Malaysia. Country Profile 2005

Transcription

1 Country Profile 2005 Malaysia This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where its latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 15 Regent St London SW1Y 4LR United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2005 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author s and the publisher s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

3 THE PHILIPPINES Balabac Strait Sematan Kuching Sibu Simanggang Balambangan Banggi SOUTH CHINA SEA Kudat SULU SEA Kota Kinabalu Ranu Sandakan Miri Labuan Is. BRUNEI Brunei Bay Beaufort Tenom SABAH Lahad Datu R a g n e Tawau Semporna C r o c k e r PERLIS Alur Setar Kangar THAILAND KEDAH Tumpat Kota Baharu SOUTH CHINA SEA PENANG Georgetown Parit Buntai Perai Taiping Batu Gajah Teluk Anson Bagan Datuk PERAK Ipoh Tapah KELANTAN Kuala Kerai MALAYSIA Kuala Lipis TERENGGANU PAHANG Kuala Terengganu Dungun Chukai Kuantan Strait of Malacca SELANGOR Petaling Jaya Kelang Temerloh aya KUALA LUMPUR NEGERI SEMBILAN Putrajaya Seremban Segamat MALACCA Melaka JOHOR Muar Kluang Mersing Tioman Is. INDONESIA 0 km Batu Pahat Johor Baharu SINGAPORE 0 miles km miles The Economist Intelligence Unit Limited 2005 Main railway Main road International boundary Administrative boundary Main airport Capital Major town Other town September 2005 Bintulu CELEBES SEA SARAWAK INDONESIA

4 Comparative economic indicators, 2004 Gross domestic product (US$ bn) Gross domestic product per head (US$ 000) South Korea Singapore Taiwan Hong Kong Indonesia South Korea Hong Kong Taiwan Thailand Malaysia Malaysia Thailand Singapore Indonesia Philippines Philippines Vietnam Vietnam Sources: Economist Intelligence Unit estimates; national sources. Sources: Economist Intelligence Unit estimates; national sources. Gross domestic product (% change, year on year) Consumer prices (% change, year on year) Singapore Vietnam Hong Kong Indonesia Vietnam Philippines Malaysia South Korea Thailand Thailand Philippines Singapore Taiwan Taiwan Indonesia Malaysia South Korea Hong Kong Sources: Economist Intelligence Unit estimates; national sources Sources: Economist Intelligence Unit estimates; national sources. Country Profile The Economist Intelligence Unit Limited 2005

5 Malaysia 1 Contents Malaysia 3 Basic data 4 Politics 4 Political background 6 Recent political developments 9 Constitution, institutions and administration 10 Political forces 12 International relations and defence 15 Resources and infrastructure 15 Population 16 Education 17 Health 17 Natural resources and the environment 18 Transport, communications and the Internet 19 Energy provision 20 The economy 20 Economic structure 21 Economic policy 23 Economic performance 25 Regional trends 26 Economic sectors 26 Agriculture 28 Mining and semi-processing 28 Manufacturing 30 Construction 30 Financial services 32 Other services 33 The external sector 33 Trade in goods 35 Invisibles and the current account 36 Capital flows and foreign debt 37 Foreign reserves and the exchange rate 38 Regional overview 38 Membership of organisations 41 Appendices 41 Sources of information 42 Reference tables 42 Population 43 Labour force 43 Transport statistics 43 Energy production The Economist Intelligence Unit Limited Country Profile 2005

6 2 Malaysia 44 Federal government finances 44 Consolidated public-sector finances 44 Money supply 45 Interest rates 45 Gross domestic product 45 Real gross domestic product by expenditure 46 Gross domestic product by sector 46 Prices and earnings 46 Agricultural and forestry production 46 Minerals production 47 Manufacturing production 47 Banking statistics 48 Stockmarket indicators 48 Main composition of trade 48 Main trading partners 49 Balance of payments, IMF series 49 External debt, World Bank series 50 Official development assistance 50 Foreign reserves 50 Exchange rates Country Profile The Economist Intelligence Unit Limited 2005

7 Malaysia 3 Malaysia Basic data Total area Population Main towns Climate Weather in Kuala Lumpur (altitude 39 metres) Languages Measures Currency Time Public holidays, ,113 sq km 26.1m (mid-2005 estimate) Population in 000 (2002) Kuala Lumpur (capital) 1,367 Johor Baharu 724 Ipoh 601 Klang 503 Petaling Jaya 460 Tropical Hottest months, April and May, C (average daily minimum and maximum); coldest month, December, C; driest month, July, 99 mm average rainfall; wettest month, April, 292 mm average rainfall Malay (the official language); main other languages: Chinese dialects (including Mandarin), English, Tamil, Iban (in Sarawak), Banjar (in Sabah). There are 139 living languages altogether The metric system has gradually replaced the UK (imperial) system. Local measures include: 1 pikul=25 gantang=100 katis=60.48 kg 1 koyan=40 pikul=2.419 tonnes Ringgit or Malaysian dollar (M$, or RM)=100 sen (cents). Average exchange rates in 2004: M$3.80:US$1 (pegged at this rate since September 2nd 1998; peg replaced by a managed float against a trade weighted basket of currencies on July 21st 2005); M$6.20: 1. Exchange rates on September 16th 2005: M$3.77:US$1; M$6.82: 1 Peninsula: 7 hours ahead of GMT; Sabah and Sarawak: 8 hours ahead of GMT January 21st (Hari Raya Haji); February 9-10th (Chinese New Year); February 10th (Islamic New Year); April 21st (the Prophet Mohammed s birthday); May 1st (Labour Day); May 22nd (Vesak day); June 5th (the king s birthday); August 31st (National Day); November 1st (Deepavali); November 4th (Hari Raya Puasa, the end of Ramadan); December 25th (Christmas Day) The Economist Intelligence Unit Limited Country Profile 2005

