Saturday, January 10, 2009

Global Economic Crisis and Shifting Political Competitive Landscape

Klang MP Charles Santiago and Pandamaran Assemblyman Ronnie Liu were kind enough to invite to me to speak at a forum on the impact of global economic crisis on Malaysia. It was held at a Chinese school in Klang.

I was there to experience first hand the notorious Klang traffic jam. It took me nearly 1.5 hour to get to the place from Petaling Jaya. Later, Charles told me that the road widening project was planned in 2002, still under construction in 2009 and may not be able to meet the traffic volume once completed in 2010. This is Malaysia Boleh!

I would like to share with you a brief note of my speech. I would like to hear feedback on what we can do to mitigate the slowdown.

Key Observations:

1. United Nations report “World Economic Situation and Prospects 2009 — Global Outlook 2009” dated Dec 1, the world will witness world gross product (WGP) “slow to a meagre 1.0 per cent in 2009 — a sharp deceleration from the 2.5 per cent growth estimated for 2008. Such insignificant growth may not augur well for the growing world's population. Hundreds of millions of new workers are joining the work force each year and many may find themselves jobless. Jobless rates in the US, UK, EU and China are growing. More than 4.6 million are already claiming unemployment benefits in US.

2. A total paralysis of the global banking and monetary system and many global banks are on the verge of collapse. Nationalisation of banks in developed world. Significant retrenchment from the financial sector – may hit Malaysians working abroad with these banks. Financial executives and bankers working in foreign banks in Singapore and Hong Kong are already facing retrenchment.

3. Manufacturing orders drop by as much as 20 to 30 per cent. The manufacturing sector accounts for 75 per cent of the country’s exports and 30 per cent of GDP and employment. By Q1 2009, more than 70 percent of manufacturing companies in the semiconductor and E&E sector are expected to cut production and reduce working hours – impacting take home salary. Charles made a good point to urge the Federal government to set up a RM3 bil SME fund to help ensure retrenchment does not affect SMEs. Job losses contribute to lower consumer demand and lost of family income. This is much better than spending RM5 billion to allow Value Cap to prop up the stock market, which is temporary and insignificant.

4. Jobs creation will be slow and less. A number of companies have frozen intake and cut contract workers. There will be increasing unemployment from Q2 2009. Unemployment may hit 5% or more.

5. Major industries such as tourism, retail, automotive, F&B and construction are expected to record negative growth.

6. Political competitive landscape is slowly shifting from governance to the economy. However, we need to emphasize that good governance is needed to bring back our economic dynamism. People will be less worried about ISA or Hudud compared to staying employed and socio-economic well-being.


Malaysia’s economy is not affected by the global economic crisis. This is a myth!

1. The global economic situation is made worse by conflicts in the Middle East, Nigeria and around the world.

2. Asian countries, including Malaysia, cannot export out of its trouble this time. Many Asian countries have seen their stock markets suffer and currency values going on a downward trend. Asian products and services are also global, and a slowdown in wealthy countries means increased chances of a slowdown in Asia and the risk of job losses and associated problems such as social unrest.

3. Malaysia’s other main markets including China, Japan, South Korea and India are facing similar slowdown. The only market still holding is ASEAN. Malaysia-ASEAN trade amounts to 25% of our total exports.


1. Keep domestic demand high enough to offset slowdown in export. Consumer and business sentiments have suffered tremendously. More companies are feeling negative (+38% to +2%). Consumers fearing job security and economic uncertainties will cut down consumption. Consumption and investment are perception driven.

2. Continue to encourage domestic investment. If the review of NEP remains a lip service under Datuk Seri Najib Tun Razak’s leadership, nothing much will change. Many other related legislations should be reviewed too e.g. ICA 76, FIC, procurement process, etc.

3. Create jobs and encourage more entrepreneurship.

4. Create new economic niches, sectors, industries and skills.

5. Market liberalisation and decentralisation – less government competition and participation in the market. Government’s role is to facilitate policy direction and not participating directly in the economy.

6. Prudent public spending should go into high value projects. Otherwise, the government should just give out money directly to the people – the most effective way to enhance consumption.

7. The government should adopt direct income tax cut instead of reducing EPF saving by 3%. Taxable income should be increased to RM5k a month.

Political Challenges:

Barisan Nasional:

1. By controlling the Federal Government, it has a great advantage to partake positive policy direction to impact the economy. However, the coalition must not continue to play divisive politics and hoping to punish state governments it does not control. Malaysia will do better if state governments are given more resources and freedom to manage their own economy.

2. Due to its structure, it will be difficult for the coalition to review and restructure its own political framework to enable real liberalisation and decentralisation to take place.

3. Difficult to review old policies which are detrimental to economic rejuvenation – e.g. NEP, FIC, ICA and other old economic practices.

4. Lack of imagination in its response to the current crisis – gave unreal assurances to the people. Lack of consensus amongst its partners on the best way forward – continuity of NEP or meritocracy? The federal government is seen as dragging its feet to ensure there is no free fall of the economy. PM Abdullah has repeatedly said there will be no recession. Can he guarantee this?

Pakatan Rakyat:

1. The newly minted coalition is overly focus on politicking and to snatch power prematurely from the BN. Its Economy Policy is still Work In Progress. There is no clear person (a senior leader) who can be trusted as a de facto economic/finance minister.

2. Too dependent on one person or a spokesperson (Anwar Ibrahim) on almost all issues. The coalition must become a real governing coalition instead of a platform seen to advance the political ambition of a person.

3. There is almost no coordination amongst the 5 state governments under PR. Some of these states are the most industrialised in the country. Lack of proper coordination does not augur well for PR to demonstrate that it is able to govern as a block. Are the most advanced Selangor and Penang ready to help Kelantan or Kedah during downturn?

The most significant political impact of the global financial crisis is the shifting of the political competitive landscape from human rights or democracy issues to the economy.

The people will soon tell the politicians “Show me the money, not just Change!”


GreenBug said...

Good summary. But lacks actual numbers affected by loss of jobs in Malaysia or actual GDP forecast for 2009-10.

zozdaniel said...

The Government has often associate National Development with Infrastructure and Civil Engineering Projects.

The dispense with a major chunk of the National Cofers through contract awards in this sector clearly do not filter down to the masses because majority of the rakyats are not involved in this sector at all. Rather the foreign workers and foreign suppliers of specialist equipments and products are the people gainning from such a development.

This is an opportune period that considerations should be focussed upon the developments of co-orperatives societies where the Rakayt Masses can be mobilised to carry out works that could realised real revenues in the immediate term and the future.

What has happened to the many co-orperative societies dotting the villages throughout the country? Many of them have suffered from malpractices and corruptions within their own identities ! the co-orperative Development Department have failed the country through their failure in implementing proper monitoring mechanisms!

It is time that the co-orperative movements should be revitalised though sincere Governmental support in terms of nurturing Entrepreneur development and channeling of government projects. The current practice of concentrating opportunities through nepotism and favourtism should be stop.

To enhance real promotion of National Unity, Multi-Racial co-orperative societies should be given preference over other racially and politically linked societies.

Very often, the sincere develoment of the Rakyat masses are forgotten and major chunk of government development expenditure do not reach the masses because of lack of sincerity by the people in power.

doinkers said...

Simple & straight to the point. Hope that more people would realize that Malaysia is affected like the rest of the world.