Economics

10MP fails to impress economists

By Kit

June 12, 2010

By Stephanie Sta Maria | FMT

KUALA LUMPUR: The 10th Malaysia Plan (10MP) yesterday came under scrutiny of three economists who lauded its acknowledgment of the country’s stumbling blocks but lamented its initiatives to tackle them.

At a dialogue jointly organised by the Malaysian Economic Association and the Faculty of Economics and Administration, Universiti Malaya, the trio cited a few initiatives that have set off alarm bells in their heads.

DAP chief economist, Tony Pua, called the plan “tired” and noted that it contains many similarities to past plans. His main concern, however, lay with the “shadow” of the New Economic Policy (NEP) which he said is cast over the 10MP.

“The NEP characteristic in the 10MP is the 30% Bumiputera quota, which, in fact, was left out of the New Economic Model (NEM),” he said. “The problem is not the quota itself but the danger that such a quota would prevent this community from moving ahead because it doesn’t distinguish between the rich and poor Bumiputera.” “If a needs-basis is used instead, then all poor Bumiputera are assured of assistance. But when you dilute it with a specific quota for one race, the better-off of the race (Bumiputeras) are able to get a larger chunk of government benefits.”

The PJ Utara MP noted that this contradiction also extends to the NEM in terms of the government’s move to increase competitiveness, meritocracy, transparency and getting value for money from government projects.

He questioned whether a project will now be awarded based on the above-mentioned criteria or on fulfilling the 30% Bumiputera quota.

“This is a major dilemma that will play out throughout the next five years and affect out economic performance,” he said. “I see the 10MP mirroring the model of the late 1980s where many mega projects were launched which ultimately had to be bailed out by the government.”

“If we repeat the same cycle without implementing measures to ensure we get the best value for money from these projects, then we may face another crisis and this time the government may not have enough funds for a bailout. I’ve seen many mega projects and subsidies being awarded to big corporations this year and I don’t see the change that the NEM is calling for. ”

“Our problem now is two-pronged. The first is implementing everything in the 10MP and the second is having the political will to enforce those changes. At this point, I’m worried that the latter is missing and I hope to be proven wrong for Malaysia’s sake.”

Extremely tall order

Former executive director for the Malaysian Institute of Economic Research, Professor Mohammad Ariff, zeroed in on Malaysia’s ambition of becoming a high-income nation. According to him, the 6% growth per annum outlined in the 10MP is an extremely tall order.

“The 10MP takes us on the path of achieving Vision 2020,” he said. “Vision 2020 envisaged that Malaysia would have a per capita income of US$20,000 by 2020 but the financial crisis hit and and the economy slowed. Today, we need at least a 7% growth rate to even reach the US$17,000 per capita income by 2020.”

“The 6% targeted growth means that investments must grow at 12.5% per annum. But during the Ninth Malaysia Plan, investment growth only stood at 2% so this is a huge leap and I’m not sure if it’s possible.”

“Foreign direct investment (FDI) has only been growing at 1% per annum, which pales in comparison to China’s 10% and Singapore’s 9%,” he added. “Our FDI is practically crawling! It’s a far cry from when we were recording 9.1% growth before the Asian financial crisis. Something is seriously wrong here and the 10MP should be addressing this.”

Prof Ariff also hit out at the government’s fondness for throwing huge chunks of funds at the education sector in the hope of boosting it further. He bluntly stated that the main problem with the country’s education system is the severe lack of quality teachers.

“In Malaysia, being a teacher is a ‘last resort profession’, which means there is no passion or interest,” he explained. “We have to start attracting the best brains into this profession the way China does. And it does that by offering very good monetary rewards. In China, being a teacher is first choice because it is the only profession that provides 100% of salary as pension. This motivates people. In Malaysia, we pay peanuts and so we get monkeys.”

Formidable challenge

For Professor Rajah Rasiah, Dean of the Faculty of Economics and Administration, the allocation of subsidies presents a formidable challenge. He noted that the utility of money will be very high for the poor and very low or nil for the middle-income and the wealthy.

“The 10MP refers to providing equal opportunity, but does it really take that stand in its recommendation of mechanisms?” he asked. “Unfortunately, it doesn’t”

He said that while the poor will be able to survive and enjoy basic needs, they will not be able to cross the poverty line and contribute to the country’s economic growth.

“When these people are out of poverty, they are able to think productively and participate in the process of achieving Vision 2020,” he opined. “But what we currently have is a misallocation of subsidies. Subsidies that are meant for the poor are being enjoyed by everyone, both foreigners and locals. The treatment of social welfare here seems to be one that takes a penny-wise, pound-foolish approach rather than one that is dynamic.”

While he praised the 10MP for recognising the urgent need to quicken GDP growth, he also said that the plan needs greater depth and dynamism in terms of turning its 10 initiatives into reality.