8 4 Malaysia Politics Political background Fundamental to the understanding of Malaysia s political development is an appreciation of its geographical, ethnic and cultural diversity. Political parties are largely based on ethnicity, locality or religion. Basic themes of post-war political history are the maintenance of racial harmony, positive discrimination in favour of the bumiputera ( sons of the soil ethnic Malays and other indigenous peoples) and friction between Islamic parties and the government. Since independence in 1957, Malaysia has been ruled by coalition governments dominated by the principal Malay party, the United Malays National Organisation (UMNO). Malaysia under British influence A delicate ethnic balance British colonial policy was the major formative influence on Malaysia. From the late 18th century, British influence was gradually extended across the Malay peninsula and North Borneo. The colonial administration encouraged (and sponsored) the arrival of immigrants from southern China and southern India to work in tin mines and on rubber plantations. As the region developed into a commodity exporter, it remained administratively fragmented, with internal government largely under local control. By the 1930s, Malaysia consisted of the Straits Settlements (Malacca, Penang and Singapore), the Federated Malay States (Selangor, Perak, Negeri Sembilan and Pahang) and the unfederated states (Kedah, Perlis, Kelantan, Terengganu and Johor), as well as North Borneo (Sabah) and Sarawak. After the second world war, the restored British colonial system sought to create a more integrated territory, a more cohesive society and a stronger central government. The ethnic Chinese were in the majority on the Malayan peninsula, including Singapore. The new Malayan Union ( ) soon collapsed as a result of opposition from the Malay rulers to a loss of sovereignty and proposed citizenship for non-malays. Relations between the different ethnic groups, especially between the Malays and the Chinese, have remained a highly sensitive issue in Malaysian political life. After the second world war, many of the ethnic Chinese sympathised with the communist revolution in China. A guerrilla war was started by the largely ethnic-chinese Malayan Communist Party, leading to the declaration of a State of Emergency in 1948, which did not officially come to an end until One of the measures used by the colonial regime to suppress the insurrection was detention without trial, a practice that successive Malaysian governments have continued to employ. The Emergency was to cast a long shadow over Malaysian politics. Independence was proclaimed in 1957 Rapid progress towards full independence which was proclaimed in 1957 and the establishment of democracy in a pluralist society formed part of the anti-insurgency strategy. The successor of the Malayan Union, the Federation of Malaya ( ), passed some powers back to the states. Singapore, with its Country Profile The Economist Intelligence Unit Limited 2005

9 Malaysia 5 largely Chinese population, was excluded from both arrangements. The political framework that emerged at this time reflected Malaysia s ethnic variety. UMNO was formed in 1946, and the Malaysian Chinese Association and the Malayan Indian Congress were founded in These three parties formed the Alliance in 1952 and have remained the core of post-independence governments. The Federation of Malaysia was formed in 1963 The 1969 race riots were a political watershed A shift towards authoritarianism in 1987 The Asian crisis leads to calls for political reform British decolonisation policy continued to shape the country after independence. Sarawak, Sabah and Singapore were added to the peninsulabased federation in 1963 to form a new Federation of Malaysia, with the North Borneo territories offsetting the preponderance of ethnic-chinese citizens resulting from Singapore s membership. Brunei refused to join the federation because of a disagreement over the position of the sultan and the control of oil resources. When Singapore withdrew from the federation in 1965, there was a decisive switch in political power towards the ethnic Malays and the central government in Kuala Lumpur. Losses for UMNO in the 1969 general election stirred up anti-chinese sentiment and provoked serious race riots, in which many Chinese were killed. The riots were a political and an economic turning point. In the crisis that followed, parliamentary government was suspended for 21 months. The Alliance that had ruled since independence was replaced by a broader-based coalition, the Barisan Nasional (BN, National Front). With minor changes in its composition, the BN has ruled Malaysia ever since. After the riots the BN government instituted a 20-year New Economic Policy (NEP), a programme of positive discrimination aimed at reducing interracial tensions by improving the incomes and economic weight of the bumiputera. The National Development Policy (NDP), which followed the NEP after 1990, relaxed some of the positive discrimination measures that favoured the bumiputera. An extended period of strong economic growth until 1998 made it possible to raise the status of the bumiputera and avoid serious intercommunal conflict. A decisive shift towards more authoritarian government occurred in 1987, when there was a serious split in UMNO in which Mahathir Mohamad, who had been party president and prime minister since 1981, nearly lost power. Dr Mahathir responded by consolidating his power within UMNO and making it difficult to challenge an incumbent leader. The judiciary was stripped of much of its independence and power, and the constitution was changed after the government lost a number of cases in the High Court. The following year, the government intimidated the judiciary by sacking the chief justice, suspending five Supreme Court judges and increasing the powers of the attorney-general, leaving little check on the government s exercise of power. The Asian financial crisis plunged Malaysia into a severe economic downturn, but also exposed corruption within UMNO. Calls for political reform and a change in leadership intensified, especially among younger UMNO politicians. The deputy prime minister, Anwar Ibrahim, who became the focal point of the reformasi movement, was dismissed from the government in September 1998, expelled from UMNO and later jailed for a total of 15 years The Economist Intelligence Unit Limited Country Profile 2005

