Penang Finance:Strong Roots, Stunted Growth

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The modern history of Penang began when it was acquired by the British East India Company in 1786 to serve its expanding global trade. The island boasted a fine sheltered harbour, and was perfectly located at the northern end of the Straits of Malacca. It served the British well in business and as a military base. Penang’s many geographical advantages allowed it to function for over two centuries as a trading, administrative, travel and educational hub. And since the 1970s, it has also been the industrial centre for the globalising economy of Malaysia. Despite such strong foundations, the island has nevertheless failed to live up to its potential. Its economic hands have been strongly tied by excessive federal control.

The challenge for Penang

The problem with Penang … is that she, like all states in the country, is permanently dependent on the Federal Government. Malaysia embraces a federal system of government with a “Centre” that is so strong that some have dismissed it as a “flawed federation”. — Holzhausen, 1974

NOWHERE is this more obvious than in the conduct of financial relations. The Centre has retained for itself all major revenue sources, rights of undertaking expenditures and powers of borrowing. The states, on the other hand, have such limited revenue sources and borrowing powers that they are forced to rely on the Centre for development funds.


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