Malaysia to Build Multimedia Corridor Despite Recession

Posted on November 4, 1998 
Filed Under AsiaBizTech, Julian

By Julian Matthews

November 4, 1998 (KUALA LUMPUR) — The Malaysian government is pushing ahead with its plan to build the Multimedia Super Corridor although its economy will shrink by about 4.8 percent in 1998, for its first recession in 13 years.

Prime Minister Mahathir Mohamad said the project is crucial for the country to achieve his dream of attaining developed nation status by 2020.

However, the project’s lofty plans to turn a 750-sq.-km former rubber and palm oil estate into an industrial park have come under criticism amidst the political and financial crises.

Mahathir, who assumed the position of finance minister following the sacking of deputy premier Anwar Ibrahim, presented a national budget on Oct. 23 in deficit for the first time in six years.

The deficit will swell to about 16.1 billion ringgit (US$4.24 billion) in 1999 from 9.59 billion ringgit (US$2.52 billion) in 1998.

This follows five straight yearly surpluses and marks an end to austerity policies prescribed by former deputy premier Anwar after Asia’s economic crisis erupted in mid-1997.

Anwar had called for the slashing of government spending and the postponement of some “mega-projects” favored by Mahathir, including parts of the MSC project. Mahathir has come under fire from international leaders and human rights groups after Anwar was arrested and charged with sexual misconduct and corruption, and allegedly beaten while in custody.

The incident triggered a series of violent battles in the streets of the capital city between demonstrators and riot police in recent weeks. Political activists, opposition parties and disenchanted citizens have called on the 73-year-old Mahathir to step down after 17 years in power. And fears are growing that potential MSC investors may turn away because Malaysia appears to be unstable in the political and economic spheres.

The government stated that as of Oct. 15, a total of 179 companies with investment pledges exceeding 3.3 billion ringgit have received “MSC status,” which qualifies them for various incentives under the project.

But critics are questioning the validity of encouraging such investments in light of Malaysia’s turmoil.

They said that closer scrutiny of the figures reveal that many of the investment proposals are stretched over five or more years and their revenue-generating capabilities are uncertain.

Although unemployment is rising in Malaysia, MSC companies are allowed unlimited imports of foreign knowledge workers.

In a further blow to the frail economy, Bank Negara, Malaysia’s central bank, issued a statement that MSC companies will be exempt from the latest capital controls imposed by the Malaysian government.

MSC companies can continue to repatriate unlimited amounts of profits to their home countries without restriction, the bank stated.

Also, the companies will continue to enjoy tax exemptions of five to 10 years under terms of their MSC status.

In his budget speech to parliament, Mahathir said the development of Cyberjaya, one of the MSC’s two intelligent cities, will continue despite the downturn.

Cyberjaya is the centerpiece of the high-tech MSC zone designed to host the various information technology companies and a population of 240,000. In July, Mahathir had approved an initial allocation of 600 million ringgit for the development of Cyberjaya.

However, signs that the economic crunch was beginning to take a toll were seen in August. The government stepped in to rescue the Cyberjaya project after companies that were developing it were faced with financial problems.

The central government purchased a 55 percent stake in master developer Cyberview Sdn Bhd for 192.5 million ringgit (US$50.6 million). The government had earlier held a 10 percent stake in the company through the Multimedia Development Corp. and another 5 percent through state investment house Permodalan Nasional Bhd.

Earlier, Mahathir had said that the MSC project would be mainly driven by the private sector.

A key player that caused the project to stall was troubled infrastructure conglomerate Renong Bhd, which has debts estimated at about 20 billion ringgit, or about 8 percent of all loans in Malaysia’s entire banking system.

The developer was scheduled to have completed the primary infrastructure and sell parcels of land in the first phase of a 2,800-hectare zone by October.

Another Cyberjaya project subject to delays is the Multimedia University, a high-tech academic campus that had been scheduled to be completed this month. Instead, its completion has been pushed to 1999.

Mahathir said the government would allocate 110 million ringgit (US$29 million) in 1999 for the smart school program and three other key MSC applications — telemedicine, electronic government and multipurpose smart cards.

But the Association of Computer Industry Malaysia (Pikom) has said the sum is too small. “It could have been more,” said Pikom chairman Shaifubahrim Saleh.

He said the sum does not take into account development of the three other MSC flagship applications: borderless marketing, worldwide manufacturing networks and research and development clusters.

Published in Asia BizTech, Nov 04, 1998

by Julian Matthews, Asia BizTech Correspondent

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