The Second Package: An Overview

Najib, Minister of Finance and Prime Minister in waiting and his officials have much to account for. They have continued to be in a state of denial and inaction even as the global economy was entering what the Managing Director of the IMF has termed the Great Recession.

It would appear that Najib has finally been jolted into action. The preparation of the Second Stimulus Package appears to have been done in a rather haphazard manner with little consultation or input from the various stakeholders.

Najib must take personal responsibility and will be held accountable for what is a flawed instrument to meet the challenges confronting the nation. He has put together a Stimulus package of RM 60 billion, a package of unprecedented size in Malaysian history.

The package of measures he has revealed has been largely met by a yawn; the markets are unconvinced by the scope of the package. The KL Bursa fell by O.6 percent on the first day of trading. That is a clear signal that the package is viewed with a large degree of disapproval.

There is considerable skepticism on several counts. First and foremost there is the question about the size of the package, considered unwieldy. Second there are concerns that the package of measures does not address the immediate impact of the recession on employment, income levels and the pain inflicted on vulnerable groups. The measures proposed are seen as having an impact only in the medium term.

There is a great imbalance in the package. Loans for businesses account for RM25 billion, or 41 per cent of the package. These will buffer downside risks to corporate earnings and help industries struggling with debts.

Expectations that the package would include measures to boost consumption like cash-vouchers or cash bonuses, which would have had an immediate effect on Malaysia’s economy are missing. A tax waiver would have also provided the most and fastest multiplier effect.

It includes a fiscal injection of RM10 billion in 2009 which will raise the government budget deficit from 4.8 per cent of gross domestic product to 7.6 per cent this year. There will be another RM5 billion injection in 2010.

The Deputy Prime Minister said however that the RM25 billion in guaranteed funds as well as the RM10 billion investments to be injected by government investment arm Khazanah Nasional were not “silver bullets” but meant to prevent Malaysia from slipping into recession.

If so, why are these funds being disbursed? Why are there no provisions for direct assistance to those being retrenchment, or those suffering a sizable drop in earnings by way of elimination of overtime, or those facing a precipitous fall in earnings because of lower commodity prices?

What the Minister has done is to skew the package to corporate interests and favoured support for INVESTMENT activities over support for PRIVATE CONSUMPTION. This is clearly a fatally flawed policy choice.

For a start it is consumption that needs sustaining and support to alleviate the pain associated with the recession. It is also clear that stimulus needs to impact on the short term: thus direct measures in support of consumption will impact positively and immediately.

On the other hand channelling resources towards investment will mean a trickling down; the investment outlays have a long gestation period; the impact will thus be felt only after a lag. This would negate the goal of delivering immediate assistance to those feeling the impact of the recession.

There is a sense that Najib has waited too long to launch the stimulus and has wasted time in pursuing political objectives like the destabilization of the Perak Government whilst sending mixed signals to markets and thus wasting valuable time.

Tengku Razaleigh and other critics have been critical of the delay incurred in coming forth with a package. There is also the point being made about the size of the program, judged to be excessively large in the context of the weak implementation and absorptive capacity of the economy.

Other criticism have touched on the lack of a coherent and integrated overall scheme for mounting a program of reforms which are critically needed to move the Malaysian economy out of the doldrums.

An objective assessment of the proposals leaves one with the feeling that Najib has rolled the dice and gambled on the premise that large and massive spending will somehow enable the Government to dig itself out of the hole it finds itself in.

Some analysts are willing, with some reservations, to give Najib the benefit of the doubt. However, there are other analysts who take a more jaundiced view. According to this latter group, based on a closer examination of the package of measures, they take the view that Najib has largely put forward a package that is little more than a blatant attempt to hijack public resources and to shovel these into the laps of UMNO warlords and cronies to protect and promote his tenuous hold on UMNO. There may well be some truth to these contentions.

A sharper criticism of the measures announced is that there is no overarching policy framework to accompany the disconnected and disjointed expenditure proposals. The singular lack of a policy vision is most troubling. Thus there is some legitimacy to the criticism that Najib has failed to think out of the box and he has displayed a singular lack of leadership and vision.

(to be continued)