Economy

Main article: Economy of Malaysia

Further information: Petrol prices#Malaysia

Rubber latex. Malaysia was the world's largest producer of rubber.

Southeast Asia has been a centre of trade for centuries. Various items such as porcelain and spices were actively traded even before Malacca and Singapore rose to prominence.

In the 17th century, they were found in several Malay states. Later, as the British started to take over as administrators of Malaya, rubber and palm oil trees were introduced for commercial purposes. Over time, Malaysia became the world's largest major producer of tin, rubber, and palm oil.^[58] These three commodities, along with other raw materials, firmly set Malaysia's economic tempo well into the mid-20th century.

Instead of relying on the local Malays as a source of labour, the British brought in Chinese and Indians to work in on the mines, plantations and fill up the void in professional expertise. Although many of them returned to their respective home countries after their agreed tenure ended, some remained in Malaysia and settled permanently.

As Malaya moved towards independence, the government began implementing economic five-year plans, beginning with the First Malayan Five Year Plan in 1955. Upon the establishment of Malaysia, the plans were re-titled and renumbered, beginning with the First Malaysia Plan in 1965.

In the 1970s, Malaysia began to imitate the four Asian Tiger economies (Republic of Korea (South Korea), Republic of China (Taiwan), then British Crown Colony of Hong Kong and the Republic of Singapore) and committed itself to a transition from being reliant on mining and agriculture to an economy that depends more on manufacturing. With Japanese investment, heavy industries flourished and in a matter of years, Malaysian exports became the country's primary growth engine^{[citation needed]}. Malaysia consistently achieved more than 7% GDP growth along with low inflation in the 1980s and the 1990s.^[59]. Today, Malaysia is one of the world's largest computer hard disk manufacturing sites.

During the same period, the government tried to eradicate poverty with the controversial New Economic Policy (NEP), after the May 13 Incident of racial rioting in 1969.^[36] Its main objective was the elimination of the association of race with economic function, and the first five-year plan to begin implementing the NEP was the Second Malaysia Plan. The success or failure of the NEP is the subject of much debate, although it was officially retired in 1990 and replaced by the National Development Policy (NDP). Recently much debate has surfaced once again concerning the results and relevance of the NEP. Some have argued that the NEP has indeed successfully created a Middle/Upper Class of Malay businesspersons and professionals. Despite some improvement in the economic power of Malays in general, the Malaysian government maintains a policy of discrimination that favours ethnic Malays over other races—including preferential treatment in employment, education, scholarships, business, access to cheaper housing and assisted savings.^[60] This special treatment has sparked envy and resentment between non-Malays and Malays.

The ethinic Chinese control of the locally owned sector of the country's economy, meanwhile, has been ceded largely in favour of the Bumiputras/Malays in many essential or strategic industries such as petroleum retailing, transportation, agriculture, automobile manufacturing, and other industries. The rapid economic boom led to a variety of supply problems, however. Labour shortages soon resulted in an influx of millions of foreign workers, many illegal. Cash-rich PLCs and consortia of banks eager to benefit from increased and rapid development began large infrastructure projects. This all ended when the Asian Financial Crisis hit in the fall of 1997, delivering a massive shock to Malaysia's economy.

Since 1994, the Malaysian car company, Proton, has owned Lotus, a previously British company that produces the Lotus Europa S (pictured here) and other models.

As with other countries affected by the crisis, there was speculative short-selling of the Malaysian currency, the ringgit. Foreign direct investment fell at an alarming rate and, as capital flowed out of the country, the value of the ringgit dropped from MYR 2.50 per USD to, at one point, MYR 4.80 per USD. The Kuala Lumpur Stock Exchange's composite index plummeted from approximately 1300 points to around 400 points in a matter of weeks. After the controversial sacking of finance minister Anwar Ibrahim, a National Economic Action Council was formed to deal with the monetary crisis. Bank Negara imposed capital controls and pegged the Malaysian ringgit at 3.80 to the US dollar. Malaysia refused economic aid packages from the International Monetary Fund (IMF) and the World Bank, however, surprising many analysts.

In March 2005, the United Nations Conference on Trade and Development (UNCTAD) published a paper on the sources and pace of Malaysia's recovery, written by Jomo K.S. of the applied economics department, University of Malaya, Kuala Lumpur. The paper concluded that the controls imposed by Malaysia's government neither hurt nor helped recovery. The chief factor was an increase in electronics components exports, which was caused by a large increase in the demand for components in the United States, which was caused, in turn, by a fear of the effects of the arrival of the year 2000 (Y2K) upon older computers and other digital devices.

