The Projects
Now on some specific programs outlined by Najib. Training and job placement programs of the type described by him are woefully inadequate. Those retrenched and displaced are in need of immediate assistance.
Malaysia lacks a safety net program of unemployment benefits as is the case in most industrial economies. Thus workers lack a cushion. The nation’s labor laws are skewed towards safeguarding employers as evidenced by the meager protections afforded to laid off workers.
It is also significant that both legal and illegal workers continue to flow into Malaysia – largely to permit employers to gain from cheap labor.
It is pertinent to question the Government as to why some of the resources being expended are not being set aside to launch a scheme that would provide income support to those laid off, or those who have seen a precipitous fall in income because of a fall in commodity prices. Equally, it can be asked why no program is being developed to aid those who are laid off with assistance in meeting their housing loan commitments.
These measures proposed under the various training schemes are palliatives and lack an imaginative attempt to address the key issue of assuring an income to those who fall victim to what has been termed the Great Recession. Displaced workers or those new entrants into the job market need to be assisted directly.
Training is and cannot be the first recourse. While such an effort may be appropriate in a time of cyclical upheaval, in a recession of the type now confronting Malaysia a vastly different approach is needed – one channeling resources to sustain incomes and support consumption.
The DPM proposes to recruit some 63,000 workers into the government services. Is this the best use of resources? It is generally acknowledged that the public sector is bloated and much larger than in other countries at a similar stage of development. It is also a fact that it is grossly inefficient.
In the face of these circumstances, it is legitimate to pose the question why it is necessary to further expand the sector. It would be far more cost-effective to use these resources to channel funds into a new fund to provide income support to those directly affected by the downturn. The further option of out-sourcing particular services to the private sector should be explored as it would provide opportunities to the private sector.
Najib has proposed a new scheme for post graduate education. The proposal is laudable in that it seeks to enhance the knowledge base of the economy. However, it is far from clear if the gradates will be channeled towards pursuit of studies that will go towards improving the nation’s competitive position. Given the dismal state of the public universities, the outputs from this program are unlikely to significantly contribute to national needs for particular nationally needed skills.
It would be more appropriate to use some part of the resources in strengthening the public universities by turning them away from being sausage factories that churn out unemployable graduates. Strengthening the universities will demand the hire of foreign lecturers, a freeing of the universities from bureaucratic and political control, the application of principles that place emphasis on meritocracy.
On the issue of poverty alleviation, the need to revise the poverty line is paramount. The current poverty lines are a flawed measure and grossly underestimate poverty. A new measure that accurately measures poverty in conformity with UN and World Bank methodologies is demanded. No program based on erroneous yardsticks can benefit those who are vulnerable and disadvantaged.
In his speech the DMP makes reference to various subsidies that will be given. He mentioned that a sum of RM 27.9 billion will be disbursed. No details are given to how much of this will accrue to households and how much to corporations.
Najib also made the statement: “The Government will also provide RM480 million to ensure that toll rates are not increased”! This is corporate “welfare” going to the well-heeled and cronies of the BN over one-sided contracts! It does not reach the hard-pressed road-users and therefore it is inappropriate for the DPM to claim that this is a support for consumers.
The litany of programs and projects listed in the speech is long. Many of the projects outlined are standard projects featured in almost every budget year in and year out. While there is no denying the need for allocating resources for improving the delivery of public services, the issue is one of priorities. At the current point in time it is more important and urgent to direct efforts to safeguard incomes, directly assist those who have suffered job loss, or suffered a sharp decline in disposable income
The DPM makes a rather remarkable pronouncement that the Government proposes to launch Savings Bonds with the objective of generating additional income. This is truly amazing. In any event, the promotion of savings at this juncture of the economic crisis is most odd; the current concern should be to sustain private consumption. Or is the real goal to get the little guy to lend to the Government? Surely there are enough vehicles to promote and capture savings without yet another new device.
Great play is made of the allocations ear-marked for Sabah and Sarawak. There does not appear to be any direct link to the impact of the recession. These programs for the most part were in the 9th Five Year Plan. Outlays on these projects will for the most part have trickle-down effects and are not likely to be felt in the immediate future given the lengthy gestation period involved in completing infrastructure projects of the type listed.
