bou aa )4 en9m 4N SCALE JOSM \ 40 miles; to an inch BAK 10 0 S0 N0 30 40 A0 60 SINGAPORE