keeping pace with population growth; external trade has reached the point where imports are rising more rapidly than exports; indústrial development is lagging behind targets set by planners; and the gap between the "haves" and the "have- nots" not only remains, but probably grows wider.
In the Malaysian context, these problems take on a more pressing form. The population of the territories--now about 101⁄2 million is growing at over 3% a year. In Singapore, the increase is 4.4%, including 0.9% due to immigration, while in the Borneo territories, the natural growth rate has probably just begun to exceed 3%. In Singapore and Malaya, the rising population has meant a 50% increase in new job seekers each year, compared with several years ago. In both territories, and particularly Singapore, there are signs of growing unemployment. A similar pattern is developing in some urban areas of Sarawak. Only Sabah faces a serious labour shortage if the country's present boom continues. An equally important problem is the sharp increase in the number of
young people needing education. At present, one-third of the total population of the four territories is under 10 years of age. Further, among the over-10s, only 25% are literate in both Borneo states, compared with more than 50% in Malaya and Singapore.
These problems must be met in the face of uncertain income prospects. The Malaysian economy depends on rubber for 18% of the combined national product, 20% of total em- ployment, and 35% of total exports. But rubber prices have fallen from 106 cents a pound to 68 cents in August, and may fall further through competition from synthetics. Tin and Singapore's entrepot trade are the other two main sources of foreign income for Malaysia, each accounting for about 13% of the total. Neither can be relied on as sources of new income or job opportunities. Tin at best is likely to remain stable, and Singapore's entrepot trade is faced with the prospect of slow growth, or even a decline.
Highest Average Income?
Successful efforts have been made to increase total in-
vestment, particularly in Singapore and Malaya, and to expand social services, especially during recent years. Progress has also been made towards economic diversification. But so far, the shift in structure of the economies of the territories has
been inevitably slight, and traditional sources of income are likely to remain the main ones for some years
to come.
In these circumstances, merely keeping unemployment from rising and maintaining existing standards of living pro- mise to be increasingly difficult tasks. In addition, however, there are widespread areas of poverty and economic backward- ness that demand urgent attention. Although average income levels in Malaysia are by far the highest in Southeast Asia, contrasts are significant. In Sarawak, the average per capita income is M$550, Sabah about $700, Malaya about $800 and Singapore $1,300. But these figures conceal the fact that many families in the rural areas of the territories have incomes less than the average per capita income in Sarawak.
Taking account of the additional defence expenditure needed under Malaysia, the financing problem assumes major proportions. Much of this burden falls on Malaya already deeply committed to heavy expenditure in rural areas that cannot be curtailed, even if only for political reasons. The Government is in the third year of a Five-Year Development Plan costing $2,150 million in the public sector. About one- third of this was spent in the first two years, but the momen- tum now generated could absorb a much greater sum than is
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FAR EASTERN ECONOMIC REVIEW
available for the remainder of the five-year period. Conse- quently, planners are gently applying the brakes, so as not to exceed the allocated expenditure. But even before the extra commitments under Malaysia, they were concerned at the prospects of finding this sum. For one thing, finance for the plan was based on an estimated average price of 80 cents for rubber, while in fact, the average during the first two years was 76 cents, and by the end of this year will be much lower. Foreign loans have also fallen far short of the estimated level to date. In addition, the rising level of imports is carving into the country's favourable trade balance.
Despite all this, Federation treasury officials are remaining remarkably unflappable, at least as far as the more immediate future is concerned. Under the Malaysian agreement, about $500 million must be found for development expenditure in the Borneo territories during the next five years. Treasury officials can already account for all but an odd million or two dollars in the case of Sabah where the sum of $200 million was mentioned as necessary "to obtain a satisfactory rate of economic growth." Sarawak presents a more difficult problem, since the Malayan Government undertook to "use its best endeavours" to see that $300 million was spent on planning in the first five years. The wording of this may prove important because as the position stands now, the Malayan Government will have to find anything from about $90 million to $130 million to meet these requirements. On the other hand, this need may never arise as Sarawak may not have the capacity to spend this sum so quickly.
Defence Expenditure
Federal treasury officials
سمعه
and no doubt the Government as well-are most concerned about defence expenditure. In the next three years, they are committed to finding $442 mil- lion for defence. Of this sum, Britain will provide $144 million and Singapore $105 million. The remainder must be found by the Federal Government, either from revenue or from other sources. It is hoped that "friendly countries" will be among the "other sources".
