contenporary business

1) Explain the characteristics for each economic systems apply our country (6m)
Malaysia is a growing and relatively open state-oriented market economy. The state plays a significant but declining role in guiding economic activity through macroeconomic plans. In 2007, the economy of Malaysia was the 3rd largest economy in South East Asia and 29th largest economy in the world by purchasing power parity with gross domestic product for 2007 estimated to be $357.9 billion with a growth rate of 5% to 7% since 2007 In 2009, the nominal GDP was US$207,400 billion, and the nominal per capital GDP was US$8,100.
The Southeast Asian nation experienced an economic boom and underwent rapid development during the late 20th century and has a GDP per capita of $14,800, being considered a newly industrialized country. On the income distribution, there are 5.8 million households in 2007. Of that, 8.6% have an monthly income below RM1,000, 29.4% had between RM1,000 and RM2,000, while 19.8% earned between RM2,001 and RM3,000; 12.9% of the households earned between RM3,001 and RM4,000 and 8.6% between RM4,001 and RM5,000. Finally, around 15.8% of the households have an income of between RM5, 001 and RM10,000 and 4.9% have an income of RM10,000 and above.
As one of three countries that control the Strait of Malacca, international trade plays a large role in its economy. At one time, it was the largest producer of tin, rubber and palm oil in the world. Manufacturing has a large influence in the country's economy.
Economic policies
Monetary policy
Prior to the 1997 Asian Financial Crisis, the Malaysian ringgit was an internationalized currency, which was freely traded around the world. Just before the crisis, the Ringgit was traded RM2.50 at the dollar. Due to speculative activities, the Ringgit fell as much as RM4.10 to the dollar in matter of weeks. Bank Negara Malaysia, the nation's central banks decided to impose capital controls to prevent the outflow of the Ringgit in the open market. The Ringgit is not traded internationally, a traveler needs to declare to the central bank if taking out more than RM10,000 out of the country and the Ringgit itself was pegged at RM3.80 to the US dollar.
The fixed change rate was abandoned to floating exchange rate in July 2005; hours after People's Republic of China announced the same move. At this point, the Ringgit is still not internationalized. The Ringgit continues to strengthen to 3.18 to the dollar in March 2008. Meanwhile, many aspect of the capital control has been slowly relaxed by Bank Negara Malaysia. However, the government continues to not internalize the Ringgit. The government stated that the Ringgit will be internationalized once it is ready.
Bank Negara Malaysia for the time being uses interest rate targeting. The OPR (Overnight Policy Rate) is their policy instrument, and is used to guide the short term interbank rates which will hopefully influence inflation and economic growth.

Affirmative action
Main article: Malaysian New Economic Policy
Tun Abdul Razak, who was then the Prime Minister, implemented the affirmative action policy named as New Economic Policy soon after May 13 Incident in 1969. Prior to the incident, the poverty rates among Malays were extremely high (at 65%) as was discontent between races, particularly towards the Chinese, who controlled 34% of the economy at the time.
Through NEP, Bumiputera quotas are placed in housing developments, scholarship admission and also for ownership of publicly listed companies. The quota system has been relaxed recently since the March 8, 2008 General election. Bumiputera equity requirement for publicly listed companies has been relaxed since 12 November 2008 by allowing those companies to remove the quota once after IPO has been done. Further liberalization in the retail sector is expected to remove the present 30% Bumiputera listing requirements. According to the Secretary-General of Ministry of Domestic Trade and Consumer Affairs Datuk Mohd Zain Mohd Dom said, the amendments is reflective of Malaysia "moving towards progressive liberalization"
The Malaysian New Economic Policy was created in 1971 with the aim of bringing Malays a 30% share of the economy of Malaysia and eradicating poverty amongst Malays, primarily through encouraging enterprise ownership by Bumiputeras. After 30 years of the program, the NEP had somewhat met some of its goals. Bumiputera ownership increased to 18.9% in 2004 against 2.4% in 1970 and poverty decreased to 8.3% in 2004 against 64.8% in the 1970s.
The NEP is accused of creating an oligarchy, and creating a 'subsidy mentality'. Political parties such as Parti Keadilan Rakyat and Democratic Action Party have proposed a new policy which will be equal for every Malaysian, regardless of race. When the Democratic Action Party was elected in the state of Penang in 2008, it announced that it will do away with the NEP, claiming that it "... breeds nepotism, corruption and systemic inefficiency".
On April 21, 2009, the prime minister Najib Tun Razak has announce liberalisation of 27 services sub-sector by abolishing the 30% bumiputera requirement. The move is seen as the government efforts to increase investment the service sector of the economy. According to the premier, many more sectors of the economy will be liberalized. On June 30, 2009, the premier announces further liberation moves including the dismantling of the Bumiputera equity quotas and repealing the guidelines of the Foreign Investment Committee, which was responsible to monitor foreign shareholding in Malaysian companies. However, any Malaysian companies that wishes to list in Malaysia would still need to offer 50 percent of public shareholding spread to Bumiputera investors.