It is also significant that no reference is made about allocations to other states leading one to conclude that the highlighting of allocations to the two East Malaysian states is a purely political gesture.
The DPM proposes to ensure the welfare of entrenched workers by way of tax exemptions on retrenchment benefits. These exemptions are paltry. What is wholly remarkable is that no direct assistance in the form of income support is contemplated under the Stimulus Package for those retrenched or facing a drop in disposal incomes.
It is pertinent to ask why out of a package of RM60 billion a modest sum cannot be set aside. It would be most appropriate to create a Retrenchment Fund to be used to provide those retrenched or facing a sharp decline in income because of a reduction in overtime. Such a program would be just and equitable and in a macro-economic sense be supportive of consumer demand. It is also likely to have an immediate impact on consumption and sustaining the overall level of economic activity.
The DPM proposes to pass a good part of the effort to help retrenched home owners on to the shoulders of the banks. It is pertinent to note that no provision is being made to help those who remain employed but suffer a significant drop in incomes. The DPM should expand the scope of the scheme to also include those who have seen a reduction in income from self employment, loss of over-time earnings etc.
A general observation is in order. The package is disproportionately skewed: it is skewed towards investment rather than to consumption; major beneficiaries are corporate entities; there is little indication that resources are being channeled towards those who are truly marginalized and disadvantaged.
It is remarkable for instance that nothing is being provided for the Indian community or for the poor in the states of Sabah and Sarawak. The message being conveyed is that business as usual is the order of the day.
The third thrust outlined by the DPM deals with the private sector. He asserts that The Government will implement measures to enhance foreign and domestic investor confidence in the Malaysian economy. However, the measures outlined exclude any reference to needed policy reforms. This is totally cynical.
True reforms encompassing anti-corruption, greater accountability and transparency would go a long way as would deregulation, together with a modification of the NEP. Equally, a better and more enlightened policy of interactions between the Federal and PR governed states would be appropriate signals that would promote stability and confidence.
A sincere effort on the part of BN to reduce the degree of race polarization would go a long way in correcting the slide towards disharmony. Najib should walk the talk and commit himself to a package of reforms e.g. reining in the police, a commitment not to use draconian laws that constitute barriers to trust and the expression of opposing views in a peaceful way. Reforms in this regard would send strong signals that he is cognizant of the importance of creating confidence.
Najib laments the fact that SMEs are often unable to access capital markets. The issue is why this should be so. It is probably because of the rigidities in place. Some part of this is linked to the exercise and abuse of powers by Little Napoleons’ with their convoluted interpretations of the NEP.
There is no assurance that the mere establishment of the new facilities will lead to greater access to funds by those in need. Najib needs to immediately revamp the implementation of the NEP. A strong signal is needed; one such measure would be a repeal of the Foreign Investment Committee accompanied by a relaxation of the listing rules of the stock exchange
Although the DPM proposes to revise processes involving the Securities Commission, it is remarkable that he ignores the fact that in the corporate sector the GLCs are major actors. Najib has made no reference to how best they should behave during a period of stress. They are indirectly owned by the rakyat and should be held accountable and be more transparent. His silence in this regard appears to indicate that “business as usual” will continue to be the order of the day.
The relaxation of conditions to attract highly skilled and high net-worth individuals can be welcomed. However there is need for a coherent plan e.g. what type of professionals do we need to attract; which industries will be prioritized; and how will this scheme be implemented? Past schemes have been dismal failures- the issue remains how the lessons from the past will be applied.
As regards the proposed exemption of the Human Resource Development Fund , it appears to be a belated effort to hand a sop to companies many of which are either scaling back their footprint in Malaysia or are even considering relocating to other countries in the region.
Measures to support the automotive sector outlined by the DPM are likely to be problematic, This is in essence a new subsidy to Proton and may well run counter to WTO and AFTA rules. In one sense this is protectionism and is likely to invite retaliation from other trading partners. Malaysia as a trading nation can ill afford retaliatory measures particularly at this stage of the economic cycle. The Government must therefore exercise caution before embarking on a course that may have severe consequences.