However, the post Y2K slump of 2001 did not affect Malaysia as much as other countries. This may have been clearer evidence that there are other causes and effects that can be more properly attributable for recovery. One possibility is that the currency speculators had run out of finance after failing in their attack on the Hong Kong dollar in August 1998 and after the Russian ruble collapsed. (See George Soros)

Regardless of cause and effect claims, rejuvenation of the economy also coincided with massive government spending and budget deficits in the years that followed the crisis. Later, Malaysia enjoyed faster economic recovery compared to its neighbours. The country has recovered to the levels of the pre-crisis era – as an example, the KLCI Composite Index hit an all time high of 1,386 on 20 June 2007 which is approximately 100 points higher than the pre-crisis record of 1,275 in 1993.

Malaysia's rapid economic growth and prosperity is reflected by the Petronas Towers, the headquarters of the national oil giant in Kuala Lumpur and, at one time, the tallest building in the world.

While the pace of development today is not as rapid, it is seen to be more sustainable. Although the controls and economic housekeeping may or may not have been the principal reasons for recovery, there is no doubt that the banking sector has become more resilient to external shocks. The current account has also settled into a structural surplus, providing a cushion to capital flight. Asset prices are generally back to their pre-crisis heights, despite the effects of the global financial crisis. Malaysia is also the world's largest Islamic banking and financial centre.

The fixed exchange rate was abandoned in July 2005 in favour of a managed floating system within an hour of China's announcing of the same move.^[61] In the same week, the ringgit strengthened a percent against various major currencies and was expected to appreciate further. As of December 2005, however, expectations of further appreciation were muted as capital flight exceeded USD 10 billion.^[62] According to Bank Negara's published figures, Malaysia's foreign exchange reserves increased steadily since the initial capital flight, from USD75.2 billion as at 15 July 2005 (just before the peg was removed) to peak at USD125.7 billion as at 31 July 2008, a few months before the global credit crisis that started in September 2008. As at 29 May 2009, the reserves stood at USD88.3 billion.

In September 2005, Sir Howard J. Davies, director of the London School of Economics, at a meeting in Kuala Lumpur, cautioned Malaysian officials that if they want a flexible capital market, they will have to lift the ban on short-selling put into effect during the crisis. In March 2006, Malaysia removed the ban on short selling.^[63] It is however interesting to note that in response to the global financial crisis, some of the measures taken by the Malaysian government in response to the Asian crisis, such as the ban on short selling, were swiftly adopted by the very countries that had previously been critical of the Malaysian response.

Malaysia is also one of the region's top education and healthcare destinations. Malaysia is recognised as a newly industrialised country.^[64] In 2008, GDP per capita (PPP) of Malaysia stands at US$14,215, ranking her 48th in the world, and 2nd in Southeast Asia, lagging far behind neighbouring Singapore, the only developed economy in Southeast Asia, with a GDP per capita (PPP) of US$49,288, ranking 3rd in the world. By comparison, Thailand has a per capita income of US$7,703 (ranked 81st) and Indonesia with US$3,975 (ranked 106th).

[edit] Demographics

Main article: Demographics of Malaysia

Malaysia's population comprises many ethnic groups, with the Malays at 50.4% making up the majority and other bumiputra/indigenous (Aborigine) groups in Sabah and Sarawak at 11%^[65] of the population. By constitutional definition, Malays are Muslims who practice Malay customs (adat) and culture. Therefore, technically, a Muslim of any race who practices Malay customs and culture can be considered a Malay and have equal rights when it comes to Malay rights as stated in the constitution. Non-Malay bumiputra groups make up more than half of the state of Sarawak's population (of which 30% are Ibans), and close to 60% of Sabah's population (of which 18% are Kadazan-Dusuns, and 17% are Bajaus).^[65] There also exist aboriginal groups in much smaller numbers on the Peninsula, where they are collectively known as Orang Asli.

23.7% of the population are Malaysians of Chinese descent, while Malaysians of Indian descent comprise 7.1% of the population.^[65] Indians began migrating to Malaysia in the early 19th century.^[66] The majority of the Indian community are Tamils but various other groups are also present, including Malayalis, Punjabis,Bengalis and Gujaratis. Other Malaysians also include those whose origin, can be traced to the Middle East, Thailand and Indonesia. Europeans and Eurasians include British who settled in Malaysia since colonial times, and a strong Kristang community in Malacca. A small number of Cambodians and Vietnamese settled in Malaysia as Vietnam War refugees.