10 6 Malaysia on charges of obstruction of justice, sodomy and corruption. The dubious treatment of Dr Mahathir s long-standing heir apparent and his controversial trials upset UMNO s traditional supporters and revitalised the opposition. In the November 1999 general election, UMNO lost its Malay majority. The main beneficiary was the Malay-based Islamist opposition party, the Parti Islam sa-malaysia (PAS), which gained control in Terengganu while retaining the neighbouring state of Kelantan, and made strong inroads in other northern Malay-belt states. The BN nonetheless retained its two-thirds majority in parliament owing to the continued allegiance of a majority of the Chinese electorate. The fundamentalist opposition is discredited UMNO s appeal received a boost from the discrediting of Islamic fundamentalism after the September 11th 2001 terrorist attacks on the US. During the past two decades the government has actively promoted and favoured Islam, which is the country s official religion. There has been little public opposition to Islamisation, despite the fact that on independence Malaysia was declared to be a secular nation and that some 40% of the population is non-muslim. To counter the pledge made by PAS that it would set up an Islamic state should it win power, Dr Mahathir declared in September 2001 that Malaysia was already an Islamic state, and promised further Islamisation. By associating PAS with Islamist extremism and economic backwardness, UMNO hoped to rally the moderate Malays, while cracking down on Islamist extremists. Recent political developments Progressive Islam wins the 2004 election for UNMO Mr Abdullah fails to build a strong power base Dr Mahathir retired in October 2003, after 22 years of strong leadership as prime minister and UMNO president. His successor, Abdullah Badawi, has proved better able to defend UMNO s moderate, progressive version of Islam against PAS. On March 21st 2004 the BN gained a spectacular election victory, winning nine-tenths of the available 219 parliamentary seats, the coalition s best-ever result. UMNO recovered the majority support of Malay voters. In simultaneous state elections, PAS lost control of Terengganu. Mr Abdullah, who is an Islamic scholar and is not linked to any known scandals, campaigned with his own agenda of moderate Islam. The polls had been preceded by carefully orchestrated anti-corruption measures that attracted strong public approval. Mr Abdullah has so far failed to build a strong power base after his election victory. The campaign against corruption turned out to be more about establishing rules for ethical government than punishing corrupt politicians and civil servants. Mr Abdullah had been expected to strengthen his support on the UMNO council during the September 2004 party elections. Instead, two regional politicians, Isa Samad and Mohd Ali Rustam bought their way into the party s Supreme Committee in a seriously bribery-tainted election for party posts. Ten of Mr Abdullah s cabinet ministers failed to be elected. Mr Isa gained the highest number of votes and became third in the official UMNO hierarchy, behind Mr Abdullah and Najib Razak, who is the deputy prime minister, and defence minister. A few weeks before UMNO s annual congress in July 2005 Mr Abdullah finally struck back. UMNO s disciplinary committee suspended Mr Isa for six years for vote buying. Country Profile The Economist Intelligence Unit Limited 2005

11 Malaysia 7 UMNO members call for renewal of Malay privileges In another sign of Mr Abdullah s weakness, the UMNO annual congress in July 2005 voted to revive the bumiputera policies, to the alarm of the Chinese parties in the ruling BN. The main aim of these policies is to increase the economic participation of the Malay population. Malay privileges had been gradually dismantled and de-emphasised after the Asian financial crisis. The Malay elite has been stirred by plans to privatise government-controlled companies, and remembering the windfalls of previous privatisations in the 1980s, wants to secure its share of the spoils. Mr Abdullah lacks Dr Mahathir s charisma and effectiveness to bring about overdue changes in economic and social policies. His opponents are making use of the fears of the Malays to frustrate his policies and the campaign against endemic corruption within the government and UMNO. Parliamentary forces (no. of seats) Barisan Nasional (BN, National Front) United Malays National Organisation (UMNO) Malaysian Chinese Association (MCA) Malaysian Indian Congress (MIC) Gerakan Rakyat Malaysia (GRM) People s Progressive Party (PPP) Parti Pesaka Bumiputera Bersatu (PBB) Sarawak United Peoples Party (SUPP) Parti Bansa Dayak Sarawak (PBDS) Sabah Progressive Party (SAPP) Parti Bersatu Sabah (PBS)a 4 Liberal Democratic Party (LDP) 0 1 Parti Bersatu Rakyat Sabah (PBRS)b 1 Sarawak National Party (SNAP)c 4 4 United Pasokmomogun Kadazandusan Murut Organisation (UPKO)b Sarawak Progressive Democratic Party (SPDP)d 4 BN Direct Oppositione Parti Islam sa-malaysia (PAS) Keadilan PRMf 5 1 Democratic Action Party (DAP) Parti Bersatu Sabah (PBS)a 8 3 Parti Melayu Semangat 46 (S46)g 6 Independent Total a PBS rejoined the BN in b UPKO and PBRS are splinter parties of PBS, which left the BN in c SNAP was forced to leave the BN in d SPDP was formed by former SNAP members. e PAS, DAP and Keadilan contested the 1999 as a coalition, the Barisan Alternatif (BA); DAP left the BA in September f The Parti Keadilan Nasional merged in December 2002 with Gerakan Rakyat Malaysia (GRM). g Reunited with UMNO in The release of Mr Anwar raises the opposition s hopes The March 2004 election defeat had a devastating effect on the opposition alliance, the Barisan Alternatif (BA, Alternative Front), which consists of PAS and the Parti Keadilan Rakyat (Keadilan), the party led by Wan Azizah, the wife of Mr Anwar. The mainly ethnic-chinese left-wing Democratic Action Party (DAP) which left the BA in September 2001, protesting at the intention of PAS The Economist Intelligence Unit Limited Country Profile 2005

