Beyond that, Malaysia is facing other impediments to rapid growth, including a shortage of skilled workers and overcapacity in its property markets.
Still, Malaysia has succeeded where many in Asia continue to fail. Tokyo has dragged its feet for over 10 years now on its own non-performing loan problem. Mahathir took his cues from investors who fled his economy in 1997 and 1998 and got actively involved in fixing the corporate and financial sectors. Rather than leaving the private sector to find a solution, Mahathir pushed institutions to sell bad loans to a new government agency, which then disposed of them.
By September, P. K. Basu, a Kuala Lumpur-based economist at Credit Suisse First Boston, predicts all major debt restructurings will be completed. With the worst of the forces that caused the Asian crisis now behind Malaysia, Basu says, bank lending and corporate bond issuance should grow at double-digit paces this year. It's this progress that has ratings agencies mulling upgrades of Malaysian debt.
"Malaysia's positive outlook reflects accelerated corporate restructuring, a strengthened financial sector, continuing large current account surpluses and robust international liquidity," Fitch said earlier this month.
Malaysia also is getting high marks for stability since the Sept. 11 terrorist attacks on New York and Washington. In the months that followed, investors worried about trends in a nation that's 60 percent Muslim and one in which anti-US sentiment gets lots of attention. Mahathir's hard line on terrorism has earned him an invitation to the White House next month.
The nation's leading think tank, the Malaysian Institute of Economic Research, thinks the stock market will gain 27 percent this year. Analysts at CLSA Emerging Markets registered their vote of confidence last week with a report titled "Malaysia in Vogue." Not bad for an economy that just a few years ago was thought to be headed back to Third-World status.
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