The population distribution is highly uneven, with some 20 million residents concentrated on the Malay Peninsula, while East Malaysia is relatively less populated. Due to the rise in labour intensive industries, Malaysia has 10 to 20% foreign workers with the uncertainty due in part to the large number of illegal workers. There are a million legal foreign workers and perhaps another million unauthorised foreigners. The state of Sabah alone has nearly 25% of its 2.7 million population listed as illegal foreign workers in the last census. However, this figure of 25% is thought to be less than half the figure speculated by NGOs.^[67]

Additionally, according to the World Refugee Survey 2008, published by the U.S. Committee for Refugees and Immigrants, Malaysia hosts a population of refugees and asylum seekers numbering approximately 155,700. Of this population, approximately 70,500 refugees and asylum seekers are from the Philippines, 69,700 from Burma, and 21,800 from Indonesia.^[68] The U.S. Committee for Refugees and Immigrants named Malaysia as one of the Ten Worst Places for Refugees on account of the country's discriminatory practices toward refugees. Malaysian officials are reported to have turned deportees directly over to human smugglers in 2007, and Malaysia employs the RELA, a volunteer militia, to enforce its immigration law.^[68]

Largest Cities of Malaysia								view • talk • edit
	City	State	Population			City	State	Population
1	Kuala Lumpur	Federal Territory	1,809,699	Kuala Lumpur Subang Jaya	8	Shah Alam	Selangor	617,149
2	Subang Jaya	Selangor	1,321,672		9	Kota Kinabalu	Sabah	579,304
3

Early history

Ptolemy showed the Malay Peninsula on his early map with a label that translates as "Golden Chersonese". He referred to the Straits of Malacca as Sinus Sabaricus.^[25] From the mid to the late first millennium, much of the Peninsula as well as the Malay Archipelago was under the influence of Srivijaya.

A Famosa fortress in Malacca. It was built by the Portuguese in the 16th century.

The Chinese and Indians established kingdoms in the area in the 2nd and 3rd centuries CE—as many as 30, according to Chinese sources. Kedah—known as Kedaram, Cheh-Cha (according to I-Ching) or Kataha, in ancient Pallava or Sanskrit—was in the direct route of invasions of Indian traders and kings. Rajendra Chola, the ancient Tamil emperor who is now thought to have laid Kota Gelanggi to waste, controlled Kedah in 1025. His successor, Vira Rajendra Chola, had to put down a Kedah rebellion to overthrow the invaders. The coming of the Chola reduced the majesty of Srivijaya, which had exerted influence over Kedah, Pattani and as far as Ligor.

The Buddhist kingdom of Ligor took control of Kedah shortly after. Its king Chandrabhanu used it as a base to attack Sri Lanka in the 11th century, an event noted in a stone inscription in Nagapattinum in Tamil Nadu and in the Sri Lankan chronicles, Mahavamsa. During the first millennium, the people of the Malay Peninsula adopted Hinduism and Buddhism and the use of the Sanskrit language. They later converted to Islam.

Areas older than Kedah appeared in historical writings. The ancient kingdom of Gangga Negara, around Beruas in Perak, for instance, pushes Malaysian history further into antiquity. "Pattinapalai", a Tamil poem of the second century CE, describes goods from Kadaram heaped in the broad streets of the Chola capital. A 7th-century Sanskrit drama, Kaumudhimahotsva, refers to Kedah as Kataha-nagari. The Agnipurana also mentions a territory known as Anda-Kataha with one of its boundaries delineated by a peak, which scholars believe is Gunung Jerai. Stories from the Katasaritasagaram describe the elegance of life in Kataha.

Between the 7th and the 13th century, much of Peninsular Malaysia was under the Srivijaya empire, which was centred in Palembang on the island of Sumatra. Following that, a wider Majapahit empire, based on Java island, had influence over most of Indonesia, Peninsular Malaysia, and the coasts of Borneo island.

In the early 15th century, Parameswara, a prince from Palembang from the once Srivijayan empire, established a dynasty and founded the Malacca Sultanate. Conquest forced him and many others to flee Palembang. Parameswara in particular sailed to Temasek to escape persecution. There he came under the protection of Temagi, a Malay chief from Patani who was appointed by the King of Siam as Regent of Temasek. Within a few days, Parameswara killed Temagi and appointed himself regent. Some five years later he had to leave Temasek, due to threats from Siam. During this period, a Javanese fleet from Majapahit attacked Temasek.

Parameswara headed north to found a new settlement. At Muar, Parameswara considered siting his new kingdom at either Biawak Busuk or at Kota Buruk. Finding that the Muar location was not suitable, he continued his journey northwards. Along the way, he reportedly visited Sening Ujong (former name of present-day Sungai Ujong) before reaching a fishing village at the mouth of the Bertam River (former name of the Malacca River). Over time this developed into modern-day Malacca Town. According to the Malay Annals, here Parameswara saw a mouse deer outwitting a dog resting under a Malacca tree. Taking this as a good omen, he decided to establish a kingdom called Malacca. He built and improved facilities for trade.

