Malaysian premier shrugs off looming threats to economy

By Stefan Wagstyl in London
Financial Times
July 3, 2013

A slowdown in the Chinese economy, plunging commodity prices and the looming end of US “QE3” quantitative easing might appear to be a perfect economic storm for Malaysia.

The commodity producer exports to China and has benefited handsomely from the cash that washed through emerging markets as a result of the US Federal Reserve’s aggressive bond-buying programme.

In an interview with the Financial Times on Wednesday, however, Najib Razak, Malaysia’s prime minister, played down the likely effects of the threats to growth coming from the world economy. As a leader fresh from an election victory, his confidence is understandable. But some might see it as misplaced.

Mr Najib insisted Malaysia remained on course to grow at 5 to 6 per cent annually and achieve the government’s target of joining the ranks of the world’s high-income countries by 2020.

Mr Najib was speaking during a visit to London, made as his government is settling back into office after the ruling United Malays National Organisation overcame the biggest-ever challenge to its power in May’s parliamentary elections. The opposition won 51 per cent of the vote, but Umno and its partners in the ruling coalition secured 60 per cent of the seats under Malaysia’s constituency-based voting system.

The prime minister pledged to accelerate economic reforms and show that the country could be modernised “from within” the existing political framework – a riposte to the opposition’s election claims that Malaysia needed a change of leadership after decades of unbroken Umno rule.

He said: “I want to prove the point that we can make changes from within. We can transform the government and the economy, as well as democracy in Malaysia.”

He was relaxed about the external challenges to an economy that has weathered global turmoil well, with economists expecting gross domestic product growth of about 5 per cent this year, after 5.2 per cent in 2012.

Asked about the coming end of the Fed’s QE effort, Mr Najib said money would “flow back into the United States”, but the US would “probably become a stronger market” for Malaysian exports.

While some emerging market turmoil might occur, “people are still positive about the capital markets in Malaysia”, the prime minister said. Mr Najib was equally sanguine about China’s growth slowing from last year’s 7.8 per cent to 7 per cent or even lower. A Chinese slowdown would mean Malaysia’s trade would “probably not grow as fast as we expected”, but Chinese investment “probably won’t change very much”.

Nor would the impact of a decline in Chinese demand on weakening commodity prices have a serious effect. Mr Najib said prices for palm oil, Malaysia’s biggest commodity export, might weaken, “but we are looking at finding new markets”, he said, listing Africa and South America.

For Mr Najib the challenges at home remain substantial. The softening in support for Umno and its allies was in part the result of what he dubbed a “Chinese tsunami” that saw disenchanted ethnic Chinese vote against the government. The shift was due in large part to frustration among ethnic Chinese over longstanding pro-Malay affirmative-action policies.

Mr Najib said he believed the government needed to phase out gradually such policies and to address better the concerns of the ethnic Chinese as part of a national reconciliation.

Other domestic economic concerns remain. The government had to cut its bill from fuel and other subsidies and Mr Najib said he believed “we do need to introduce [a goods and services tax] to improve government revenue”. Household debts – at 82 per cent of GDP – were also unsustainable and had to be reined in, he said. “People willy-nilly borrow for consumption. Civil servants willy-nilly borrow for consumption and then wonder why they don’t have enough money at the end of the month.”

Since the second world war, only four places in the developing world – South Korea, Taiwan, Singapore and Hong Komg – are regarded by economists as having made the ranks of the advanced economies, where high income is accompanied by modern economic structures based on industry, services and high education levels. Among those hoping to join them, Malaysia is seen as a hot favourite.

According to the World Bank, Malaysia had a per capita gross national income of $9,800 at the end of last year, compared with a minimum $12,615 for high-income countries. At the government’s projected growth rate of 5-6 per cent annually, Malaysia should easily make the grade by 2020.

  1. #1 by lee tai king (previously dagen) on Friday, 5 July 2013 - 9:26 am

    ///He was relaxed about the external challenges to an economy … ///

    “Oblivious” is the word, actually.

