Economic

1. Executive Summary

This document discuss Malaysia's external trade over 2003 to 2005 base on the recent Economic Report issued Bank Negara of Malaysia and it's similar source.

Balance of payment figures extracted from Bank Negara Malaysia annual report from 2003 to 2005, balance of payments (BOP) is the place where countries record their monetary transactions with the rest of the world. Transactions are either marked as a credit or a debit.

Malaysia recorded trade surplus from 2003 to 2005 main driver for export growth are:-

Ð'* Continue positive economic expansion both in the industrialized and developing economies.

Ð'* Strong external demand, originating from the global recovery of the electrical and electronic (E&E) sector.

Ð'* Growth in exports to major markets, especially to the United States of America and ASEAN Escalation in the average price of crude petroleum from US$41.40 per barrel in 2004 to US$56.50 per barrel in 2005.

Major trade partners are United States, Singapore, Japan and China with majority of trade in manufactured goods such as E&E product.

Import trend are also upward mainly due to higher imports of capital and intermediate goods.

Economic policies undertaken by the government in relation to external trade by the Malaysia government such as Free Trade Agreement, Ninth Malaysia Development plan, Industry Master Plan 3, Monetary and Fiscal policy are key economics policy taken by the government to ensure continue growth of the Malaysia external trade.

2. Introduction

International trade is the exchange of goods and services across international boundaries or territories. In most countries, it represents a significant share of GDP. International trade is also a branch of economics, which, together with international finance, forms the larger branch of international economics.

An open economy is an economy in which people, including businesses, can trade in goods and services with other people and businesses in the international community at large. This contrasts with a closed economy in which international trade cannot take place.

The act of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Together exporting and importing are collectively called international trade.

Malaysia having a small but highly open economy, export and import are freely traded internationally.

External trade of a country is recorded in balance of payment in an economic report, transaction between export and import for goods and services are reported, a trade surplus or a trade deficit also known as trade gap is reported as trade balance.

Factors that can affect the balance of trade figures include:

Ð'* Prices of goods manufactured at home (influenced by the responsiveness of supply)

Ð'* Exchange rates

Ð'* Trade agreements or barriers

Ð'* Other tax, tariff and trade measures

Ð'* Business cycle at home or abroad. .

3. Balance of payment

The balance of payments (BOP) is the place where countries record their monetary transactions with the rest of the world. Transactions are either marked as a credit or a debit. Within the BOP there are three main parts of the balance of payments account: the current account, the capital account and the financial account.

3.1. Current Account

The current account records payment for imports and exports of goods and services, income flowing into and out of the country and current net transfers of money are recorded. These are normally recorded in four subdivisions as follow:-

Trade in goods account Ð'- this records the imports and exports of goods that are physical or movable in nature, exports recorded as inflow of money (credit) where as imports are recorded as out flow of money (Debit)

Trade in services account Ð'- this is records of services such as transport, tourism, business services that are intangible. A purchase of a foreign holiday will be a debit since it represents an out flow of money, if a purchased of insurance of home country by an overseas resident it is recorded like export as money inflow or credit.

Income flows Ð'- these consist of wages, interest and profit flowing into and out of the country, example portfolio investments (in the form of dividends, for example), direct investments or any other type of investment.

Current transfers of money Ð'- these Current transfers are unilateral transfers with nothing received in return. These include workers' remittances, donations, aids and grants, official assistance and pensions.

Current account balance is the overall balance of all the above four subdivision, a current account surplus is when credits is more than debits where as balance deficit is debits more than credits.

3.2. Capital account

In the capital account, fund flowing into and out of the country associated with physical assets acquisition or disposal, the transfer of fund by migrants and payment of grants by government for oversea project.

3.3. Financial account

Financial account records cross-borders changes in holding of shares, property, bank deposit and loans, government securities etc. These divided into categories such as Foreign Direct Investment (FDI), Portfolio Investment (which includes trade in stocks and bonds), and Other Investment (which includes transactions in currency and bank deposits). (Sloman, 2003)

Theoretically, the BOP should be zero. Thus, the current account on one side and the capital and financial account on the other should balance each other out. When an economy, however, has positive capital and financial accounts (a net financial inflow), the country's debits are more than its credits (due to an increase in liabilities to other economies or a reduction of claims in other countries). This is usually in parallel with a current account deficit; an inflow of money means that the return on an investment is a