12 8 Malaysia to found an Islamic state became the largest opposition party. The release of Mr Anwar in September 2004 after nearly six years in jail gave new hope to a demoralised opposition to whom the inspiring former deputy prime minister may be a natural leader. Important recent events September 2001 Following the September 11th 2001 attacks on the US, the ruling Barisan Nasional (BN, National front) government tightens the already stringent security regulations. The dominant BN party, the United Malays National Organisation (UMNO), gains support among Malay moderates by associating PAS with Islamist extremism. Responding to the intention of PAS to set up an Islamic state, the prime minister, Mahathir Mohamad, declares that Malaysia is already an Islamic state and announces further Islamisation measures, raising fears among the ethnic minorities that the secular constitution might be changed. The opposition coalition Barisan Alternatif (BA) splits, as the largely ethnic-chinese Democratic Action Party (DAP) leaves over PAS s Islamic agenda. October 2003 Dr Mahathir retires from all his functions and is succeeded by his deputy Abdullah Badawi, who states his intention to fight corruption. Shortly afterwards, Mr Abdullah cancels several of Dr Mahathir s mega-projects. January 2004 Mr Abdullah appoints the defence minister, Najib Razak, as his deputy prime minister. Mr Najib is Dr Mahathir s preferred choice and Mr Abdullah s rival. March 2004 The BN wins its largest-ever election victory, thrashing PAS, which loses control of Terengganu, and reducing the Parti Keadilan Rakyat (Keadilan) to a single seat. The election outcome strengthens Mr Abdullah s authority. September 2004 The former deputy prime minister and one-time heir apparent to Dr Mahathir, Anwar Ibrahim, has his conviction for sodomy overturned by the High Court and is released from prison, after serving nearly six years for corruption. June 2005 UMNO s disciplinary committee suspends Isa Samad for six years on charges of vote buying. July 2005 UMNO s annual congress votes to renew the system of Malay privileges; Mr Abdullah plays down its significance to his non-bumiputera coalition partners. Country Profile The Economist Intelligence Unit Limited 2005

13 Malaysia 9 Constitution, institutions and administration A federal constitutional monarchy The federal parliament The states executive councils Changes to the judicial system Malaysia is a federal, constitutional monarchy within the Commonwealth. The position of king (yang di-pertuan agung, meaning supreme ruler ) is rotated every five years. The nine-strong Conference of Rulers of the states of the peninsula, excluding Malacca and Penang (the sultans of Kedah, Perak, Johor, Selangor, Pahang, Terengganu and Kelantan; the yang di-pertuan besar, or supreme minister, of Negeri Sembilan; and the raja of Perlis) elects one of its number to serve as king. The king s powers were cut back under Dr Mahathir. After a constitutional crisis in 1983, the powers granted to the traditional rulers on independence were reduced. Although the constitution does not say so explicitly, the king must in practice accept the government s advice and must not withhold royal assent from parliamentary bills. In 1992 UMNO drew up a code of conduct for rulers, after the rulers and their families were accused of abusing their power for private gain and exceeding their constitutional authority. In February 1993 constitutional amendments were passed that limited rulers personal legal immunity. The federal parliament consists of an upper chamber, the Senate or Dewan Negara (Council of the Nation), which has 69 members, 43 of whom are appointed by the king and 13 pairs are elected by the state legislatures, and a lower chamber, the House of Representatives or Dewan Rakyat (Council of the People), directly elected by universal suffrage, with 219 seats. The lower house has long been a rubber stamp for the BN, and little real debate on draft legislation or issues takes place there, but Mr Abdullah has introduced measures to stimulate parliamentary discussion and initiative. Each of the 13 states in the Federation has an Executive Council dealing with non-federal matters under a menteri besar (chief minister), who is answerable to elected state assemblies. The constitutional head of each state government is either one of the traditional rulers or (in Penang, Malacca, Sabah and Sarawak) a state governor appointed by the king on the advice of the federal government. The Malaysian judicial system still resembles the UK system inherited from the colonial period, but also borrows from the US system. The constitution gives an independent judiciary the powers to pronounce on the constitutionality and legality of executive acts. The independence of the judiciary was effectively curbed by Dr Mahathir in in response to a court ruling on the April 1987 UMNO leadership contest, which declared the elections invalid. Dr Mahathir pushed through amendments to the constitution, stripping the High Courts of the power of judicial review and terminating the separation of executive and judicial power. The government established a code of conduct for judges, the breaching of which could result in dismissal. In the years that followed the power of the executive increased further. The legal framework leaves little room for the judiciary to reassert its independence, and dubious appointments of officials with a controversial past have further reduced the likelihood of judicial reforms. The acquittal by the High Court of Mr Anwar in September 2004 is The Economist Intelligence Unit Limited Country Profile 2005

