The Business Year

James Lynch

MALAYSIA - Diplomacy

Notable Progress

Dir. of Regional Coop. and Operations Coordination Div. for SE Asia, ADB

Bio

James Lynch has been part of Asian Development Bank since 1997. In previous positions, he has served as Director of Transport in South-East Asia, Deputy Country Director of the Thailand Resident Mission, Senior Advisor to the President, and Urban Development Specialist. Prior to joining ADB, Lynch provided international and domestic consultancy in real estate finance and urban economic development. After completing his undergraduate at Cornell University, he studied for an MBA and MA in City Planning from University of California, Berkeley.

"Malaysia is a middle-income country with a record of strong economic performance and poverty reduction."

ADB is directed toward eradicating poverty and developing infrastructure. How does ADB assess the progression of Malaysia with regard to its internal development?

Malaysia is a middle-income country with a record of strong economic performance and poverty reduction. Resilient economic growth over the past five decades has enabled Malaysia to transform itself from an under-developed country reliant on natural resources into a middle-income country (MIC) with a vibrant manufacturing sector, achieving many of its Millennium Development Goals well ahead of the 2015 target. Malaysia has also made notable progress in reducing carbon dioxide emissions, deforestation, and the spread of HIV/AIDS. As an open and trade-reliant economy, Malaysia nonetheless remains vulnerable to external shocks, and is tackling its medium-term challenges that include a weakening current account surplus and achieving fiscal sustainability. Malaysia’s efforts to expand intra-regional trade have helped to offset the weak economic outlook of its traditional trading partners in the EU, and the government is implementing key fiscal and policy reforms, and diversifying its fiscal revenue streams. At this juncture in its development, Malaysia’s core challenge is to avoid the so-called “middle-income trap,” whereby MICs are unable to increase incomes due to sluggish growth rates. Without the cost advantages of low-income countries for labor-intensive sectors, MICs can become trapped by slow growth unless new strategies are adopted to help move MICs up the value chain. Malaysia needs to enhance private sector investments, increase productivity, and leverage its competitiveness in strategic areas in order to expand export opportunities. In this regard, Malaysia has embarked on a series of policy initiatives, such as the Economic Transformation Program launched in 2010, to supplement its five year development plans. The overarching goal of the recently launched the 11th Malaysia Plan, 2016-2020 (11MP) is for Malaysia to achieve “high-income country” status by 2020 through strategic structural transformations that counterbalance the headwinds of faltering commodity and energy prices.

ADB re-engaged with Malaysia through the Country Partnership Strategy (CPS) and its support for the 10MP, which helped public-private partnerships (PPPs) in banking, amongst other developments. What aspirations does the ADB have for the 11MP?

A founding member of Asian Development Bank (ADB), Malaysia resumed country-level engagement with ADB in November 2011 under an Arrangement of Cooperation (AOC), which is anchored by an interim country partnership strategy (CPS) that supported implementation of the 10MP (2011-2015). A country operations and business plan (COBP) is being extended to 2018 in alignment with the 11MP (2016-2020) to support continued collaboration on the three pillars of the CPS. They are as follows: (i) promoting the national anchoring of regional cooperation and integration, (ii) highlighting knowledge partnerships; and (iii) catalyzing private investments by developing PPPs. In addition to providing technical assistance to support preparation of the 11MP, ADB is partnering with Malaysia on subregional coordination initiatives and the management of green cities, in line with the country’s sustainable development agenda. On catalyzing private investments through PPPs, ADB supported the establishment of the ASEAN Infrastructure Fund (AIF), with Malaysia contributing a total of $150 million in equity as well as AIF’s incorporation in Labuan, Malaysia. Given that Malaysia is the current Chair of the AIF Board of Directors, ADB is closely coordinating with Malaysia on AIF operations to provide financing for infrastructure development projects in all ASEAN member countries. Under the 11MP, Malaysia is expected to further enhance infrastructure connectivity projects thru PPPs, thus helping to spur increased levels of trade, tourism, and investment within the ASEAN region.

Malaysia is a key member of ASEAN and is one of four countries in the BIMP-EAGA. In what ways will ADB assist Malaysia to develop itself through the course of these organizations?

ADB’s emphasis on regional cooperation and integration (RCI) is consistent with ASEAN’s call for greater economic integration. At the subregional level, Malaysia is deeply committed to promoting RCI and is a leading member of both the Brunei Darussalam—Indonesia—Malaysia—Philippines East ASEAN Growth Area (BIMP—EAGA) and the Indonesia—Malaysia—Thailand Growth Triangle (IMT—GT) subregional cooperation programs. For BIMP-EAGA and IMT-GT, ADB serves as active advisor and development partner by supporting the formulation of their strategic directions and by financing their RCI projects. Malaysia’s commitment to subregional cooperation is also reflected in its direct support for the Center for IMT-GT (CIMT), which is based in Putrajaya, Malaysia.

The development partnership between Malaysia and ADB is also reflected in the country’s involvement in a number regional technical assistance (RETAs) and knowledge products. On average, about 20 officials from various ministries and line agencies in Malaysia participate in such RETAs and their associated training programs on an annual basis. Key RETA activities and outcomes include knowledge workshops and conferences, strengthening policy dialogue and coordination, as well as collaboration on key regional initiatives, such as development of regional financial markets, prudential and supervision standards for Islamic financial markets, and in promotion of trade facilitation.

Can you summarize the potential and the direction of growth in Malaysia?

The current status and future direction of Malaysia has been extensively analyzed in the recently published Asian Development Outlook (ADO). Overall, the ADO states that Malaysia, as a major exporter of energy and commodities, is faced with weak demand and a slump in prices for these exports. Yet, Malaysia’s economic structure is increasingly diversified, as services and manufacturing now account for 80% of GDP. The removal of fuel subsidies and the broadening of the tax base through the goods and services tax should help pave the way to a balanced budget over the medium-term, and reduce the country’s debt to GDP ratio. Foreign currency reserves remain healthy, and the current account is expected to remain in surplus as Malaysia maintains a flexible exchange rate system. Finally, ASEAN will soon launch the ASEAN Economic Community (AEC) and Malaysia stands to benefit from accelerated subregional economic and financial integration. Malaysia, as the current chair of ASEAN, once again plays an important role in defining the post-2015 agenda for the AEC, which will continue to emphasize the free flow of goods, services, and investments, as well as greater mobility of skilled labor and capital. Tangible benefits from the AEC will include an expanded range of goods and services at lower prices, which will benefit countries like Malaysia with outward-looking trade and investment policies.

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