Malaysia still has a trump card which other so-called "undeveloped" countries must surely envy. Despite the ex- pansion in investment over the past several years, total foreign exchange reserves of the four territorics rose to about $3,800 million last year, or the equivalent of nearly one year's imports of goods and services. (Malaya ended the year with a favour- able trade balance of $173 million, compared with $394 million the previous year).
Of this less than half was held by the Currency Board and banks, the remainder being held directly by the Govern ments of the territories and public agencies. At the end of 1962, Government holdings amounted to about $1,100 million in Malaya, $700 million in Singapore, and about $120 million in the Borneo states. At the same time, the public external
debt of the territories was about $700 million, most of which was owed by Malaya. Part of the foreign exchange reserves can be used to help finance Government needs. However, economists warn that this must be kept to reasonable limits if the economy of the new nation is not to be exposed to a wea- kening of confidence in the currency and the risks that this im- plies. Economists see the present free exchange system, based on a sound currency, as one of Malaysia's greatest assets. It has a favourable influence on foreign investment and entrepot trade. It has also, no doubt, played a large part in one of the unique features of recent development near freedom from inflation despite the greatly increased economic activity and improved standards of living.
October 31, 1963
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229
JAPAN
INTO
AFFLUENCE
Japan is now the world's fifth largest industrial power and six richest power (about America, Russia, Britain and Germany there is no question, but France, though richer than Japan, falls just behind her now in industrial output). Japan is also the newest entrant to the exclusive club of affluence. More than half of the households in Japan have television sets, while washing machines, refrigerators and golfing holidays are no longer the preserve of the privileged
few.
Japan is well set to double her standard of living during this decade and sets an example of how other Asian countries could, if they were minded to work hard and release all the creative energies of entrepreneurs, also develop into modern economies. Last year Japan's economy grew by about 4% and produced 14 million radios, 10 million watches, 3 million cameras and 4 million passenger cars.
Today we are proud to survey the Japanese economy and its special economic links with South and East Asia. As Prime Minister Hayato Ikeda declares in a special inter- view on the next page, Japan's new ambition of trans- forming her economy from a protected to an open one, irretrievably interlocked with the other capitalist economies and fully welcomed in their counsels, will necessitate more stable growth in future. And this has implications for Asia.
After Mr Ikeda's remarks on economic growth and on Japan's attitudes towards Southeast Asia and China, Mr Sakizaka, a leading economic planning official of the Japanese Government, comments on the present state of the economy and its immediate likely path. Mr Wolfstone follows with an analysis of the Japanese foreign aid effort to Asia, in- cluding reparations, and its future in the light of the grow ing anxiety about balance of payments.
The rest of our supplement is devoted to detailed cri- tiques of Japan's trade, aid and investment in this region, covering China, Hongkong, Korea, Ceylon, India, Burma, Indonesia, Cambodia, Malaysia, Thailand, Vietnam and the Philippines. Current developments in trade with Australia and New Zealand are also described.
For us in the Far Eastern Economic Review, Japan is a giant of economic development, whose success we wish more ambitious Asians could see for themselves at first hand. That purpose is partially served in today's supple- ment, which we proudly dedicate to the further appreciation of the Japanese economic miracle and the greater Japanese stake in Asian development and advance.
By the Editor
Contents-
Interview with Prime Minister Hayato Ikeda New Problems of Growth, by Masao
Sakizaka Japan's Helping Hand, by Daniel Wolfstone
230
230
Agreement with Malaya-Sylvester Ng Indonesian Opportunities-A Correspondent 259 Mis-timed Manila Visit? Bernardino
257
237
Ronquillo
261
Hanoi Pact-A Correspondent
262
Asian Trade, Aid and Investment Survey:
South Vietnam Buys "American"-Francois
Nivolon
262
Heavy Equipment for India-K. Krishna
Moorthy
South Korea-The Nearest Partner-Han
245
Nae Bok
265
Help for Ceylon Industry-H.
Abayasekara
E.
246
Cambodia's Main Supplier-K. E. Chantarit Australia-Second Best Customer-E. J.
266
China Trade Dilemma-Kazuo Takita Burma Diverts Trade-S. C. Banerji Booming with Hongkong-Michael Wu
252.
Donath
267
252
Closing the Gap with Thailand-Gopinath
253
Pillai
268
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