According to a theory, Parameswara became a Muslim when he married a Princess of Pasai and he took the fashionable Persian title "Shah", calling himself Iskandar Shah.^[26] There are also references that indicate that some members of the ruling class and the merchant community residing in Malacca were already Muslims. Chinese chronicles mention that in 1414, the son of the first ruler of Malacca visited the Ming emperor to inform them that his father had died. Parameswara's son was then officially recognised as the second ruler of Malacca by the Chinese Emperor and styled Raja Sri Rama Vikrama, Raja of Parameswara of Temasek and Melaka and he was known to his Muslim subjects as Sultan Sri Iskandar Zulkarnain Shah or Sultan Megat Iskandar Shah. He ruled Malacca from 1414 to 1424.^[26][27]

In 1511, Malacca was conquered by Portugal, which established a colony there. The sons of the last Sultan of Malacca established two sultanates elsewhere in the peninsula — the Sultanate of Perak to the north, and the Sultanate of Johor (originally a continuation of the old Malacca sultanate) to the south. After the fall of Malacca, three nations struggled for the control of Malacca Strait: the Portuguese (in Malacca), the Sultanate of Johor, and the Sultanate of Aceh. This conflict went on until 1641, when the Dutch (allied to the Sultanate of Johor) gained control of Malacca.

[edit] British arrival

Britain established its first colony in the Malay Peninsula in 1786, with the lease of the island of Penang to the British East India Company by the Sultan of Kedah. In 1824, the British took control of Malacca following the Anglo-Dutch Treaty of 1824 which divided the Malay archipelago between Britain and the Netherlands, with Malaya in the British zone. In 1826, Britain established the crown colony of the Straits Settlements, uniting its four possessions in Malaya: Penang, Malacca, Singapore and the island of Labuan. The Straits Settlements were initially administered under the East India Company in Calcutta, before first Penang, and later Singapore became the administrative centre of the crown colony, until 1867, when they were transferred to the Colonial Office in London.

During the late 19th century, many Malay states decided to obtain British help in settling their internal conflicts. The commercial importance of tin mining in the Malay states to merchants in the Straits Settlements led to British government intervention in the tin-producing states in the Malay Peninsula. British gunboat diplomacy was employed to bring about a peaceful resolution to civil disturbances caused by Chinese and Malay gangsters employed in a political tussle between Ngah Ibrahim and Raja Muda Abdullah, and the Pangkor Treaty of 1874 paved the way for the expansion of British influence in Malaya. By the turn of the 20th century, the states of Pahang, Selangor, Perak, and Negeri Sembilan, known together as the Federated Malay States (not to be confused with the Federation of Malaya), were under the de facto control of British Residents appointed to advise the Malay rulers. The British were "advisers" in name, but in reality, they exercised substantial influence over the Malay rulers.

Sultan Abdul Samad Building in Kuala Lumpur houses the High Court of Malaya and the Trade Court. Kuala Lumpur was the capital of the Federated Malay States and is the current Malaysian capital.

A poster depicting the Malaysia Day celebration in 1963. (Majulah Malaysia means "Onwards Malaysia".)

The remaining five states in the peninsula, known as the Unfederated Malay States, while not directly under rule from London, also accepted British advisers around the turn of the 20th century. Of these, the four northern states of Perlis, Kedah, Kelantan and Terengganu had previously been under Siamese control. The other unfederated state, Johor, was the only state which managed to preserve its independence throughout most of the 19th century. Sultan Abu Bakar of Johor and Queen Victoria were personal acquaintances, and recognised each other as equals. It was not until 1914 that Sultan Abu Bakar's successor, Sultan Ibrahim accepted a British adviser.

On the island of Borneo, Sabah was governed as the crown colony of British North Borneo, while Sarawak was acquired from Brunei as the personal kingdom of the Brooke family, who ruled as white Rajahs.

Following the Japanese Invasion of Malaya and its subsequent occupation during World War II, popular support for independence grew.^[28] Post-war British plans to unite the administration of Malaya under a single crown colony called the Malayan Union foundered on strong opposition from the Malays, who opposed the emasculation of the Malay rulers and the granting of citizenship to the ethnic Chinese.^[29] The Malayan Union, established in 1946 and consisting of all the British possessions in Malaya with the exception of Singapore, was dissolved in 1948 and replaced by the Federation of Malaya, which restored the autonomy of the rulers of the Malay states under British protection.

During this time, rebels under the leadership of the Malayan Communist Party launched guerrilla operations designed to force the British out of Malaya. The Malayan Emergency, as it was known, lasted from 1948 to 1960, and involved a long anti-insurgency campaign by Commonwealth troops in Malaya. Although the insurgency quickly stopped there was still a presence of Commonwealth troops, with the backdrop of the Cold War.^[30] Against this backdrop, independence for the Federation within the Commonwealth was granted on 31 August 1957.^[12]