Subsidies and price controls
• See Also: Gas Subsidies
The Malaysian government subsidizes and controls prices on a lot of essential items to keep the prices low. Prices of items such as palm oil cooking oil, petrol, flour, bread, rice and other essentials have been kept under market prices to keep cost of living low. In 2008, the government announced that it has spent RM40.1 billion in 2007 in subsidies to keep prices leveled. As of 2009, 22 per cent of government expenditures were subsidies, with petrol subsidies alone taking up 12 per cent.
Smuggling and hoarding, which leads to shortages, is a prominent problem in Malaysia due to the subsidies. For example, cooking oil is subsidized for domestic use only. This situation creates an environment where industrial players hoard domestic cooking oil for industrial use. During shortage time, such as the January 2008 cooking oil crisis, the government imposed a 5 kg limit for each purchase to relief domestic demand. However, the limited purchase has created more panic buying, which prompt the Government to negotiate with cooking oil manufacturers to increase their production capacity, and the situation reverted to normal within one week.Another example is when vehicles in Thailand come to Malaysia to smuggle cheap petrol and diesel out of the country. The government also looking into restructuring the fuel subsidy so that the selected needy group will get the subsidy. The government is considering removing subsidies on diesel for general consumers while maintaining subsidies for suitable groups, such as those involved in public transport.
On January 2010, the government announces dual price structure for fuel, based on citizenship. Foreigners are expected to pay market price for fuel while citizens will have subsidy allocations based to engine capacity. The dual pricing structure is expected to begin in May 1, 2010.[38]
The government has considered removing the subsidies but a formal plan had yet to materialized as of 2007. In 2008, the government is considering to remove price controls on construction materials such as cement and steel bars while banning exports to ensure steady supply. The government is experimenting with the idea through allowing Sabah and Sarawak construction players to import steel and cement since February 2008.The government then, on May 12, 2008 removed ceiling prices on steel bars and billets and removed import duties on selected items under HS Code 7214.10 110 and 7214.20 910, which do not fully cover steel bars use by the construction industry.[ The government then further liberalized the cement industry by abolishing ceiling prices on June 5, 2008.
Another strategic item which is heavily subsidized but moving towards a market based approach is Natural Gas which is used in the industrial sector. Beginning July 1, 2008, the government is expected to reduce the gas subsidy 5% to 10% per annum over 11 years, in which the gas price will reflect market price.


Sovereign wealth funds
The government owns and operates several sovereign wealth funds that invests in local companies and also foreign companies. One such funds are Khazanah Nasional Berhad which was established in 1993.Its objective is to help shape selected strategic industries in Malaysia and develop those investment for the benefit of Malaysia.The fund invest in major companies in Malaysia such as Proton Holdings in the automotive sector, CIMB in the banking sector, Pharmaniaga in the medical sector, UEM Group in the construction sector, Telekom Malaysia in the communications industry and many other companies in many other industries. It is estimated that the fund size of Khazanah Nasional stands at around 19 billion USD.
Another fund that is owned by the Malaysian government is the Employees Provident Fund which is claimed to be the fourth largest state run pension fund in Asia. Like Khazanah Nasional, the EPF invests and sometimes owns several major companies in Malaysia such as RHB Bank. EPF investment is diversified over a number of sectors but almost 40% of their investment are in the services sector.] Fund size in 2007 is estimated at 100 billion USD.
Permodalan Nasional Berhad is a major fund manager controlled by the Malaysian Government. It offers capital guaranteed mutual funds such as Amanah Saham Bumiputera and Amanah Saham Wawasan 2020 which are open only to Malaysian and in some cases, Bumiputeras.[51] As of April 2008, it manages MYR120 billion of funds (36 billion USD), of which MYR76 million is unit trust funds.The fund manager is a sizable investor in strategic companies such as MMC Corporation Berhad, Maxis Communications Berhad and TM International Berhad among others.
Other than federal government funds, some states have created their own investment authority to manage state-owned sovereign wealth funds. First of such funds are launched by the state of Terengganu through the establishment of Terengganu Investment Authority in December 2008. It initial fund size will be around USD 3 billion and derived from its oil royalties









Government influence
Although the federal government promotes private enterprise and ownership in the economy, the economic direction of the country is heavily influenced by the government though five years development plans since independence. The economy is also influenced by the government through agencies such as the Economic Planning Unit and government-linked wealth funds such as Khazanah Nasional Berhad, Employees Provident Fund and Pemodalan Nasional Berhad.
The government's development plans, called the Malaysian Plan, currently the Ninth Malaysia Plan, started in 1950 during the British colonial rule. The plans were largely centered around accelerating the growth of the economy by selectively investing in selective sectors of the economy and building infrastructure to support said sectors. For example, in the current national plan, three sectors - agriculture, manufacturing and services, will receive special attention to promote the transition to high value-added activities in the respective areas. Other than the generalized plans like the Ninth Malaysia Plan, the government also has a development plan that is targeted to improve the manufacturing sector which is called the Industrial Master Plan. Currently, the plan is called the Third Industrial Master Plan (IMP3) which covers a period from 2006 to 2020. The industrial plans aim to make Malaysia a major trading nation and build up the country's economy and human capital.
Ringgit
Main article: Malaysian Ringgit
The only legal tender in Malaysia is the Malaysian Ringgit. As of 20 March 2008, the Ringgit is traded at MYR 3.18 at the dollar.[64] The Ringgit was not internationalised since September 1998, an effect due to the 1997 Asian Financial Crisis in which the central bank impose capital controls on the currency.] As a part of series of capital controls, the currency was pegged between September 1998 to 21 July 2005 at MYR 3.80 to the dollar.In recent years, Bank Negara Malaysia beginning to relax certain rules to the capital controls although the currency itself is still not traded internationally yet. According to the Bank Governor, the Ringgit will be internationalised when it's ready.