Sunday, March 15, 2009

A noble gesture, but it's not enough

March 14, 2009

By Cheong Suk-Wai

THE biggest criticism of Malaysia's mini-budget announced this week is that it lives up to its 'mini' tag.

Though Tuesday's RM60 billion (S$25 billion) stimulus package is not chump change, experts said the way in which it will be spent will not kickstart the economy.

This is sobering, especially since this second stimulus will drive the country's fiscal deficit deeper into the red, equal to 7.6 per cent of Malaysia's gross domestic product this year. The first stimulus package last year of RM206 billion pushed the deficit to 4.6 per cent of GDP.

Critics of the mini-budget point to the relatively modest RM17 billion set aside for infrastructural projects as cause for concern. That works out to just a mere 2.5 per cent of Malaysia's GDP of about RM666 billion. The government has pledged to spend another RM5 billion next year on infrastructural projects.

Professor Datuk Dr Mohamed Ariff, the executive director of the Malaysian Institute for Economic Research (MIER), told this newspaper: 'When you peel the layers off this package, there is not much there. There is also no guarantee that the RM17 billion will be spent quickly. Plus, the RM7 billion (for infrastructure) from last November has not yet been fully distributed, so (the mini-budget) is not as big as it appears.'

Mr Mohamed argued that the government need not worry about the widening deficit. Malaysia, he pointed, has always been able to finance up to 93 per cent of its fiscal deficits domestically. Behemoths such as Petronas, Khazanah Nasional and KWSP (Malaysia's CPF) are flush with funds to be able to finance infrastructural projects.

He said the government might be dragging its feet on building new infrastructure because it currently has a 'phobia' about mega-projects, now that its every move is scrutinised by the people and the media.

That phobia is bad news for Sabah and Sarawak, which remain severely under-developed despite contributing a good deal of timber and oil revenue to the federal government. Sarawakian MP Tiong King Sing lamented in Parliament on Tuesday, just before the mini-budget was announced: 'It's not that we aren't patient. We have been patient to the point that we are almost dying.'

Also increasingly impatient are commuters in cities like Kuala Lumpur and Penang who despair of the public transport system.

That's a pity, said the Malaysian Investors Association founder-president, Datuk Dr P.H.S. Lim. 'Actual spending' on such projects might have constituted something that people 'could see, feel and use to build confidence in the economy again'.

He added that the government could also have constructed much-needed public clinics nationwide. Together, hospitals and the police force might have soaked up the estimated 747,000 Malaysians who would be out of jobs by next year.

Deputy Prime Minister and Finance Minister Najib Razak said on Tuesday that, as part of the stimulus, the civil service would absorb 63,000 job-seekers.

By MIER's reckoning, the best-case scenario for Malaysia's economy this year is a 0.5 per cent growth rate.The worst is minus 3.8 per cent.

The severity of the expected downturn has led some analysts to ask why the mini-budget gave little to the poor. True, Datuk Seri Najib did give tax concessions of RM3 billion. But that would have an impact only when it comes time for cash-strapped Malaysians to pay their taxes next year.

It would have been better to put cash, even food stamps, into the pockets of the poor immediately. They would have spent, rather than saved it. The government, however, has long shunned such steps as welfarism.

Datuk Dr Lim wondered why the government hadn't already lowered the prices of end products, since the prices of commodities like corn, wheat and rice have tumbled. Other analysts wondered why the government is not being more decisive in putting the economy on a surer footing. And yet others questioned the fundamentals of Malaysia's political economy, suggesting the crisis has disclosed flaws that need to be addressed.

Associate Professor Edmund Terence Gomez of the University of Malaya questioned former prime minister Mahathir Mohamad's penchant for mixing elements of the development state model - with the government dictating growth - and neo-liberalism - where deregulation and privatisation reigned supreme.

Prof Gomez said: 'These models appear not to be compatible with each other. But Mahathir, the ultimate pragmatist, adopted the approach of 'I'll take the best of both'.'

The resultant patch work is not coherent, Prof Gomez argued. For example, despite the emphasis on neo-liberalism and privatisation, one-quarter of the country's stock market by market capitalisation belonged to relatively inefficient government-linked companies.

The government could, if it dropped its neo-liberal pretensions, direct reluctant banks to lend more to the private sector, especially small and medium-sized enterprises. And it could just as readily foster cooperation between industry and R&D institutions to create more high-tech jobs.

Prof Gomez said there was inertia in the bureaucracy in part because of its experience having to rescue the country's flagging steel and car industries during the 1997-98 Asian financial crisis. 'So now the people in government think: 'We have no business being in business'.'

This is a great pity, since foreign direct investments has been halved from RM51 billion in 2007 to RM26 billion last year. Now is not the time for Kuala Lumpur to take a principled stand in favour of a laissez-faire approach to the economy.

Prof Gomez's verdict: 'The government's attempt to reach out with this mini-budget is noble, but it's not enough. It's not a serious attempt to deal with the current crisis.'

[Sometimes it gets really obvious that Singapore (media?) likes to show up or put down M'sia. Then again, maybe it just works out that way.]

No comments: