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This article gives a brief overview of macroeconomic of Malaysia.
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Macroeconomic Overview of Malaysia

Macroeconomics is a branch of economics that deals with the performance, structure, and behaviour of a national or regional economy as a whole. Given the multiracial nature of Malaysian society, macroeconomic policy has not only been about economic stabilization, but also about addressing income disparities along racial lines in order to preserve social harmony. Thus, the Malaysian experience provides an interesting case study of macroeconomic management amid ethnic diversity.

Economic growth can be divided into the following phases:

Phase 1-From Independence to 1969
At independence, economic conditions in Malaysia appeared conducive to rapid growth. The colonial inheritance included a well-developed infrastructure, an efficient administrative mechanism and a thriving primary export sector with immense potential for expansion. 
Government policy during this early post-independence period is perhaps best described as a “holding program”, the policy thrust was to continue with the colonial open-door approach relating to trade and industry policy, while addressing ethnic and regional economic imbalances through rural development schemes and the provision of social and physical infrastructure. 
Phase II -1970 to 1987
The Malaysian political leaders, decided that there was a need for a shift from planning and policymaking based purely on economic considerations, towards an affirmative action policy based on ethnicity. This policy shift was formalized in the New Economic Policy (NEP), which was introduced in the Second Malaysia Plan (1971-75).Malaysians  participation in business was promoted in two ways: 
  • Through the expansion of the public sector where Malaysians  held most of the key positions, and
  • By providing Malaysians with privileged access to share ownership and business opportunities in the private sector.

Phase III Transition from the NEP to the National Development Policy (NDP), 1987 to 1997

The NEP was replaced (in 1990) with the National Development Policy (NDP). The NDP eased the strictures of the NEP, with a view to putting the creation of wealth ahead of redistributing it. The policy thrust of the NDP was to redress racial imbalance in a more overt fashion through various initiatives geared to entrepreneurship, managerial expertise and skills development within the Malay community. 

Phase IV from the 1997 Crisis to the Present
The Asian financial crisis that started in Thailand on 2 July 1997 spread relatively quickly to neighboring countries, including Malaysia. The Bank Negara Malaysia (BNM) intervened heavily to try and stem the speculative attacks on the ringgit that followed the collapse of the baht.
In a radical turnaround, Malaysia opted for a Keynesian-style reflationary program, on the premise that financial markets had over-shot. In order to implement this program, capital controls had to be introduced in order to circumvent additional capital outflow associated with loosening monetary policy and the lowering of interest rates. In short, the government chose to temporarily disconnect the domestic capital market from the global economy in order to pursue its stimulatory policies. 

The macroeconomic management policy experience in Malaysia over the past fifty years is one best described as conservative pragmatism. Apart from the period of crisis management, when monetary policy played the dominant role in reviving the economy, fiscal policy has been the major discretionary instrument.

Last Updated on: 17-11-2009

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