“Its the economy stupid” – Part IX

Its at least reassuring that Najib and Bank Negara finally came out to shore up confidence among investors and Malaysians that the economy is insulated and stable for the moment although it was a little too late.

I hope they are right about the Malaysian economy facing no threat and that they are not in a state of denial. However all Malaysians will surely hold them accountable to their word.

Anyway Najib’s biggest challenge is how to absorb about 300,000 retrenched Malaysian workers from Singapore who will be forced to return to Malaysia. Not forgetting thousands others in countries like Japan, Korea, Australia and Europe and the MNCs closing down and retrenching workers locally. 

1.  Najib: No new Budget

KUALA LUMPUR, Oct 14 – The government will not table a new budget as requested by the opposition although revisions are possible.

“It is not a suitable suggestion to be considered in addressing the global financial crisis,” said Finance Minister Datuk Seri Najib Razak.

“Some of the figures may have to be revised but it does not necessitate a retabling of a new budget,” he added.

When asked when the budget would be revised, he answered that the government was monitoring the situation which was changing on a daily basis.

“As and when we think it is appropriate, we will look at revised figures for next year.”

Speaking to reporters in Parliament today, he said it was important that government expenditure on programmes to aid the lower-income group as outlined in the 2009 Budget continue without disruption.

“This is to widen our social safety network which will benefit 150,000 lower-income citizens,” he said.

The government will also announce measures to strengthen the economy on Monday in the form of a “stabilisation plan.”

“We discussed this yesterday at the exco meeting of the Economic Council,” he said.

However, the deputy prime minister said the projected gross domestic product growth would be about 5%. In earlier statements, the government had insisted that the growth rate would be between 5.5 and 5.7%.

“But for next year, the projection would need to be revised,” he admitted but stressed that there was no need to panic as the impact of the global meltdown on Malaysia’s economy is not as bad as other countries.

He added that he would leave interest rates to Bank Negara.

On guarantees for deposits, Najib said it was not necessary as there is enough liquidity in the banking system. 

Najib: No need to panic, we will weather global financial crisis (The Star)


KUALA LUMPUR: The Government will announce on Monday new measures to strengthen the economy to withstand the global economic crisis, said Finance Minister Datuk Seri Najib Tun Razak.

Speaking to reporters in his Parliament office, Najib said that a “stabilisation plan” was being worked on.

“I want to assure the public that the Government is on top of the situation. Although it is serious, there is no need for us to panic,” he said.

Najib said the situation in Malaysia was not as bad as other countries but added that the global economic crisis would certainly impact negatively on the economy.

“As far as we are concerned, this year we should attain the expected 5% growth. We are also not facing recession this year.

Najib said the Government did not need to re-table the Budget as suggested by Opposition Leader Datuk Seri Anwar Ibrahim.

“That proposal is not an appropriate one to tackle the crisis. Some of the figures in the Budget may have changed, but it is not necessary to re-table the Budget.

“What is important is for the Government to continue spending so that it creates domestic growth and consumption.”

He added that the Government would continue to help the low-income group.

Whether the Government could still meet the 4.8% Budget deficit considering the reduction in crude oil and palm oil prices, Najib said the figures would be revised at the appropriate time.

When asked whether interest rates would be lowered, he said it was not his policy to interfere, adding that he would leave it to Bank Negara to decide.

“Depositors should also not worry about their money in the banks as there is enough liquidity in the banking system,” he said when asked whether there was a need to guarantee bank deposits.

When asked about Opposition claims that the RM2.3bil Eurocopter deal was higher than other tenders, Najib said: “I will explain in full in Parliament.”

As he was walking way, Najib continued, saying that whatever that had been said was wrong. 

2.  Financial intitutions solid: central bank

Malaysia’s central bank today said the country’s financial institutions are solid, have “ample liquidity” and will be able to cope with the global financial turmoil.

“Several years of reforms… have significantly strengthened the banking system,” the central bank said in a statement.

“The level of non-performing loans has also improved to 2.5 percent,” it added.

The central bank said there was “ample liquidity in Malaysia’s financial system” to facilitate the orderly functioning of economic and financing activities.

As at end-August 2008, net interbank placements with Bank Negara by the banking system amounted to RM198.5 billion.

“The banking and insurance industries are therefore operating with adequate capital and liquidity buffers that have been accumulated over several years,” it added.

The central bank said Malaysia’s financial institutions have negligible exposure to both subprime-related securities and the affected financial institutions of other countries.

All foreign financial institutions in Malaysia are locally incorporated and have a high level of capital that is committed to support their domestic operations, it said.

3.  Prepare to lose jobs in Singapore


SINGAPORE: The 300,000 Malay­sians employed in the island republic have been advised to gear up for retrenchment if the country continues to slide into a recession.

Human Resources Minister Datuk Dr S. Subramaniam said that although the technical recession experienced by Singapore has not yet translated into unemployment, it was better for Malaysians to be prepared.

“If there is unemployment due to a recession, our workers will be hit,” he told The Star here yesterday.

“They need to work on retraining and acquiring new skills to ensure they have jobs during such times.”

He said that Malaysians accounted for about 30% of the foreign workforce in Singapore.

