Please allow me to share this very well written commentary by a friend on the recent RM60 billion stimulus package aka mini budget announced by Najib Razak, our Finance Minister, Deputy Minister and soon to be Prime Minister. (God willing. Hey, you don’t laugh. HA! HA! HA!)
I am a little bit busy with work and I have not really look into the details of the ever stimulating mini budget. Let’s see if I am labourious enough to write one later, just like Vijay did.
Why I am disgusted by the RM60bil stimulus package.
by Vijay Kumar Murugavell
The stimulus package is not transparent enough to comment on with regards to if it would work or not, but RM 60 bil is not enough to stimulate a RM350bil economy that relies heavily on exports and FDI, its like trying to boil water in a swimming pool using an electric kettle.
We are running a budget deficit -in short spending money we have not earned yet to finance this stimulus more so when our earnings from commodities are on a downward trend.
It is also foolish to bail out national automaker Proton, we lose far more disposable income nationally than Proton can hope to provide in terms of employment
and other economic spin-offs. A car industry for a population of less than 30 million such as ours is simply not viable, the only way it survives is by unfair competition.
“Proton is an anachronism in the automobile industry and it’s not going to survive over the long term,” says Graeme Maxton, Asia analyst for consultancy Autopolis in Hong Kong.
(Source: Business Week)
The government also wants to employ another 63,000 people to an already overstaffed,inefficient and sluggish civil service. You cannot provide employment for the sake of employing, the former USSR tried this with catastrophic results.
This RM60bil that represents about 9% of our GDP. This will push our fiscal deficit from the current 4.8% to a whopping 7.6%. Most of the spending will be on loan guarantees, infrastructure and public sector expansion with nary a sign of tax cuts that are the hallmark of most stimulus 101 packages with the view to encourage growth.
Only RM15bil or a quarter of the budget is in a form of direct fiscal injection. A cursory look at some details reveal items like upgrading firemen’s living quarters, toilets etc and other dubious items which makes the layman on the street think what in tarnations have they got to do with the term “stimulus”. These should have been addresed in the main annual budget.
To make matters worse they have cut interest rates, this could push us into deflation, which will be harder to come out of than inflation. Our outgoing PM’s statement that our economy “is doing quite well in terms of the economic fundamentals” offers little comfort, its akin to a doctor saying that the body is healthy without mentioning that severe dehydration could kill irregardless of fundamental health.
Inflation in Malaysia is at a 27 year high but the government of the day tells us that everything is alright – they must have been taking economics lessons from Mr.Bean.
When the Government increased fuel prices by 41% at one go last year citing global oil prices, it caused a domino effect of inflating a wide spectrum of consumer goods, then dragged their feet when it came to reducing the price of fuel when global prices came down, the government then blamed traders for not reducing their prices when fuel prices were lowered, anybody who has ever read an “economics for dummies” publication will understand that the price of goods will rise in tandem with the cost of raw materials but not necessarily go down after raw materials cost are reduced.
Anwar Ibrahim tried to point this out in a debate with Information Minister Shabery Cheek last year, among others he mentioned that the prevailing dizzying high oil prices at the time had nothing to do with demand but was speculative in nature and expects the markets to adjust oil prices downward after a certain point.
On hindsight he was absolutely right.
After global oil prices came tumbling down as predicted, we were still paying more for petrol- not in tandem with plummeting global oil prices. The earlier 30 sen promised subsidy is abandoned and just when comsumers thought that they could gain if oil prices plummet further, Minister of Domestic Trade & Consumer affairs Sharir Samad was insultingly mulling “floor prices”. Sharir is also reported to have said that if drastic cuts are made suddenly petrol stations and dealers will suffer, on the otherhand it was perfectly fair for them to reap bumper profits when they increased prices overnight.
Baffling ? Not really- allow me to share my simple minded theory:-
Who are these petrol station owners ?
The vast majority of petrol stations in the country are owned by UMNO members, their cronies or proxies, who (probably) contribute much to UMNO war-chests and … have sway over how UMNO delegates vote. The leadership quite likely do not want to offend this group, more so when UMNO party elections are in progress. Its not about the suffering rakyat its about immediate political survival. Of course not to mention finding surplus at the Federal Level to partly finance an ill conceived expansionary budget. They just hope that the people will forget this come next general elections.
Its a complex issue that many don’t trust our inept cabinet to discuss. They can’t even come up with a tenable solution in the case of the 14 Mercs used by Terennganu exco who disregarded Treasury policy on official cars. Refer to Lim Kit Siang’s post on this.
