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Bold Malaysia reaches skyward

THE Malaysian company Genting, which was joint partner in the Burswood casino during its most successful years, is constructing what it says will be the world’s largest hotel.

A 6,300 room edifice called The First World is going up in the Genting Highlands.

It will feature an indoor theme park, incorporating such tasteful items as a replica of the Statue of Liberty and mock Venetian canals. Assuming the thing gets built, it will knock the current biggest hotel – the 5,005 room MGM in Las Vegas — into a cocked hat.

It will also maintain Malaysia’s reputation for gigantism, exemplified by the twin Petronas Towers in Kuala Lumpur, which are the world’s tallest buildings.

Is Malaysia heading for another attack of hubris that was the infection that put the country into its own peculiar brand of intensive care?

Hopefully, the answer is no.

What brought Malaysia undone was an avalanche of foreign funds, averaging US$6 billion a year in 1995 – 1997.

The 70-year-old Kuala Lumpur stock exchange went berserk.

The market capitalisation at one point rocketed to US$300 billion, bigger than that of Australia.

Construction cranes dominated the skyline.

There was much more money around than could be productively used in the relatively small economy.

When the music stopped in 1998, consumer spending shrank by over 10 per cent, fixed investment dived 19 per cent, and both exports and imports dried up.

The economy contracted 7.4 per cent, and the Kuala Lumpur share prices went into free fall.

The Asian way of trying to extricate itself from the crisis was to go cap in hand to the IMF, promising to reform bloated and corrupt institutions, and to overhaul busted banks.

Then there was the Prime Minister Datuk Seri Mahathir Mohammed way. In September 1998 he thumbed his nose at currency speculators, slapped on capital controls, pegged the ringgit at 3.8 to the US dollar, froze great swags of shares owned by foreign fund managers, and basically pulled the draw bridge up.

The Bank Negara cut interest rates four times in a month and presided over a reflation program, that earned it the sobriquet of “ Bank Viagra”.

It is not the fact that these measures worked which is surprising, but the speed of the turnaround.

This September marked the 14th consecutive month of double-digit growth, powered mainly by a robust manufacturing sector, led by exports of electronics and electrical products churned out by multinational companies like Intel and Sony.

Prime Minister Mahathir has had the satisfaction of hearing an IMF official grudgingly admitting that his policy of ring fencing Malaysia from the financial maelstrom was probably correct.

He has also been the subject of international condemnation over the treatment of Anwar Ibrahim, his former deputy and finance minister, who has been convicted of corruption and sex offences and sentenced to 15 years in prison.

Malaysia is a curious country. Few realise that it is a Constitutional Monarchy.

The crown is rotated every five years among the leaders of the nine royal families.

Around one third of the 20 million population are ethnic Chinese, 10 per cent are Indian, and the balance are Malay.

One of Mahathir’s most important challenges is to balance the needs of a modern financial and trading nation with the increasingly hard line being taken by many Islamic followers.

Recently he officiated at a seminar on “Islamic Development and the Threat of Deviant Teachings.”

Malaysia’s offshore financial centre on the Island of Labuan is about to join Bahrain to form the world’s first money market to provide investors with funds that are compatible with Islamic shariah laws that ban the payment of direct interest.

This year, Malaysia has 7.5 per cent GDP growth in the bag.

Merchandise trade data indicates the economy remains strong.

Exports in recent months have been running 24 per cent up year-on-year and imports are up 33 per cent, with capital goods particularly strong.

But this may be as good as it gets.

Foreign investment in Malaysia is declining, particularly portfolio investment.

Local analysts are beginning to ask if that matters.

The Kualua Lumpur stock market has only given up 9 per cent of the fat gains it scored last year, the most resilient performance in the region.

However, even Mahathir cannot insulate Malaysia from the looming slowdown in America.

Electronics account for 60 per cent of the country’s exports, and about one fifth of that goes to the US.

The Malaysian Institute of Economic Research has warned that falling US demand, a decline in personal computer markets, and a likely rise in domestic interest rates, will clip 2001 growth to 6.3 per cent.

The forecast seems optimistic, and a very soft landing in the US will be needed if it is to be achieved.

This is not the time for hubris.

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