14 10 Malaysia widely viewed as a sign that the prime minister, Mr Abdullah, will allow the judiciary greater independence, but there has been no sign of judicial reform. Islam is the official religion Racial discrimination in administration In September 2001, to counter criticism from PAS, Dr Mahathir stated that Malaysia was already an Islamic state. This raised fear among the non-muslim 40% of the population and remained a controversial subject. The constitution says that Islam is the official religion, but other religions are free to be practised. During the past two decades the government has actively promoted and favoured Islam. Islamic or sharia law is enforced at a state rather than federal level, and applies only to Muslims. Ethnic Malays are by definition Muslim. Apostasy or deviation from the established (Sunni) Muslim faith is likely to be punished by sharia courts. Continuing Islamisation means that conflicts between sharia law and human rights principles, enshrined in the federal constitution, are increasing. After the May 1969 race riots, the government decided to marginalise Chinese and Indians in the civil and armed services. The government practises tokenism and has raised a few non-malays to a high rank, but the careers of non-malays are strictly circumscribed unless they become Muslim. The government is having second thoughts about its racial policies, but after 30 years it finds it difficult to change the attitudes of Malay public servants or to arouse interest among non-malays in a career in the civil service or the army. Political forces UMNO is the dominant Malay party Opposition groups remain fragmented UMNO, the party of Malay nationalists in the colonial period, remains the most important of the Malay parties. In the March 2004 election it regained the majority support of the Malay section of the population, which it had lost in the 1999 election. The president of UMNO invariably serves as the prime minister. Elections to leading party posts and to the UMNO supreme council determine the leadership succession and can also affect the posts occupied by ministers in the cabinet. An incumbent leader is rarely challenged; when this happened to Dr Mahathir in the internal UMNO election of April 1987 he altered the voting mechanism in favour of the incumbent in future party elections. UMNO is the dominant party in the multiracial ruling coalition, the Barisan Nasional BN. Race is the major defining feature of the political system. PAS is the alternative to UMNO for the Malay population, a conservative Islamic party and a haven for Malay protest votes, offering a greater devotion to Islam and possibly also a stronger commitment to Malay nationalism than UMNO. From its inception, PAS has intended to set up an Islamic state and introduce Islamic law. As only 60% of Malaysians are Muslims, PAS like UMNO would need to align itself with other parties. But the intention of creating an Islamic state presents a major obstacle to the building of a coalition of opposition forces. PAS remains a formidable rival to UMNO for the hearts and minds of Malays. Country Profile The Economist Intelligence Unit Limited 2005

15 Malaysia 11 The Malaysian Chinese Association (MCA) was the acknowledged political representative of the ethnic Chinese at independence in It quickly became an apologist for the government coalition in which it served, and was identified with the richer Chinese and business interests. It is the second-largest party in the BN after UMNO, but it suffers from internal divisions, and the leadership has been accused of links with Chinese criminal secret societies. Gerakan Rakyat (Parti Gerakan Rakyat Malaysia, or PGRM, Malaysian People s Movement Party) was founded as a left-of-centre multiracial party, and has an awkward relationship with the MCA in the BN. The left-of-centre, largely ethnic-chinese Democratic Action Party (DAP) became the largest opposition party after the March 2004 election. In September 2001 DAP left the opposition alliance, BA, over the PAS commitment to transform Malaysia into an Islamic state. Keadilan Rakyat remains in the BA, representing the political reform programme of Mr Anwar. Gerakan, DAP and Keadilan are in theory multiracial parties, but Gerakan and DAP attract mainly ethnic- Chinese voters, while Keadilan relies largely on Malay support. Key political figures Abdullah Ahmad Badawi Malaysia s prime minister and president of the United Malays National Organisation (UMNO) since November 1st Mr Abdullah, an Islamic studies graduate whose name has not been linked to any scandals, has had limited success in fighting corruption. Lacking Dr Mahathir s charisma and strong power base, it remains doubtful to what extent he will be able or wish to change Malaysia s political life. Najib Razak Deputy prime minister and UMNO s deputy president, defence minister and son of a former prime minister. A rival to Mr Abdullah, he is expected to challenge the prime minister in the future. Mahathir Mohamad Dr Mahathir was the prime minister and president of UMNO from July 1981 until November He is the principal architect of the economic advance of the Malay community and the rapid industrial growth of Malaysia. Dr Mahathir dominated political life for two decades, and is likely to remain influential in Malaysian politics. Anwar Ibrahim Dr Mahathir s former deputy in UMNO and the former deputy prime minister, jailed in 1999 for six years for abuse of power, and in 2000 for another nine years for sodomy, to run consecutively. Mr Anwar was released in September 2004 after his sodomy conviction was overturned by the High Court. As an advocate of political reform and a possible bridge between UMNO and fundamentalist Islam, he remains a possible future prime minister. Abdul Hadi Awang The president of the opposition Parti Islam sa-malaysia (PAS), who lost his position as chief minister of Terengganu in the March 2004 election. Unlike many senior PAS leaders, Mr Abdul has a pragmatic attitude to political strategy, which PAS will need if it is to rebuild its power base. The Economist Intelligence Unit Limited Country Profile 2005

