Thursday, October 23, 2008

Malaysia's Economic Dilemma

Dr Mahathir has every right to doubt DPM cum Finance Minister Najib Razak's economic soundness. The fiesty ex-premier threw a caution on his blog.

Both Najib and Nor Mohd Yakcob have reassured Malaysians that our economy will be spared from the global financial crisis. Both leaders are confident Malaysia's economy will not face a recession next year.

Dr Mahathir has every reason to be skeptical. He said; " I am glad to hear that Malaysia will be spared from the fallout of the systemic collapse of the whole world's financial system. This ability to isolate Malaysia and Malaysian banks from the effect of the bankruptcies of all the biggest banks in the world must be regarded as a miracle. Our ability to manage our financial system better than others must earn us the admiration of the world."

"I hope we are right in forecasting the effect on us of the collapse of the world's financial system. But I have a sneaking feeling that all is not well."

Indeed, all is not well. A senior contact from an international logistics company told me that trade volumes especially exports have slowed down considerably - by almost 30 percent. Even the MIER has predicted a probability of 40% Malaysia may face a technical recession next year.

What is making both Najib and Nor Yakcob so confident? This is actually an old dilemma of governance without transparency. Instead of sheltering the public from the actual situation, it is better for the government to keep them well informed.

Malaysian public and businesses will have to learn to adjust quickly to the global financial crisis. The crisis will inevitably dampen consumer demand in Europe and America - two biggest markets for our local producers.

Hence, Mahathir's observation is valid:

"Now the common practise is for importers to open Letters of Credit (LCs) with banks to ensure that when they receive the goods the corresponding banks will release the money. However, if the importers' banks go bankrupt they would not be able to transmit the payment.

They may be bailed out by the US Government. But they may not consider paying Malaysian exporters as a priority. In which case we will not be paid. Worse still we can no longer entertain orders coming from this market. Our trade must shrink.

We are not talking about one company. We are talking about hundreds of companies trading with America and Europe and other countries not getting paid for their exports. We are talking about tens of millions, even hundreds of millions of Ringgit worth of goods not being paid for."

Capital injection of RM5 billion (EPF loan) into Value Cap to buy up stakes in undervalued stocks may count very little compared to more than RM125 billion capital flight since the last few months. KLSE's response to the announcement was lacklustre. The Composite Index lost almost 14 points to close at 904.28.

It is pertinent for the government to improve its policy reflexes to address teething economic issues including the oil prices. If the retail oil prices are linked to the market, adjustment should be made as soon as possible to reflect the current market prices. Crude oil has dropped to USD68.07. Retail petrol price remains at RM2.30 per liter.

Next, with Singapore signalling massive retrenchment and a looming recession tens of thousands of Malaysians are expected to be out of job soon. It is very important for the government to strategize how to cope with higher unemployment rates.

Reductions of retail petrol price from RM2.70 to RM2.40 did not help to ease off inflation. Traders and retailers are not lowering the prices for fear the cuts may be temporary. Fluctuations of retail oil prices have created more market uncertainty.

Government enforcement appeared lost and unable to control the situation. Prime Minister Abdullah has called for joint consumers' effort to bring down prices. So far, no consumer group has responded positively to his call.

Malaysia is still taking a stroll on the beach. Other countries have pressed the panic button and start strategizing to face the implications of global financial crisis. Some analysts predicted the slump to stretch over to 2011.

Most people still believe Abdullah alone is the mother of all problems in Malaysia. Replace him and you get instant solution to our socio-economic woes. Fat chance. It is best we lose our fixation with personalities and focus on the real issues and challenges.

In a way, a postponed UMNO general assembly and party election is a bad thing for the country. For now, to the newspapers UMNO party election is more important our bread and butter.

Can we survive the crisis?

8 comments:

Jefus said...

How an export based economy can claim that it has remained unaffected with this global turmoil an insult to all thinking citizens.

The demand has slowed to a crunching snail speed. Singapore as taken steps to retrench Malaysian workers and announced hard times are upon them.

Prompt action to avert disaster will reduce damage. Denial will prolong the pain. Right now, the leaders are transfixed upon their own survival in politics, never mind the country,..

draken said...

You are right there about the present Gahmen's self denial of the fact that the global financial crisis has left this country untouched. That's an insult to any right-thinking person who has any sense of the financial market. There's no transparency, they are always covering up the dirt.

clearwater said...

Yes, we can survive the crisis but no thanks to our political leaders if we do so. They have not awakened yet to the fact that the crisis will be upon us soon and our lead time to counter it is slipping by. In the meantime, they are preoccupied with their own belly buttons. What a bunch of no hopers!

GobloKing said...

I am gonna inject strands from songs* I know into this comment

"Wonder of wonders, Miracle of Miracles!"

Msian govt should invite all world leaders to our country to study why & how come the whole world is affected but we aren't even TOUCHED!

And then we can export our "expertise" to those stupid countries like Germany, France & US who got into this mess

And becos we are so smart at fiscal management, hundreds of 000s of foreigners will flood into Msia to study Biz,econs & finance!

However- Me thinks 1 or all of below applies
a. they are hiding like mad

b. They think they can hide like mad ("money for nothing & the chicks for free")

c. They think we are all so dumba** they can hide everything

Also the reality of unemployed Msians coming back fr Singapore?

They are mainly chinese right? Does the govt care abt unemployment? Esp of non-Malays?

They don't even do anything when they have produced tons of unemployable Malay grads fr local unis!

Ah...my winged pigs! The day the Msian govt led by BN comes clean..thou shall fly free thru the air!

Anonymous said...

dont forget our motto..."MALAYSIA BOLEH" ... apa pun boleh!!! other countries in the world will be envious of our 'overly-positive' or 'know nothing' leaders!!

CWI MALAYSIA said...

The Asian economic crisis of 1997 showed the vulnerability and uncertainties of the Malaysian economy within the global market. This is what was behind Mahathir’s ‘defiant’ measures at the time to control capital movements and trade.

At present the global economy is more interconnected and exposed than ever, and this presents an uneasy position to a country like Malaysia. The recent credit and housing crunch in the US caused the Malaysian share market to lose billions of Ringgit in one day. Incidents such this demonstrate that the imminent recession will have a great impact on economies such as Malaysia.

Anonymous said...

Such a brilliant assertion came out from the mouth of the so called british-trained economist. Not bad not bad. Was that Keynesian or classical economics har?

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