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NEWS UPDATES Asean Affairs        5  May 2011

Challenges loom for Malaysia

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Malaysia's march towards the "Asian Century" as described by the Asian Development Bank (ADB) in its latest report will depend on how well the country confronts the difficult economic, political and social questions cropping up as reforms take place.

The ADB report said Malaysia together with six other economies have the potential to be the growth engine of the region but would face several mega-challenges including the risk of falling into the "middle-income trap" as well as governance and institutional capacity.

Economists said that while Malaysia had made progress in transforming the economy, results would not be seen so soon because there were complex issues that must be addressed.

Citigroup Inc's Singapore-based senior economist Kit Wei Zheng said over the phone that while the more difficult reforms were "still some way off" from being addressed, some results have been seen.

"Some sense of the results arising from the reforms are that foreign direct investment (FDI) is coming back albeit from a low base and that gross domestic product (GDP) is seeing steady growth," he said.

Kit said the growth in GDP and the FDI showed progress in the short term had been made but the bigger issues would depend on political will.

"To that extent, this is still unclear as a lot of it is contingent on the political consensus that will be the outcome of the general election. This will be needed to push through the reforms," he added.

The World Bank in an earlier report pointed out that Malaysia has "demonstrated notable progress" in implementing the project-based initiatives of the Economic Transformation Programme, but was finding it more difficult to implement the cross-cutting reform announcements under the New Economic Model (NEM).

Oversea-Chinese Banking Corp Ltd economist Gundy Cahyadi said in an e-mail reply that things must be put into perspective where NEM reforms were concerned.

"We're not going to see vast and fast improvement in institution- and nation-building overnight. The basic idea of the NEM is to get the nation to a developed economy status, but even if progress on this front is slow, it does not mean that the country cannot achieve its target eventually," he said.

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