16 12 Malaysia International relations and defence Under Dr Mahathir, Malaysia followed a policy of non-alignment, and became a champion of the interests of the developing world and, with little success, a defender of the interests of the Islamic world. Mr Abdullah shares the same ambitions, but not Dr Mahathir s urge to upset Western audiences with frequently controversial opinions. Under Mr Abdullah, Malaysia s diplomatic relations have begun to reflect economic interests more closely than in the past. The role of ASEAN remains important Relations with the US have improved Co-operation with Singapore has grown Defence spending is to remain high Malaysia, aware of its limited influence as a small country acting on its own, is an active member of numerous international bodies, especially Asian regional organisations (see Regional overview: Membership of organisations). The Association of South-East Asian Nations (ASEAN) remains important to Malaysia s foreign policy objectives. Relations with the US have in the past been complicated by Dr Mahathir s comments, for example his outspoken criticism of US behaviour over the Iraq war. In July 2004 Mr Abdullah was received in the US capital, Washington, as a moderate Muslim leader of an Islamic country with whom the US could do business. Malaysia has continued to co-operate closely with the US in the fight against terrorism. An even more striking change in foreign policy has been the strengthening of ties with Australia, which was boycotted under Dr Mahathir as an alien, white invader in the region. Relations with Indonesia are generally good, despite the latter country s apparent failure to deal with terrorist threats within its borders, illegal immigration and air pollution from forest fires. Relations with Singapore have become less edgy since Mr Abdullah became prime minister, co-operation is increasing, and many outstanding quarrels about minor issues are likely to be solved. Regional co-operation to suppress and prevent terrorist activity has increased. Malaysia has border disagreements with Indonesia, Singapore, the Philippines and China. In 2002 Malaysia restarted the modernisation of the armed forces that was derailed by the Asian economic crisis. The intention is to develop an all-round modern conventional capability, with enhanced maritime security, from what was originally a counter-insurgency force. Malaysia, together with Singapore, the UK, Australia and New Zealand, is a member of the Five Power Defence Arrangement, which provides for co-operation and consultation in case of attack. Malaysia co-operates on border security with its neighbours. According to Mr Razak, Malaysia s primary security threat is internal; counter-terrorism and urban warfare capabilities are being developed to deal with violent extremism. In 2004 Malaysia started a limited obligatory national service, although mainly as a nation-building exercise. Country Profile The Economist Intelligence Unit Limited 2005

17 Malaysia 13 Military forces, 2004/05 Malaysia Thailand Indonesia Army Personnel 80, , , 000 a Main battle tanks Navy Personnel 15,000 70,600 45, 000 a Frigates Submarines Air force Personnel 15,000 46,000 a 24,000 Combat aircraft a Estimate. Source: International Institute for Strategic Studies, The Military Balance 2004/05. Security risk in Malaysia The security risk to foreign companies operating in Malaysia is real but moderate. There have been no terror attacks on Malaysian soil. The most serious regional attacks have taken place in neighbouring Indonesia: the bombings in Bali in October 2002, of the Jakarta Marriott hotel in August 2003 and of the Australian embassy in Jakarta in September A militant Islamist group, Jemaah Islamiah (JI), which is linked to the al-qaida international terror network, has been blamed for the attacks. JI acts as a central co-ordinator for radical groups across the South-east Asian region, as it works towards its goal of establishing an Islamist state embracing Malaysia, Indonesia, Singapore, Brunei and the southern Philippines. In September 2002 Singapore foiled a series of planned terrorist attacks on foreign targets, private companies and embassies; the terrorists intended to destabilise the governments of Singapore and Malaysia and foment ethnic strife between the Chinese and Malays. During 2004 there were security scares involving the US and Australian embassies in the capital, Kuala Lumpur. The Malaysian government has blamed Indonesians for inspiring Islamic militancy in Malaysia. However, international investigations of Islamist terrorism have made it clear that for many years Malaysia was considered a safe haven by Islamic extremists. The Malaysian branch of JI is Kumpulan Mujahidin Malaysia (KMM, Malaysian Mujahideen Group). By September 2004 around 90 Islamic militants were being held under the Internal Security Act, which allows for a two-year detention period that can be renewed indefinitely. In July 2004 the prime minister, Abdullah Badawi, declared that South-east Asia was slowly winning the war against terrorism. To fight terrorism effectively, the countries of the region have begun to co-operate closely, involving the US and Australia. In 2003 a co-ordinating regional counterterrorism centre was opened in Kuala Lumpur. A major concern is the vulnerability to piracy and terrorist attacks of shipping in the Malacca Strait, through which onethird of global trade and one-half of the world s oil supplies pass each year. In July 2004 Singapore, Indonesia and Malaysia started co-ordinated patrols. The Economist Intelligence Unit Limited Country Profile 2005

