Najib misses the point, Malaysia misses the boat

Najib misses the point, Malaysia misses the boat
23 Oct, 2008

LIEW CHIN TONG for THE MALAYSIAN INSIDER

The much-awaited official response from the new Finance Minister Datuk Seri Najib Razak on the global meltdown was nothing but a letdown. Najib’s response was grossly inadequate, and misses the point entirely.

The world’s financial system is facing the worst breakdown since 1929, with the banking sector in total disarray and all the advance economies — representing 55 per cent of global gross domestic product — entering recession, it is incumbent upon any government to respond quickly and effectively in order to mitigate the effects of the crisis.

While the crisis and its impact are discussed daily in detailed fashion everywhere else, for our government leaders the only relevant index in Malaysia now is the nomination tally for Umno leadership positions. Who bothers about the economy?

As a response to the challenge by the Opposition to announce a revised Budget taking into consideration the new circumstances, especially the fall in oil prices which formed 46 per cent of the budgeted revenue for 2009, Najib promised a proper response on Oct 20.

However, apart from saying that the growth rate would be revised downwards, Najib could only manage to announce that the Government would inject RM5 billion into Valuecap Sdn Bhd so it can stabilise the stock exchange, as well as a promise that rules for foreign investment will be further relaxed.

The other strategies include the liberalisation of the service sector to attract investment and generate local employment, re-positioning of government projects to focus on those that generate higher multiplier effects, as well as strengthening of small and middle-scale enterprises.

He also announced that there will be no reduction in budgeted expenditure for 2009, which means a much bigger deficit as a result of a smaller revenue base due to the fall in oil prices.

Najib said details would be announced on Nov 4 when he concludes the Budget debate in Parliament, almost two months after the initial collapse of the financial markets.

In a global crisis of such calamitous magnitude, the Finance Minister is duty-bound to explain to the nation through at least a ministerial statement in Parliament as soon as he and the Treasury humanly can prepare it.

But instead the Government is acting as if there is no crisis, thus a revised Budget or even a tentative plan of action is not needed.

Malaysia is fortunate that its banks are not yet exposed to the international banking crisis but no one is immune from the global meltdown.

A decade after the 1997/8 crisis, problems contributing to the last crisis — cronyism, corruption and nepotism — are still very much alive. The net effect is that the cost of running the federal government tripled that of in 1998.

Datuk Seri Anwar Ibrahim's final Budget as Finance Minister was only RM68 billion in total, miniscule compared to the RM207 billion Budget presented by Prime Minister Datuk Seri Abdullah Ahmad Badawi on Aug 29.

The quality and availability of public goods like education, public housing, public health, crime prevention have all declined, while child and aged care and public transport are near inexistent, resulting in a Hobson's choice for the poor and middle class in either facing the decline in living conditions or an ever higher cost of maintaining a decent lifestyle.

A total of 57.8 per cent of the country's 5.8 million families live on a combined monthly income below RM3,000, including 8.6 per cent who make less than RM1,000 per month. The already skyrocketing inflation, and the impending crisis, has hit them really hard.

The dependence on government-related employment and foreign workers over the last decade stops the economy as a whole from moving up the value chain and to respond to a crisis effectively. One in four of Malaysia's labour force is a legal foreign worker while approximately one in four in the workforce works for the public sector directly or indirectly, for instance, in government-linked corporations. The private sector lacks the capacity to innovate and compete internationally, thus hindering its ability to weather the storm.

The challenge of our time is to ensure that there is sufficient food on the table of the almost 60 per cent of our nation's families, and to ensure that their quality of life does not descend further.

It is in this context that Najib's RM5 billion injection of capital into the controversial Valuecap misses the point. It is too little to boost the stock exchange in the face of the exit of foreign institutional players.

There is also a danger of throwing good money after bad money. The RM10 billion Valuecap possesses will not last for too many days if there is a storm while it may take years to recoup losses.

More importantly, it is, in the language of the United States, Main Street that matters, not Wall Street.

With Najib missing the point, the country risks missing the boat, of curtailing the fallout from the crisis.