Monuments to Mahathir's Vision

Eric Ellis, Kuala Lumpur

11/25/1993

THE FEVERISH activity in the centre of Kuala Lumpur's old Selangor Turf Club is testimony to the kind of Malaysia Dr Mahathir Mohammed wants as his legacy after 12 years as Prime Minister. Not content to simply rant against the West with increasing vitriol, Dr Mahathir wants to top the West at its own game - development

Thus, what will eventually be two of the world's tallest buildings are now taking shape where colonial Britons once booted home winners. The 446-metre twin-tower complex, due to be completed by 1996, will be higher than Chicago's Sears Tower. The ambitious project is a central part of Dr Mahathir's Vision 2020 goal, designed to thrust Malaysia into OECD ranks by the year 2020, and is already closely identified with him.

A friend of the Prime Minister, businessman Mr Ananda Krishnan, is one of its backers and the development itself, in the same fashion as Malaysia Proton car project, will doubtless be known as the Complex That Mahathir Built.

But whether Malaysia needs such an extraordinary project is the subject of some conjecture in the kampungs of Kuala Lumpur.

Critics of the scheme say Dr Mahathir has begun seeking monuments to his rule that may well end up as white elephants.

A long-time critic, the Opposition leader Mr Karpal Singh, said: "Power is going to their heads. You've got to question this kind of lavish project when some parts of the country still live in relative poverty."

Vision 2020 aims at growth of 7 per cent a year for the next 27 years. Given that Malaysia has raised real per capita incomes from $US300 in the early 1970s to $US3000 ($4,500) now to be South-East Asia's second-richest country after Singapore, the projections would seem to be attainable.

So far the outlook is mostly encouraging. The economy grew by a 10.4 per cent in the second quarter, higher than had been expected, and is well capable of achieving the Government's officially forecast 7.6 per cent for this year.

Indeed, Malaysia is the very model of a developing economy in transition.

High growth has not led to high inflation or big interest rates and fiscal policy has been kept tight. The Consumer Price Index has been kept in check around 3 per cent while interest rates, at 6.8 to 7 per cent, continue to trend lower.

Bank Buruh, a big local bank, says it expects a range of 6.75-6.95 per cent for rates into the New Year.

So successful is Malaysia that the World Bank considers Kuala Lumpur the next in line to graduate from the bank's borrowing life line. Malaysia gets just 4 per cent of the World Bank's East Asian allocation.

The bank's regional vice-president, Mr Gautama Kaji, said that although Malaysia had some way to go before reaching the bank's $US5,000 per capita benchmark, "it does trigger discus sions on the time-frame for graduation".

Next year looks even more impressive. Malaysia's Deputy Minister of International Trade and Industry, Mr Chua Jui Meng expects 1994 growth to come in at 8.2 per cent.

"The basis for this optimistic figure is the projected recovery in economic activity in the major industrial countries, estimated at about 3 per cent," Mr Chua said.

Mr Chua identifies manufacturing, services and construction as the sectors to lead growth in the short to medium term.

"The manufacturing sector has been the star performer and the driving force of the economy. From 1987-1993 (it) has recorded for seven straight years an annual growth of about 15 per cent," he said. "Manufacturing in 1994 is expected to grow by another 13 per cent."

But even for Malaysia there are dark clouds looming over its unabated success.

The foreign investment which has provided the foundation of Malaysia's dash to near "tiger economy" status is drying up.

From 1990-92, Malaysia received an annual $US6-7 billion dollop of foreign investment. So far this year, direct foreign investment has declined to just over $US1 billion.

While Western politicians would perhaps like to believe it is a backlash against Dr Mahathir's bitter rhetoric - just as Dr Mahathir likes to blame the Western media for portraying Malaysia as unstable - the reality is rooted simply in the fact that Malaysia is becoming too expensive.

Foreign investors are finding that increased prosperity means increased labour costs. Investment that might have been bound for Malaysia is now finding a low-cost home in China, Vietnam and Indonesia.

Malaysia has responded by offering tax breaks and "special location incentives" to attract would-be investors to less-developed States, particularly in western Malaysia.

Bank Buruh has called for greater liberalisation and tax concessions in order to keep foreigners investing.

Foreigners have not needed any urging to invest in the booming Kuala Lumpur Stock Exchange.

The same report from the Wall Street emerging-markets guru Mr Barton Biggs, of Morgan Stanley, that propelled Hong Kong's market to stratospheric levels has also propelled Malaysia's to record levels.

The Biggs report has prompted a wave of mostly American institutional investment in the region and Malaysia has near-doubled this year to be Asia's second-best-performing market after Manila, which is coming off a low base.

The volume weighing into the Kuala Lumpur market is staggering.

By way of comparison, the turnover of 4.1 billion Malaysian ringgits on October 28 exceeded the entire turnover for 1986.

But the market has begun to look expensive, despite a recent Kuala Lumpur Stock Exchange survey which showed that a healthy 65 per cent of listed stocks posted improved earnings this year.

Alongside established Hong Kong's 13-times earnings, Kuala Lumpur's prospective price-earnings ratio of 20 for 1994 has prompted concerns that the market is top-heavy.

"A lot of people who know little of how stockmarkets actually work are now getting into the market,", said Bank Buruh boss Dato R.V. Navaratnam. "That could be dangerous."