18 14 Malaysia Social unrest The major long-term risk to business comes from a return of economic and political conditions that could lead to an outbreak of racial violence. Tensions persist below the surface between the majority Malays on one hand and the minority ethnic Chinese and Indian populations on the other. In the most serious post-war racial conflict, in 1969, divisions within the Malay majority led to the scapegoating of the ethnic Chinese, hundreds of whom were killed in riots. Any attempt to reduce the privileges of the bumiputera ( sons of the soil ethnic Malays and other indigenous peoples) could stoke Malay resentment. However, the short-term risk of large-scale racial violence appears low. Large-scale demonstrations against the government and the ruling United Malays National Organisation (UMNO) were last held in 1998, when the deposed deputy prime minister, Anwar Ibrahim, led reformasi (reform) demonstrations. Although Mr Anwar was released from prison in September 2004, a revival of large-scale public protests looks unlikely under the reform-minded Mr Abdullah, even though most traditional means of protest remain blocked. There is widespread awareness within Malaysia that it is heavily dependent on foreign direct investment, and the opposition is unlikely specifically to target foreign businesses. Armed conflict The risk of armed conflict affecting business is low. Sporadic Islamist violence has occurred during the past few years. In 2001 KMM members were arrested and accused of involvement in bank robberies, the murder of a state assembly representative, and the bombing of a church and a temple. There are no no-go areas in Malaysia, and the government remains very much in control of the country. It is unlikely that Islamist extremists could develop the ability to stage an armed conflict. The revival of Islamic militancy in southern Thailand, where the population is mainly of Malay origin, poses no direct threat to Malaysian security but strains relations with Thailand. Organised crime Malaysia is, in general, a fairly safe country. Violent crime, kidnapping and extortion are rare, although they have attracted more publicity in recent years. Organised crime is seldom a threat to foreign business. Foreigners are, however, often the target of pickpockets, burglars, car break-ins and purse-snatching. Credit-card fraud is a growing problem. Chinese criminal gangs, or triads, do operate in Malaysia but their activities do not usually attract much publicity. Illegal activities by organised Malaysian groups that are most frequently mentioned by law-enforcement agencies are piracy the illegal copying and distribution of CDs and DVDs as well as creditcard counterfeiting and drug trafficking. Resources and infrastructure Population Population growth is slowing The Malaysian population is estimated to have reached 26.1m by mid The annual average rate of growth was 2.1% in , somewhat slower than the 2.4% a year registered in Around 80% of the population lives in Country Profile The Economist Intelligence Unit Limited 2005

19 Malaysia 15 peninsular Malaysia. The rate of growth will continue to be fastest in Malaysia s more developed states. The dependency ratio (those under the age of 15 and over the age of 64 divided by the rest of the population) is estimated to have declined from 61.4% in 2000 to 58.6% in 2005, as the median age rises from 23.4 years in 2000 to 24.2 years. Population, 2004 (mid-year estimates) 000 % Total 25, Malaysian 23, Bumiputera 15, Malay 12, Other bumiputera 2, Chinese 6, Indian 1, Others Non-Malaysian 1, Age structure , , , Life expectancy, total (yrs) 72 - Source: Department of Statistics, Yearbook of Statistics. Growth rates vary between the main ethnic groups Rates of population growth vary considerably between the main ethnic groups, probably owing to differences in geographical location, income levels and cultural factors. In the annual average rates of growth of the bumiputera ( sons of the soil, ethnic Malays and other indigenous peoples), Chinese and Indian communities were 2.2%, 1.2% and 1.6% respectively. The Chinese, long urbanised and enjoying higher average incomes, now have smaller families; the Malay urban population is growing, but most families remain in rural areas. Mean monthly gross household income increased from M$2,472 (US$650) in 1999 to M$3,011 in 2002, an average growth rate of 6.8% a year, according to official data. The proportion of lower-income households, defined as those earning less than M$1,200, decreased from 33.1% in 1999 to 25.9% in Growth rates varied by ethnic group. The mean monthly income of Malay households expanded by 6.2% annually during this period to reach M$2,376 in 2002, while that of Chinese households rose by 7.4% a year to M$4,279 and that of Indian households increased by 4.1% a year to M$3,044. The mean monthly income of urban households rose by 5.6% annually to M$3,652 in 2002, and that of rural households grew by 0.2% to M$1,729. The bumiputera share of the population continues to grow In the 2000 census, 94.1% of the total population of Malaysia were Malaysian citizens. Bumiputera made up 65.1% of Malaysian citizens, ethnic-chinese 26% and Indians 7.7%, compared with an ethnic composition of 60.6%, 28.1% and 7.9% respectively in Non-Malaysian citizens numbered 1.4m or 5.9% of the population. In Sarawak the predominant ethnic group was the Ibans, accounting for 30.1% of the state s total of Malaysian citizens, followed by The Economist Intelligence Unit Limited Country Profile 2005

