In 1991, Mahathir Mohamad, reached his tenth year as prime minister of Malaysia, a country that observed a long period of economic stability with an annual average economic growth of 6.2% in the previous decade. Concerned about the new stages of economic development Mahathir went to New York looking for of foreign investment. In that time, the timber exportation had brought more foreign exchange than tin and rubber exportation. However, studies had indicated that this harvest without a rigid control would lead to a rapid deforestation of the region. Environmental groups, that said be concerned about the consequences of deforestation, threatened to boycott the use in the Western of timber-derived products produced by Malaysia.
In this scenario, the question to be analyzed is to answer to international pressure of environmentalists, to ensure the attraction of new investments, without an abrupt break with the timber industry, essential for the politic economic and social stability of the country.
The most appropriate decision is partially accept the demands of environmentalists. The short-term action is to resume the agenda of the International Tropical Timber Organization (ITTO) to search results that combine economic viability and environmental of the timber industry. Although internally controversial, the deforestation reduction will be naturally seen as a market move in response to projections of falling of commodities prices.
In the long term, the country should direct new investments to the development of industrialization, while using tools in the macroeconomic scope to maintain an undervalued exchange and competitive for export within the inflation control limits. Thus, will be able to count on a new development cycle where the economy supports higher salaries for better qualified workers as the relatively undervalued exchange enables the exporting vocation