Malaysia and the United States:
A View from the Ground

The Honorable Lynn Pascoe, United States Ambassador to Malaysia
October 20, 1999
Asia Society Washington Center

Thank you for your introduction. I would like to begin by saying how grateful I am to the Asia Society for organizing this event. I am impressed with the turnout, and it's always great to see so many people I have known and worked with during my years in the Foreign Service. Thank you for coming. Let me start with a quick tour d'horizon of where I think things currently stand politically and economically in Malaysia (and to some extent in the region), and then I'll turn to the bilateral relationship. Finally, I understand I'm supposed to finish soon enough for us to have some time for off-the-record questions and answers.

The past year has been a trying one politically for Malaysians. Since September of last year, the dismissal of former Deputy Prime Minister Anwar Ibrahim, his subsequent arrest, detention, trial, conviction and now second trial have dominated the print and electronic media. Supporters of reform have gathered, sometimes by the tens of thousands, to voice their desire for change. Reflecting the maturity of the Malaysian people, these rallies have been largely non-violent and peaceful. To be sure, a few small-scale clashes took place between the police and demonstrators. But no one was killed or seriously hurt. Malaysia remains a politically stable country. We admire Malaysia's role as a moderate and tolerant Muslim state where people of different ethnic groups and religions can live together in harmony.

But events over the year have aroused concern, not only in Malaysia but also internationally. Malaysians themselves have been quick to speak up. They have raised important questions about the independence and impartiality of the judiciary, the use of the Internal Security Act which allows prolonged detention without charge or trial, and restrictions on the freedom of assembly and press. The United States and many other countries are quite sensitive to these concerns about the state of fundamental political and human rights in Malaysia. And we, and others, have not been shy in saying so.

When I left Malaysia over the weekend, the country was in the throes of election fever. Parliamentary and state elections are due by next summer, but the assumption is they will take place sooner, perhaps as early as next month. The governing National Front coalition, which has led the nation since independence in 1957, faces a group of opposition parties of differing views that call themselves the Alternative Front. Of course, it's not appropriate for me to speculate on the outcome of the election, but it is critical that the Malaysian people have the opportunity to select a government through established democratic procedure that reflects the popular will. And regardless of the result of the election, the political system faces the challenge of generational change, with an increasingly Internet-savvy populace, which enjoys access to sources of information beyond the government-dominated press.

Economically, Malaysia's trade-dependent economy appears on its way to recovery, but like the rest of the world, it must cope with the challenges of a globally competitive environment. After a 15-month recession, the economy has begun again to grow; it should be about 3-4% this year, according to most economists. Foreign exchange reserves are up to US$32 billion, and the agencies established to clean up non-performing loans, re-capitalize banks, and ease the debt burden of businesses have done a good job thus far. It's hardly a state secret that the upturn is mainly attributable to two things: increased exports and government fiscal pump priming. As regional economies have improved, demand for Malaysia's exports, particularly electronics, has picked up. And the continued remarkable strength of the U.S. economy has been as critical to Malaysia's recovery as to the rest of East Asia.

Growth is also beginning to kick in from increased government spending on social, educational, and infrastructure projects. The government has increased funding for roads and railways that was stopped when sources of credit dried up for over-leveraged private developers during the recession. Business and consumer confidence is beginning to rekindle, and the stock market appears to be holding its own. There was no massive outflow of funds when Malaysia lifted most of the remaining controls on foreign portfolio investment last September 1. Today, the chief measure affecting foreign portfolio investors is a 10 percent tax on repatriated profits.

But the recovery remains fragile and it is far too early to say that Malaysia and its neighbors are out of the economic woods. In the short term, Malaysia's challenge will be to broaden the recovery and to induce new investment; both objectives are within Malaysia's reach. And so long as there is no negative change in the external environment, namely a significant downturn in the U.S., Japan or Europe, the economy should continue to grow smartly.

In the longer term, Malaysia faces the challenge of turning around distressed companies and converting non-performing loans - especially in the real estate sector - and other unfinished projects into productive investments. To do this successfully, the government may have to be more willing to let companies react to the market, rather than administratively trying to pick winners and prevent losers from closing shop or being sold to qualified bidders. This is a task that inevitably involves trade-offs that could conceivably effect the country's socio-economic policies that provide preferences for ethnic Malays. However, the issue of greater responsiveness to the market must be addressed in today's globally competitive environment if Malaysia is to achieve long-term, efficient, and sustainable growth. The government must also implement its ambitious program for improved corporate governance. Improved protection for minority shareholders and effective regulations that would ensure transparent and comprehensive reporting of the financial health of companies will aid in restoring the vibrancy of the country's capital markets.

