Trade, Exchange Rate And Agricultural Policies In Malaysia

Malaysia, a country of approximately 16 million people which gained independence in 1957, relied heavily on trade to achieve substantial growth in GNP during the 1960s (6.7 percent per year) and 1970s (10.5 percent per year). In the period 1980-83, however, the rate slipped to 3.1 percent per year. Malaysia’s traditional exports are natural rubber and palm oil, but in the 1970s the country also became an important exporter of crude oil. During the study period (1960-83) government intervention through the taxation of natural rubber and palm oil has made the cultivation of these two products less profitable for farmers while also reducing foreign exchange earnings. At the same time, the government organized a research and replanting system for these crops that has dramatically increased their average yield, and as a consequence, farmers’ income. In contrast to its policies for natural rubber and palm oil, Malaysia steadily intervened in the price of rice during the study period to improve producer prices. Self sufficiency in rice-production has long being a goal, but one that has never been achieved, even though per capital consumption fell from 140 kg in 1960 to 104 kg in 1983. Direct intervention in rice prices has taken the form of a guaranteed minimum price which was raised substantially in the late 1970s. Agricultural pricing policies in Malaysia have been remarkably stable over time. They have ensured that the price of paddy relative to nonagricultural prices has increased slightly over time, while maintaining the real income of rubber and palm oil farmers through increases in productivity. Although the potential for political instability is always present in this ethnically diverse country, the government’s agricultural policies have helped to maintain a level of political stability that has allowed the economy to flourish.