Najib has yet again failed to grasp an opportunity to move Malaysia up the chain in the automotive field. He should promote research into the use of alternative energy sources in a new generation of vehicles e.g. electric-powered cars. In this manner Malaysia would be leaping to the forefront of innovation and making a contribution to the effort to reduce carbon emissions.
Reference is made to the need to look ahead and create new growth areas. There are multiple growth corridors that have as yet to show significant progress. It has been cynically remarked that these corridors lead nowhere and are largely schemes for land speculation to favor the chosen few. It would be highly appropriate to develop comprehensive plans that emphasize the need to avoid duplicative efforts and unproductive competition between the various corridors. There does not appear to be any element of new thinking or innovation. Najib is merely mouthing clichés.
The DPM dealt with the role Khazanah is expected to play. First and foremost an appropriate question is: Why is it necessary for Khazanah to undertake direct investments of this nature? Why is not feasible to allow the private sector or for that matter GLCs that have competence to take the lead in the enumerated sectors? Khazanah appears to be an entity in search of a mission. Clearly, the first and foremost task it must address is the preparation of a well-conceived corporate plan. This is imperative if the country is to avoid yet another bailout of a public institution in the manner of Bank Bumiputra, Perwaja etc Khazanah was established as a sovereign fund and not as just another investment entity. There appears to be an element of “mission” creep with public funds being used in largely unaccountable ways. Or is Khazanah being entrusted with a role to bail out troubled enterprises?
The DPM has outlined measures to streamline the FIC regime. He offers some hope that the FIC regime will be relaxed. However, the proposed measures do not go far enough. The FIC has been a prop for the NEP and will continue to play that role. It is time that there is a re-think and the FIC is turned largely into an advisory and policy making body without regulatory powers.
The intention to streamline procurement processes is to be welcomed but there is an urgent need to introduce full transparency. In the statement there appear to be some exceptions which in time will become real loopholes so that there can be business as usual!
A rather disturbing remark made by the DPM concerns giving preference to local products and services. It is far from clear how these notions will be consistent with Malaysia’s WTO and AFTA obligations and commitments. It would be most remarkable if actions along these lines do not invite retaliation. The last thing Malaysia needs is a trade war in the midst of a major economic crisis.
Conclusion
Najib is grossly mistaken in claiming that the strategies and measures outlined by him are comprehensive. The truth of the matter is that the Stimulus Package he has outlined is neither a strategic policy statement nor a comprehensive and coherent action plan to enable the country to face the challenges posed by the Great Recession.
He is patently wrong in claiming that these proposed spending plans will enable the country from slipping into a recession. The reality is that the country is already in recession despite denials to the contrary. Furthermore it is becoming clear that a rapid turnaround is not likely. Recovery in the major countries, which are key markets for Malaysia’s exported oriented economy, is unlikely during 2009. Most analysts are projecting a slow recovery in the latter half of 2010. The markets have already indicated where matters stand.
It is regrettable that Najib and his acolytes refuse to acknowledge the realty of the circumstances facing the nation. To them solutions lie in spending their way out of the pit in which they have fallen. On the other hand, the Stimulus package delivered is seen as just another bonanza or opportunity to shovel public funds into the bank accounts of cronies, warlords and rent seekers.
The Minister fails to understand the nature of this crisis. There is a stark failure to appreciate that the Great Recession is a very different beast and that taming it will demand boldness, thinking outside the box and adopting radical new policies. Sadly, Najib’s statement lacked any indication that the Government recognizes in full the magnitude of the challenges Malaysia faces. He failed to articulate any understanding of the need for radical reforms and immediate actions to stem the bleeding.
There is nothing bold or innovative. The plans laid out are neither strategic nor focused. The package delivered is nothing but a “cut and paste” listing of unconnected spending proposals with no indication of how spending RM60 billion on top of the RM20 billion additional allocation in the budget for the current year supplemented further by the First Stimulus package of RM7 billion will contribute to a recovery. If the RM 7 billion for Value Cap is added, the amount expended will be a staggering RM 94 billion. The sheer size of the amount contemplated is mind boggling. It is legitimate to ask: Has the economy the necessary capacity to implement a program of this size? What guarantees are there that the nation will be able to avoid the worst of the Great Recession? It is incumbent on Najib as the Finance Minister and the Prime Minister-to-be to be upfront and forthright if he is to retain any credibility.