    Anyway in case the FT journalist does not know it yet, jib is his name. Jibberish, his lingo and jibbishonomics, are his policies on the economy.

    Boy, we are as good as jibbered.

  2. #2 by Bigjoe on Friday, 5 July 2013 - 9:26 am

    Between now and 2020, WE WILL GO INTO RECESSION. Its guaranteed. So you can pretty much knock off at least 1-2% average growth rate from Najib’s number. If we hit 3% average, it would be an achievement.

    The issue is not growth rate but what to do in a recession. And the truth there is only one out for the UMNO/BN – raise taxes and borrow more and pump prime even further. Raising taxes actually allow a lot of borrowing because our oil-dependent revenue makes borrowing very very costly..With more reliable taxes, our debt is not impossible to get to Greece level – giving UMNO/BN their goldmine..

    But taxes (or removing subsidies is the same thing) and debt is mortgaging the future without fixing the fundamental socio-economic structural problem and pump priming aggravates the problem..At the end of the whole mess is basically still a structural problem that is just worst even as GDP gets higher..

  3. #3 by sheriff singh on Friday, 5 July 2013 - 10:57 am

    ‘ …… “people are still positive about the capital markets in Malaysia”, the prime minister said…’

    Sweeping statements everywhere. Talk is cheap. What evidence of this can he supply? Where is his source of evidence? Utusan Malaysia? Paul Low?

  4. #4 by sheriff singh on Friday, 5 July 2013 - 11:09 am

    “People willy-nilly borrow for consumption. Civil servants willy-nilly borrow for consumption and then wonder why they don’t have enough money at the end of the month.”

    The monthly pay check is not enough to meet basic needs. That is why they need to borrow money ….. to survive. How long did BR1M 1 and 2 last?

    Our PM is only good for making nonsensical, illogical and sweeping statements. Notice how he talks like an Ah Kua and with lack of sincerity when RTM broadcasts daily his many ‘words of wisdom’?

  5. #5 by sheriff singh on Friday, 5 July 2013 - 11:17 am

    When world leaders worry about the dire global economic situation our ”Malaysian premier shrugs off looming threats to economy”.

    Clearly this man haven’t a clue as to what is going on and what to do. He talks of a ‘Chinese tsunami’ and a ‘red bean army’ out to get him and therefore brings in a bunch of clowns into his Cabinet. He is clearly a very dangerous person to have at this point in time as PM. Unfortunately he managed to sneak in on May 5 after some magic tricks.

  6. #6 by black dog on Friday, 5 July 2013 - 4:29 pm

    Sigh. I am sad looking at all these issue.
    I am a student of history, During the end of each and every one of a great empire, things like these happen. Ruler have no idea what they are doing, surrounding by useless people. Righteous people killed or deported. Economy failing and population starve / suffer, Invaders start claiming lands of the edge of empire.
    We are currently facing a mild version of all these. But we will still pray for the country. :I

  7. #7 by john on Friday, 5 July 2013 - 4:46 pm

    Sure all OK as Now is cuti-cuti London time selepas CURI-CURI malaysia.
    LOL, when check back what he said, done before as testimonial to ALL hoodwink, play dumb/bisu, plain stupid tokok,,, tactics.

  8. #8 by vsp on Friday, 5 July 2013 - 11:45 pm

    Never mind the drop in commodity prices, probable decrease in tourism dollars and the impending adverse trade effects from a slowing world economy, Najib answer to Bolehland’s dilemma from the impending disaster is to overburden Malaysia with more property projects. In Kuala Lumpur and the Klang valley, with many expensive buildings showing poor occupancies, the 88-storey mammoth skyscraper at Merdeka stadium and the Tun Razak exchange will put a strain on the property bubble. Every company, whether healthy or sick, is treating property development as the panacea to riches. While locals are getting squeezed out of buying properties at reasonable prices, the industry has successfully managed to lobby the government to open the space for speculators and foreigners to fuel the price of properties into the stratosphere.

  9. #9 by on cheng on Saturday, 6 July 2013 - 11:08 am

    dreamer will always be dreamers

You must be logged in to post a comment.