The following chart shows the trend outlining the gross domestic product of Malaysia at market prices estimated by the International Monetary Fund with figures in millions of Malaysian Ringgit.
Rapid growth was achieved partly through privatization of inefficient state owned enterprises, thus subjecting them to commercial pressures and forcing them to better utilize their resources. Many deals were done behind closed doors and put through rather quickly. In one example Khazanah Nasional alienated shares in DRB Hicom to Mega Consolidated. This led to such deals being labeled mega projects.
Thus we can see that on the long term trend the Ringgit (MYR) steadily weakened against the US Dollar amid runaway inflation and artificially suppressed wages.
I am truly wondering what our outgoing PM meant when he said recently that there was not much fluctuation against the US Dollar when there is a steady decline since 1980.
In the recent stimulus package a total of RM10bil or a whopping one sixth of the total intended sum awarded to Khazanah nasional. The earlier RM 7bil stimulus widely criticized as inadequate has drawn further ire after it has been revealed that though it was announced last November, about RM5 billion worth of projects will begin only around June. The government recently disclosed that these projects went to Class F contractors who are largely linked to Umno.
On top of being ranked a shameful no.132 in a freedom of speech index, reports from Amnesty International and Transparency International are not very flattering either, these reports are perused by most foreign investors before deciding on whether to invest or not. Ignore this at your own peril.
Our largest trading partner, the US conferred accolades on Bar Council’s Ambiga Sreenivasan for her efforts in promoting human rights while
new US secretary of state Hillary Clinton gave Malaysia a miss during her recent Asean tour. This alone says alot about how our largest trading partner views us.
I am willing to wager that if the BN govt is toppled and Pakatan implements measures similar to Penang’s CAT (Competency, Accountability and Transparency) government, foreign investors are likely to come in by the droves.
It is pointless for the BN government to churlishly blame the local economic malaise on excessive politicking that they started in the first place, then alternatively shrug that its a global meltdown after denying repeatedly that we have a problem.
In fact I put it to the BN government that they are using the global economic meltdown as a shield against their shortcomings, had it not happened I would not be surprised to see regional economies chugging along while ours lagged behind.
While Anwar tried to bring up declining FDI’s November last year, he was snubbed by speaker Ronald Kiandee, Anwar contended that while FDI’s of our Asian neighbours were increasing, ours were declining citing ‘United Nations Conference on Trade and Development Worlds Investment Report 2008’
At that time Najib who holds the Finance Minister portfolio was on a sabbatical to Peru. No one in the Government showed any interest or urgency. The government ought to ask itself why Indonesia overtook us in terms of FDI or why foreign tourists fly from Singapore directly to Thailand giving Malaysia a miss.
I offer some unsolicited advice to the government of the day, these of course do not include macro economic measures which are better left to competent
1) Review all lop sided agreements with IPP’s, water , electricity and toll concessionaires.
2) Scrap the glorified summer camp scheme known as National Service and divert the money for scholarships.
3) Barter trade to partially circumvent commodity speculators, for example we can exchange our palm oil with Saudi Arabia for their crude oil.
4) Abolish duties on imported items that protect inefficient local industries and stop subsiding industries that swallow funds but do little for our economy.
5) Call for open tenders when awarding contracts, so we can do away with over inflated prices charged by crony companies that have no expertise in the first place.
6) Unless you can prove that our country is in imminent danger of invasion, sell the scorpene submarines and other military hardware then use the proceeds to upgrade public transportation.
7) Include opposition controlled states in the Federal Tourism MOU’s, allocate retraining resources for those retrenched in the electronic sector for tourism careers, tourism has a multiplier effect on other sectors. There is much to be done to woo foreign tourists. With declining FDI’s this area becomes more important.
8) Retrain a segment of fishermen to do fish farming, to stabilize the price of this diminishing resource, preserve marine ecosystems and save on diesel subsidies.
9) Stop bailouts but instead offer incentives based on performance.In cases where bailouts are justified strict conditions should be imposed.
10) A total moratorium on personal income tax for 2 years- yes tax cuts are the most common stimulus to increase spending and domestic demand.
11) Coupons for unemployed and those living below the poverty line to purchase essentials for basic sustenance.
12) Do away with internet provider monopoly, Streamyx service is so bad that businesses that rely on the wired world have had second thoughts about setting up shop here.
The general population cannot be blamed for seeing this as another bailout of government cronies who are inefficient and monopolistic, with little direct benefits for the man on the street.
Vijay Kumar Murugavell
ps: Vijay Kumar for Finance Minister, anyone?