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71
ACTION EA-14
INFO OCT-01 ISO-00 IO-14 CIAE-00 DODE-00 PM-07 H-03 INR-10
L-03 NSAE-00 NSC-10 PA-04 RSC-01 PRS-01 SPC-03 SS-20
USIA-15 ACDA-19 AID-20 COME-00 EB-11 FRB-02 TRSE-00
XMB-07 OPIC-12 CIEP-02 LAB-06 SIL-01 OMB-01 AGR-20
DRC-01 /208 W
--------------------- 091770
R 100935Z DEC 73
FM AMEMBASSY KUALA LUMPUR
TO SECSTATE WASHDC 5854
INFO AMEMBASSY JAKARTA
AMEMBASSY SINGAPORE
CINCPAC
C O N F I D E N T I A L KUALA LUMPUR 5399
CINCPAC FOR POLAD
E.O. 11652: GDS
TAGS: ECON PINT MY
SUBJ: SECOND MALAYSIA PLAN MID-TERM REVIEW
REF: KUALA LUMPUR A-57, APRIL 5, 1973
1. SUMMARY-INTRODUCTION: MID-TERM REVIEW OF SECOND MALAYSIA
PLAN (SMP) 1971-1975, WHICH PM RAZAK PRESENTED TO PARLIAMENT
NOV. 26, HIGHLIGHTED BY REALISTIC ASSESSMENT OF ECONOMIC
PROSPECTS FOR NEXT 20 YEARS, GIVING DETAILED REQUIREMENTS FOR
TRANSFORMING MALAYSIA FROM DEVELOPING TO INDUSTRIALIZED NATION.
REVIEW EMPHASIZES ECONOMIC GROWTH AS CONDITION FOR
IMPROVING RACIAL BALANCE OF ECONOMIC WEALTH AND, EQUALLY
IMPORTANT, THAT HIGH GROWTH RATES REQUIRE STRONG INPUTS FROM
BOTH NON-MALAY COMMUNITY AND FOREIGN INVESTORS. THIS REPRESENTS
SUBTLE SHIFT OF EMPHASIS IN NEW ECONOMIC POLICY (NEP). CONTINUED
HIGH RATE OF DEVELOPMENT AND GROWTH, TOGETHER WITH INTERNAL
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POLITICAL CALM, SEEM INDICATED FOR NEXT DECADE. DETAILS OF
FOLLOWING SMP REVIEW ANALYSIS AND POLITICAL CLIMATE FOLLOW IN
TWO AIRGRAMS. END SUMMARY.
2. REVIEW CONCLUDES THAT MALAYSIA IS MAKING SATISFACTORY
PROGRESS TOWARD MAJOR GOALS OF NEP OF (A) ERADICATING POVERTY
BY RAISING INCOME AND INCREASING EMPLOYMENT FOR ALL
MALAYSIANS, IRRESPECTIVE OF RACE, AFK (B) RESTRUCTURING SOCIETY
TO CORRECT ECONOMIC AND RACIAL IMBALANCE, GIVING MALAYS 30
PERCENT OWNERSHIP OF PRIVATE SECTOR AND PROPORTIONATE EMPLOYMENT
IN INDUSTRIAL SECTOR BY 1990. REVIEW INTERRELATES TWO
OBJECTIVES OF NEP SO THAT ECONOMIC GROWTH IS SEEN AS BOTH
CAUSE AND RESULT OF RESTRUCTURING.
3. GROWTH AVERAGING 7.1 PERCENT PER ANNUM AND 12.3 PERCENT
IN INDUSTRIAL SECTOR ANNUALLY WITH SOME M$ 8 BILLION IN FOREIGN
CAPITAL REQUIRED TILL 1990 TO ACHIEVE GOALS OF NEP. AT SAME TIME
FOREIGN OWNERSHIP EXPECTED DECLINE FROM 60 TO 30 PERCENT.
4. FOR FIRST TIME GOM COMPILED DATA ON INCOME AND WEALTH
IN 1970 SURVEY WHICH VERIFIES THAT MALAYS DOMINATE LOWER INCOME
GROUPS. NEARLY 40 PERCENT OF MALAY HOUSEHOLDS EARNED LESS
THAN M$100 PER MONTH COMPARED TO LESS THAN 10 PERCENT
CHINESE FAMILIES IN SAME CATEGORY. SURVEY CONFIRMS SOCIAL
DIRECTIONS OF SMP AND NEP; THUS SEVERAL KEY PROGRAMS AIMED
AT UPLIFTING INCOMEY OF RURAL MALAYS WILL BE STRENGTHENED FOR
REMAINDER OF PLAN.
5. SECTORAL IMPLEMENTATION WAS SATISFACTORY, THOUGH HEALTH AND
FAMILY PLANNING PERFORMANCE FELL NOTICEABLY SHORT OF TARGETS.
SEVERAL AGRICULTURAL PROGRAMS WERE ALSO UNSATISFACTORY, BUT
FEDERAL LAND DEVELOPMENT AGENCY (FELDA) EXCEEDED TARGET FOR
CLEARED AND SETTLED LAND AND HAS BEEN GIVEN NEW HIGHER TARGET
FOR REMAINDER OF SMP. BEST PERFORMANCE SECTOR WAS INDUSTRY AND
COMMERCE, INCLUDING UNEXPECTED SUCCESS OF GOM SPONSORED UDA,
PERNAS, AND STATE ECONOMIC DEVELOPMENT CORPORATIONS. EMPLOYMENT
INCREASED SIGNIFICANTLY, WITH UNEMPLOYMENT CURRENTLY ABOUT 7.1
PERCENT, SLIGHTLY BELOW TARGET OF 7.3. EDUCATION, WEAK
PERFORMER IN FIRST MALAYSIA PLAN, ACHIEVED TARGETS AND FUNDS
RAISED 37 PERCENT FOR SECOND HALF SMP.
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6. COMMENT: SUCCESS OF 20 YEAR PERSPECTIVE AND SMP HINGE ON
(A) CONTINUED HIGH DEGREE OF COMMITMENT OF CHINESE PRIVATE
SECTOR TO ECONOMIC GROWTH; (B) CONTINUED STRONG WORLD
MARKETS FOR PRIMARY COMMODITIES, NOTABLY TIN, RUBBER, PALM
OIL, AND TIMBER; (C) GROWTH IN INDUSTRIAL EXPORTS PREDICATED
ON EXPANDING INTERNATIONAL MARKETS AND FOREIGN INVESTMENT
IN MALAYSIA; (D) CAPACITY OF MALAYS TO ACQUIRE SKILLS OF
FINANCE, INDUSTRY, AND COMMERCE; AND (E) CONTINUED POLITICAL
STABILITY AND COMMITMENT TO DEVELOPMENT OBJECTIVES. GROWTH
RATES IN 1970-1990 PERIOD MUST BE SUFFICIENT ENABLE RACIAL
RESTRUCTURING OF ECONOMY WITHOUT CREATING CONDITIONS THAT
COULD NEGATE ECONOMIC GAINS. HIGH GROWTH RATES ARE SENSIBLE
AIMS WHICH WITHIN SCOPE OF ACHIEVEMENT FOR MALAYSIA GIVEN ABOVE
FACTORS.
7. ON POLITICAL SIDE, THERE ARE CLEAR INDICATIONS THAT CERTAIN
SEGMENTS OF CHINESE COMMUNITY ARE NOT ENTIRELY PLEASED WITH
GOVERNMENT'S STRONG PUSH FOR RESTRUCTURING OF SOCIETY AND
ITS ECONOMIC IMPLICATIONS. WHILE IT IS ACKNOWLEDGED THAT
WEALTHY CHINESE BUSINESSMEN WILL BE MORE THAN HAPPY WITH
PROSPECTS FOR OVERALL GROWTH AND INDUSTRIALIZATION, THERE IS
NAGGING FEELING THAT CHINESE MIDDLE AND LOWER CLASSES WILL BE
HURT IN PROCESS. LOWER CLASS INDIANS HAVE ALSO BEEN
NEGLECTED IN THIS PROCESS. ACCORDING TO INFORMED POLITICAL
SOURCES IN CHINESE COMMUNITY, IT IS FORESEEN THAT BENEFITS
ACCRUING TO MALAYS FROM OVERALL ECONOMIC GROWTH AND STRUCTURING
OF SOCIETY WILL COME AT EXPENSE OF CHINESE; IN THIS REGARD THEY
DO NOT SEE REDUCTION OF FOREIGN-OWNED INTERESTS (NOW ESTIMATED
AT ABOUT 60 PERCENT) BECAUSE OF STRONG GOM COMMITMENT TO FOREIGN
INVESTMENT.
8. THOSE CONCERNED ABOUT FATE OF UNDERPRIVILEGED CHINESE HAVE
CALLED FOR SPECIAL PROGRAMS IN EDUCATION AND BUSINESS TO ENABLE
CHINESE GRASSROOTS SOCIETY TO MODERNIZE AT AN ACCEPTABLE RATE
AND TO KEEP PACE WITH OVERALL GROWTH, AS WELL AS WITH
MALAYS WHO HAVE BENEFITED FROM DIRECT INTERVENTIONIST PROGRAMS
SUCH AS PERNAS, UDA, ETC. POLITICAL STRAINS IN THIS REGARD
HAVE BEEN APPARENT FOR SOME TIME; COMBINED WITH WEAKNESS OF
MALAYSIAN CHINESE ASSOCIATION (MCA), GOVERNMENT'S CHINESE PARTNER
IN ALLIANCE PAERY, THERE IS DEFINATE FEELING OF FRUSTRATION
AMONG CHINESE-EDUCATED CHINESE AND LOWER INCOME NON-MALAYS
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IN GENERAL THAT GOVERNMENT IS SACRIFICING THEIR INTERESTS TO
PLACATE THE MALAY COMMUNITY. GOM HAS NOT YET COME TO GRIPS
WITH THESE FRUSTRATIONS AND POLITICAL CONSEQUENCES BUT, AS
ELECTIONS APPROACH NEXT YEAR, GOVERNMENT MAY BE HURT SOMEWHAT
IF IT FAILS TO DO SO. ON OTHER HAND, THERE IS
PREVAILING BELIEF THAT GOM CAN MANAGE POLITICAL AND RACIAL
FORCES AT WORK SUFFICIENTLY SO AS TO FORESTALL
RACIAL OUTBREAKS AS IN 1969.
9. RAZAK GOVT, BASED AS IT IS ON PRAGMATISM AND MODERATION,
NEVERTHELESS POSSESSES CAPABILITY TO MAKE NECESSARY ADJUSTMENTS
IN SUBSTANCE AND STYLE TO BRING NON-MALAYS INTO FULLER SUPPORT
OF NATIONAL DEVELOPMENT EFFORT. ON WHOLE, MALAYSIA'S PROSPECTS
FOR CONTINUED GROWTH AND STABILITY ARE GOOD, THOUGH PREDICATED
ON RACIAL CALM AND GENERALLY FAVORABLE INTERNATIONAL
ECONOMIC CONDITIONS.
CHESLAW
CONFIDENTIAL
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