Dr Subramaniam said that many of the Malaysian workers in Singapore were unskilled and employed in the manufacturing sector.

Asked about whether the ministry had a contingency plan for such a situation in Malaysia, he said that Malaysia would have excess job vacancies as work presently being done by foreigners could be offered to locals instead.

According to economic data released by Singapore’s Ministry of Trade and Industry, the island republic will be the first Asian economy to fall into a technical recession.

A technical recession is generally defined as two consecutive quarters of contraction in economic output.

Dr Subramaniam, after an hour-long meeting with his Singapore counterpart Gan Kim Yong, said they had discussed various issues.

On instances of Malaysian workers being cheated in Singapore, he said that the Malaysian High Commission had received 1,250 com­plaints within the first nine months of this year.

Dr Subramaniam added that there was something wrong with the re­cruitment mechanism and the ministry would have to check on the matter.

4.  18-24 months global recession likely – and stagnation?

It looks as if we are staring at a 18-24 month global recession, at the very least – no thanks to the greed that was on display in Wall Street and among global capitalists, financial institutions and commodity speculators until recently.

The latest stock market rally on Wall Street is likely to be temporary as the underlying problems are still there. Drastic measures by central banks world-wide are needed to prevent a financial meltdown and a long period of stagnation like what happened in Japan. Already, such measures have been initiated in Europe and the US, but will they be enough to contain a further slide and an even longer stagnation?

The damage has been done, says economist Nouriel Roubini:

… major sources of future stress in the financial system remain; these include the risk of a CDS market blowout, the collapse of hundreds of hedge funds, the rising troubles of many insurance companies, the risk that other systemically important financial institutions are insolvent and in need of expensive rescue programs, the risk that some significant emerging market economies and some advanced ones too (Iceland) will experience a severe financial crisis, the ongoing process of deleveraging in illiquid financial markets that will continue the vicious circle of falling asset prices, margin calls, further deleveraging and further sales in illiquid markets that continues the cascading fall in asset prices, further downside risks to housing and to home prices.

A big problem now is that consumer spending has dropped drastically in the US and elsewhere. To solve this, greater government spending is required to benefit ordinary people, adds Roubini:

Since the private sector is not spending and since the first fiscal stimulus plan (tax rebates for households and tax incentives to firms) miserably failed as households and firms are saving rather than spending and investing it is necessary now to boost directly public consumption of goods and services via a massive spending program (a $300 bn fiscal stimulus): the federal government should have a plan to immediately spend in infrastructures and in new green technologies; also unemployment benefits should be sharply increased together with a targeted tax rebates only for lower income households at risk; and federal block grants should be given to state and local government to boost their infrastructure spending (roads, sewer systems, etc.). If the private sector does not spend and/or cannot spend old fashioned traditional Keynesian spending by the government is necessary. It is true that we are already having large and growing budget deficits; but $300 bn of public works is more effective and productive than spending $700 bn to buy toxic assets. If such fiscal stimulus plan is not rapidly implemented any improvement in the financial conditions of financial institution that the rescue plans will provide will be undermined – in a matter of six months – with an even sharper drop of aggregate demand that will make an already severe recession even more severe. So a fiscal stimulus plan is essential to restore – on a sustained basis – the viability and solvency of many impaired financial institutions. If Main Street goes bust in the next six months rescuing in the short run Wall Street will still lead Wall Street to go bust again as the real economy implodes further.

Might I add, if we spend on infrastructure, make sure it is environmentally friendly infrastructure that will really benefit the working class: public transport, government hospitals, schools in rural areas, rural bridges, ferries, sustainable/organic farming – and not white elephant or environmentally unsustainable projects.

The global economy is in a huge mess thanks to the high-flying corporate vultures and “business friendly” and “deregulation” policies, which largely benefited the elite and the wealthy. How East Asia is affected will depend very much on what kind of impact the global recession will have on China.

So far our standard traditional response in Malaysia when confronted with economic challenges has been to go scouring the globe in search of export-oriented “foreign investors” in the hope they can wave their magic wand and save us from doom and gloom.  Christopher Wood, writing in Far Eastern Economic Review, says Asian governments must react constructively:

It is important that Asian policy makers—and most particularly Beijing—respond to the shock of the slowdown in U.S. consumption in a constructive way. This means increasing efforts to move their economies away from excessive reliance on export-led growth. If they react in the opposite way, and engage in competitive devaluations as they see their foreign-exchange reserves decline, they will only succeed in delaying the long-overdue rebalancing of their export-driven economies and could spark a global trade war.

Yes, move away from excessive reliance on export-led growth. We don’t have to look far to see what happens if we are too exposed to the vagaries of the global economic order: Singapore is already in recession.

It is time to focus on reconstructing and restructuring our domestic economy so that we become self-reliant, self-sustaining and capable of weathering the gathering storm around us. 


One Response to “Its the economy stupid” – Part IX

  1. Patricia says:

    Wah, cukup to simply revise the figures, ah? Wah-wah-wah, I’m impressed. man. Damn terror lah, our new finance minister! The rest of the world, they are bailing out going-to-fail firms, and pumping money into their economies. Here? All is well lah, nothing to worry about! No need for new budget – whaffor?!

    I think the question usually asked at this point, shoud be revised to read: Which planet are they on?


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