A key component over the longer term is the successful development of a knowledge-based economy. The government is attempting to translate that objective into reality in its ambitious plan to develop the Multimedia Super Corridor (MSC). The concept is both ambitious and impressive, but it remains to be seen just where the MSC will fit into the world IT industry. The planning is there and construction is underway. Success will demand efficient, open, and unfettered banking, telecommunications, and e-commerce services as well as a highly-trained and creative work force. These, along with a demonstrated commitment to protecting intellectual property, are critical elements of world-class, knowledge-based 21st century economies.

Let me now turn to our bilateral relations with Malaysia. Perhaps the greatest frustration of all recent American ambassadors to Malaysia has been the huge gap between the silly rhetoric occasionally seen in the newspapers and heard from a few politicians and the solid reality of the broad range of our substantive bilateral ties. A casual reader of the KL (Kuala Lumpur) press would conclude that the U.S. and Malaysia are major adversaries on a wide range of issues. Recently a leading English-language daily carried a headline that blared "ASEAN Must Keep US Menace at Bay." Such headlines and the daily diet of claptrap from a chorus of "commentators" undoubtedly have some impact, but most sophisticated Malaysians rightly pass off the idea that the U.S. would plot to undermine Malaysia economically or politically as quaint, simplistic rhetoric from the sixties.

Bilateral ties are actually quite good. Of course, our two countries have differences of opinion, but in the nine months that I have been in Malaysia, I have been impressed by how well we work together on many important bilateral, regional and international issues. We in the Embassy enjoy excellent working relations with our counterparts in the Malaysian government. Our cooperation toward common goals on trade and investment issues, global and regional security, education, law enforcement, environment and other areas is quite good and long-standing. And my colleagues and I have been struck by the friendliness of the Malaysian people; you simply do not encounter the overt anti-Americanism in Malaysia that one would assume to be endemic from the overblown rhetoric.

A core area of the relationship is our close economic and commercial links. Both sides recognize the benefits of open trading. The United States is Malaysia's largest market and trading partner, and last year Malaysia was our 12th largest market. We are also Malaysia's largest foreign investor with important benefits for its technological and human resource base. Let me throw out a few statistics. In 1998 total bilateral trade stood at $27.6 billion, with Malaysia enjoying a trade surplus of $7.4 billion. (This does not include the significant amount of our trade with Singapore which is transshipped to Malaysia.) Last year approved-U.S. investment totaled $1.7 billion dollars, roughly 50 percent of total approvals. On a cumulative historical-cost basis, U.S. foreign direct investment stood at an estimated $6.2 billion in 1998. By other measures, the number is over $10 billion.

Our close educational links also promote increased interaction between our two people. More than 100,000 Malaysians have studied in the U.S., with many majoring in engineering, computer science and business. These are subjects that Malaysia has identified as critical to its goal of the development of a knowledge-based economy. The flow is not only one way. The number of American students and scholars travelling to Malaysia through programs, such as the Fulbright program, has been substantial and continues to grow. More than 50 Malaysian educational institutions have twinning arrangements with American colleges, offering further opportunities for two-way exchanges of students and faculty. I see a lot of commentary in the press about what the incorporation of USIA (United States Information Agency) into the State Department may mean for the future of its programs. I can tell you that no one knows the importance of our educational programs better than those of us who have been working international issues for years. The exchange programs such as Fulbright Fellowships are the best single long-term investments we have made over the decades. The understanding of and goodwill towards the United States generated by these exchanges are worth fleets of warplanes or ships and come at a tiny fraction of the cost.

The United States and Malaysia also share an important interest in regional stability that serves as the foundation for a constructive security relationship. U.S. forces hold joint exercises with their Malaysian counterparts. Hundreds of members of the Malaysian military have received training in the United States, which help reinforce its tradition as a professional and non-political force under civilian control. Malaysia has been a steady customer for American defense equipment, such as C-130 and F/A-18 aircraft. American military aircraft and navy ships regularly enjoy access to Malaysian airfields and ports, helping us to maintain a stabilizing military presence in the region. A couple of months ago we had a highly-successful second visit by a U.S. aircraft carrier to Malaysia.