20 16 Malaysia Chinese (26.7%) and Malays (23%). In Sabah the predominant ethnic group was the Kadazan Dusun (18.4%), followed by Bajau (17.3%) and Malays (15.3%). The average population density, at 77 persons per sq km in 2004, is relatively low. However, there are wide disparities between the peninsula and the sparsely populated Borneo states. Education Education is given a high priority The government places great emphasis on education, which is the largest item in the federal budget. The aim is to provide a world-class quality education system. Primary education is compulsory for all Malaysian children. Primary and secondary education is free for students aged 7-17 in the public school system (which includes national-type schools teaching in Mandarin and Tamil). Malaysia has a literacy rate of 93%. Over 97% of seven-year-olds are enrolled in the public school system. The private fee-paying sector plays an important role only in higher education. There are public examinations at the end of the primary level (at age 12), the lower secondary level (usually at 17) and the higher secondary level (at 19). Malay and English are compulsory subjects. The matriculation exam at the end of the higher secondary level gives access to Malaysian public universities. In 2003, there were around 271,000 students, including 15,000 international students, enrolled at 690 private colleges, 14 private universities and four foreign university branch campuses, which teach in English. This compares with 80,000 students at the 16 public universities, which use Malay as a medium of instruction. Sending pupils abroad was especially popular before the Asian financial crisis, but the need to do so has been reduced by twinning arrangements with foreign universities. There is also a large number of private and public colleges offering vocational and skill-based education and training. State assistance mostly takes the form of soft loans, repayable when students graduate and take paid employment. University entrance is in theory based on merit but is in practice biased towards the children of bumiputera. Employers frequently complain about the low quality of Malay graduates. With this in mind, science and mathematics have been taught in English since After independence in 1957 the role of English was systematically reduced for Malaynationalist reasons. Health A model system, albeit with geographical disparities Malaysia s public healthcare system, with its emphasis on community-based, preventative care, provides high-quality services at little or no cost to consumers and compares favourably with provision in most other Asian countries. There is an extensive network of primary healthcare services, which in 2004 was supported by more than 3,000 health clinics and 2,900 dental units as well as 124 public hospitals with more than 34,000 beds. Clean water, safe food and sanitary disposal of waste are generally available. But there are wide geographical variations: health indicators for Sabah, Sarawak and some predominantly rural states on the Malayan peninsula are well below average. The 225 private hospitals are generally smaller and better equipped, providing Country Profile The Economist Intelligence Unit Limited 2005

21 Malaysia 17 around one-quarter of total beds. But there is an acute shortage of manpower, and partly in response to this the government is developing electronic medical services and paperless hospitals. Government spending on the health sector fell from 3% of GDP in 1990 to 2.4% in 1998, reflecting the authorities desire gradually to reduce their role as a healthcare provider. However, the Eighth Malaysia Plan, which covers the period, targeted an increase of nearly 50% in government spending on health compared with the Seventh Malaysia Plan ( ), at M$5.5bn (US$1.4bn). In October 2003 the revision of the Eighth Malaysia Plan raised the total to M$9.5bn, with the additional funds to be spent largely on construction and renovation of hospitals. Whereas the Seventh Malaysia Plan focused on an expansionary development programme that saw a large increase in the numbers of new private hospitals and clinics, the Eighth Malaysia Plan aims for an overall improvement in the quality of public health services, with greater emphasis on the use of information technology, improvements in the quality of health personnel and an upgrade of rural facilities. Under the revised plan, a total of M$898m (US$236m) has been allocated for rural and environmental health. Natural resources and the environment Plantation crops still have an important economic role Domestic processing is being stepped up Malaysia has a tropical climate. Its economic development was dominated by the cultivation of plantation crops, such as natural rubber and palm oil, as well as by tin mining. Malaysia lost its dominant position as the world s largest producer of tin concentrates after depletion of the richest, lowest-cost tin deposits. However, it is still one of the world s main centres of tin refining, although it must supplement declining domestic mine output with imported concentrates. Malaysia is also no longer the world s biggest producer of natural rubber, its declining output having been overtaken in 1993 by rising production in Thailand and Indonesia. Plantation companies have for many years been switching to the more profitable cultivation of palm oil. Malaysia, until recently, was the world s largest producer of palm oil, having been overtaken by Indonesia. Malaysia is one of the world s leading producers of tropical saw logs. Controls on tree-felling by loggers continue to be flouted, but output is gradually declining. Bans on log exports were originally imposed as much to encourage more downstream processing as to preserve the Malaysian rainforest. Controls are now linked to replanting. Crude oil and natural gas are now far more important primary products for Malaysia. Both oil and natural gas are extracted from two main areas in the South China Sea, off Terengganu and Sabah. Malaysia is, by international standards, a small producer of crude oil but a large exporter of natural gas. It has been the aim of successive Malaysian governments to raise earnings from all primary products by increasing the degree of domestic processing. The country now has large commodity-based industries, which continue to expand, The Economist Intelligence Unit Limited Country Profile 2005