Macroeconomic Outlook

National Economic Recovery Plan
Chapter 2



The general thrust of various policy measures recently adopted by the Government is to restore business confidence and turn the economy around. The countryís macroeconomic prospects for 1998 and beyond is also dependent on external factors, such as the restoration of exchange rate stability and business confidence, as well as the inflow of foreign direct investments. The results of these measures may not be felt immediately, since monetary and exchange rate policies often take six to 18 months to come into full effect.

There is still considerable uncertainty about the depth and duration of the financial crisis. The severity of Malaysiaís economic problem can be made considerably worse with mismatches that can give rise to the vicious cycle of low business confidence and reduced economic activities. These can result in retrenchments and reduced consumption, which in turn will dampen business confidence.

During an economic downturn it is important to guard against becoming overly pessimistic about the future since irrational pessimism can prove to be self-fulfilling. It can lead to the vicious cycle of capital outflows, which results in currency depreciation and falling prices, worsen the strains on the private sector, increase bankruptcies, undermine the real economy and financial stability, thereby further weakening confidence.

At this juncture, it is useful to bear in mind Malaysiaís past track record of rapid economic growth over the past three decades, which had dramatically increased life expectancy, educational opportunities, and per capita income, while accelerating the process of poverty eradication and restructuring the Malaysian society. All these are testimony to the indisputable success of the New Economic Policy and the National Development Policy. The economy has successfully been transformed from a traditional primary producer into a modern and competitive export-based manufacturing economy. The development of the Multimedia Super Corridor will help to develop Malaysia into an IT hub and ensure the widespread diffusion and application of IT within the country.

There is little reason to doubt that the country will rebound from the current crisis and continue to forge ahead with renewed vigour towards the goals of Vision 2020. Given political stability and national unity, the policy adjustment measures that the country is currently adopting to strengthen the macro economy and improve the financial and corporate sectors will, in fact, prepare the groundwork for the economy to take on the challenges and seize the opportunities in the next millennia.




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