The U.S. and Malaysia work together on urgent international trouble spots, especially now that Malaysia is a member of the UN (United Nations) Security Council. Malaysia has a long and distinguished tradition of participation in UN peacekeeping efforts going back to the Congo in the early 1960s. We will always be grateful to Malaysian forces in Somalia who, at considerable personal risk to themselves, went to the assistance of our troops when they came under fire from local clan forces. One Malaysian soldier gave up his life in the rescue. In Bosnia, too, Malaysian soldiers served first with the UN and then with NATO (North Atlantic Treaty Organization), and Malaysia contributed $10 million to the Bosnian Train and Equip program. More recently, Malaysia supported the NATO campaign to protect Kosovo and has also sent civilian police there to help restore peace and stability to that troubled area. It now has a contingent of some thirty soldiers in East Timor and has promised to provide a much larger force when the UN Peacekeeping Operation is organized. We also share a common interest in dealing with global issues such as terrorism, drug abuse, environmental degradation and infectious diseases. We've co-sponsored drug prevention classes in Malaysian schools. And in an operation I'm particularly proud of, the Centers for Disease Control in Atlanta worked closely with the Malaysian Ministry of Health last spring to identify and help prevent the spread of a deadly virus that killed more than a hundred people. It was a superb example of international cooperation that was greatly appreciated by the Malaysian government and people.

I hope that this rather long list of areas where we cooperate closely with Malaysia will help to dispel the notion that we are somehow always at odds. At the same time, I do not want to pretend that the overblown rhetoric that misrepresents our intentions and actions does no harm to our mutual interests. The rhetoric does indeed hurt, but we should not let it obscure the positive aspects of the relationship.

With a sophisticated audience like this one, I want to take a moment to talk about our vital interests in Southeast Asia and the need to redouble our efforts to build cooperative structures there that can withstand the inevitable stresses of the new century. The United States has a profound interest in the region's security and in ensuring peace among the countries there; and we have a common interest in regional cooperation - in encouraging nations to pull together to combat challenges none could defeat alone. We share fundamental interests with the people of the region in supporting its economic health, fostering growth that lifts the lives of all the region's people, and maintaining Asia-Pacific leadership in the drive for a more open, stable and dynamic global economy. In promoting these goals, we need to strengthen key regional institutions: ASEAN (Association of Southeast Asian Nations), the ASEAN Regional Forum (ARF) and APEC (Asia Pacific Economic Cooperation).

The last two years have been a time of testing for the member countries of ASEAN. They have been buffeted by the Asian financial crisis, but have withstood the test. Even while focussed on the internal economic crises, they kept their eye on ASEAN and the need to promote regional cooperation. The ASEAN Regional Forum remains the sole official multilateral security grouping in the region. Last July at the ARF ministerial there was lively discussion on crucial security issues, including Korea, the South China Sea, and non-proliferation. The ARF is now looking at the overlap between confidence-building measures and preventive diplomacy as it moves at a pace comfortable to all toward a greater focus on preventive diplomacy.

Our cooperation with ASEAN and its members is not limited to traditional security concerns. We are also working to encourage ASEAN efforts on other issues, particularly transnational crime and environmental protection. We cooperated with Thailand to open the International Law Enforcement Academy in Bangkok, which provides high quality training while helping to build networks among the region's law enforcement officials. We continue to work to curb trafficking in narcotics and other illicit substances. In addition, we have undertaken a major diplomatic and law enforcement effort with our ASEAN partners to combat the growing menace worldwide of the illegal trafficking in women and children. And we are trying to work to ensure the haze problem that struck many countries in the region, including Malaysia, two years ago does not recur. We have provided about $9 million in technical aid and working with the ASEAN Haze Action Task Force.

Complaints heard in some quarters about the irrelevance of APEC are particularly misplaced. Ten years after its creation, APEC - with its diverse economies ringing the Pacific Ocean - provides an exceptionally valuable forum for reaching consensus on strengthening markets, liberalizing trade, and improving the international framework governing trade and investment flows. Committed to achieving mutual goals of free and open trade and investment by 2020, the APEC economies will play key roles as we look to the WTO (World Trade Organization) Ministerial in Seattle beginning in late November. In the September 13th Leaders' Declaration, the Economic Leaders of APEC gave their strongest possible support for the launch of a new, comprehensive round of multilateral negotiations within WTO. The leaders' meetings, which President Clinton inaugurated at Blake Island six years ago, have proved an indispensible forum for annual discussions of regional and world issues by the leaders of these powerful nations.

It is absolutely critical for the United States to promote relations with this region in the years to come and to redouble our efforts to strengthen these budding institutions. We need to provide equal energy to meeting the challenges in the area and to explaining to the American people and to Congress the vital role the region plays in promoting a safe and prosperous future for the American people. Full engagement with Southeast Asia and the world and sustained attention to promoting U.S. interests are essential to the future we all seek. I ask all of you to support these efforts.

Thank you very much.