Friday, March 06, 2009

Right Economic Stimulus Not Just the Size

The government tabled yesterday a RM10 billion allocation as part of the proposed second economic stimulus package. It was read out by Deputy Finance Minister Kong Cho Ha.

The RM10 billion allocation is evenly split, with RM5 billion going towards operational expenditure and the rest allocated for development expenditure.

On the outset, the amount allocated for the mini-Budget is going to be hotly debated in the next few weeks. Another more important aspect of the budget which needs scrutiny is its uses. It is not suffice for the government to merely state its intention to spend the money on operational and development without going into the details.

Of late we have heard some very unscrupulous suggestions which include reducing employers' EPF contribution from 12% to 8% or lower. More than 70% of EPF contributors have agreed to accept a reduction of their EPF savings from 11% to 8%. This suggestion does not augur well for the country. Malaysians do not save enough and many do have a retirement to last them in their old age. More than 12% of all Malaysians do not make any personal saving from their monthly income. About half save less than 10% of their monthly income in addition to the EPF contribution. This shows the importance of keeping the EPF saving rates untouched.

Then again, there is a double whammy for the economy if Malaysians start to save up more now at a time when there is a need to prop up local demand and consumption. Hence, the economic stimulus package must be precise and accurate in helping to address the consumption dilemma. At the moment, some figures from the industry are pointing to a dramatic slowdown in consumption. A check with certain retailers in KL and Penang showed a contraction of more than 40% after the Chinese New Year festival.

Correspondingly, exports in January 2009 were valued at RM38.3 billion, registered a drop of 27.8 per cent from January 2008, the Statistics Department said in a statement today. Total imports fell by 32 per cent to RM29.47 billion from a year ago. This is a clear measurement of domestic demand in the country.

In the next quarter, the export figures may even fall lower. About 36% of the exports are electronics and electrical products. This sector is experiencing serious contraction in the next few months. The export figures were registered from last year's end orders and new orders from the Q1 are expected to slowdown between 30 to 40%.

Malaysia's problem remains acute. We need to achieve a higher level of domestic consumption but the economic structure is export-led. Hence, the salary scale is kept low and the industries continue to depend on low-skilled and cheap foreign labour. With deteriorating exports to our main markets such as Singapore, US, Japan, Europe, China and South Korea, our domestic market cannot be depended on to support the local economy. Our economic structure is not geared towards meeting the needs of local consumers.

Next, the government is again drumming up its intention to deport foreign labour. Like previously, this action is a short termist policy to address the current economic dilemma. Deporting these low cost labour is a good thing but it is useless if the government does not help to fix the economic structure. Jobs vacated by these foreign workers cannot be immediately filled up by our local workforce. These jobs are dirty, dangerous and demeaning. Many of the foreign workers are paid paltry salary, live in inhumane condition and are not covered by any medical insurance. Not many local workers are willing to accept similar terms.

If fact, local companies using predominantly foreign workers would prefer to close shop than to be made to hire local workers. These businesses just cannot survive paying higher salary cost without a proper restructuring to their operational process and management capacity.

Here is where the government should intervene in the new stimulus package. It should try to make some of these jobs in the construction and agricultural sectors better paid and allow for an adjustment of businesses to move up the industrial value chain. Construction and agricultural methods can be made more high-tech, efficient and flexible.

The use of high-technology e.g. pre-fab construction method can allow companies to train and utilize better skilled local workers. Construction can focus on design and quality rather only on cost. The implication of using low-skilled workers in the construction industry is quite evident. Many of the buildings and infrastructure were found defective barely a few years and sometimes months into their completion.

The dependence on low-skilled labour is a disincentive for companies to invest in better technology, training and work process. Since 1991, the country has envisioned to become a fully developed country by 2020. The country's bold and broad knowledge-based development blueprint is not going to be fully realised if this trend continues.

Hence, it is not just the size that matters. The second stimulus must be targeted at changing the economic structure for the better. A number of local analysts have called for a comprehensive strategy to manage the economic crisis. This strategy should drive the country to improve its inventiveness, human resource development and reinvent its industrial development.

We do not have that many RM10 billion to throw around. It is time for the government to put in some serious thoughts into ensuring that this country will ride out of this economic storm better and more competitive. Otherwise, we would be staring at the back of more competitors running ahead of us.

9 comments:

K L said...

A portion goes to UMNO election, a portion goes to 3 buy-elections and a portion goes to London's QC plus Silver expenses !

SH Tan said...

KP:
The ringgit has weakened about 7% against the USD since Dec 08. While the volume may have shrunk, the strengthening greenback (vis-a-vis the ringgit) may shore up our trade revenue in ringgit terms artificially this quarter. Looking at fiscal dollars alone may be misleading.

Anonymous said...

Mr Khoo,
Could you explain the negative repercussions the Perak Fiasco will have on the nation's economy, notwithstanding the two economic stimuli totalling RM 17 billion.

By negative, I mean the leanings of public institutions - the police, MACC, EC and the biased Judiciary towards protecting UMNO interests in favour of national interests.

I for one will not invest in this country and in fact take away my capital from here to elsewhere.

Kindly write an article on the above question. Thank You.

Anonymous said...

Democracy works when majority prevails, so pendatang get lost

Anonymous said...

I agree that it is useless by merely announcing the another stimulus package. If I am not mistaken, less than 10% of RM7bn has been spent on 8,100+ projects.

If the government is slow in implementing or executing the plans, why not announcing measures that Raykat could benefit immediately from the stimulus package??? For example, reducing both corporate and personal taxes, distributing money to genuine hardcore families etc.......

Also, I don't think we need more than 2m+ illegal workers to reside in Malaysia. If this issue is dragged on, I am afraid that in future Malaysian politicians will have to win votes from these 'illegal-turned-legal' Malaysians..........Another sad chapter to be added in the history of Malaysia!!

Malaysia Boleh: in corruption, mismanagement, short-sighted view, personal gains, boosting crime rates, political comedy, abusing of power.........cannot think of any vices that Malayasia Tak Boleh??

Anonymous said...

Lets hope the economy collapse so that the have becomes have-nots. Everybody will now be on equal terms - no more Queks,qwoks and kwans.These and their fellow vhina fortune hunters will migrate again to another place to squander.Utopia for Tanah Melayu - we get back our peaceful way of life without brothels, pig farm and kongsi gelap

Anonymous said...

After throwing the RM10 Billion, then what? We know most the expenditure is wasted. From re-training unemployable graduates to building low cost home in places people dont want to stay by crony contractors.

We need structural changes.RM 10B can barely save the cronies. What is there for the rest of us.

Anonymous said...

it aint gonna be 10 billion. its 35 billion. who cares. no wonder his cronies are salivating.

target resources, you already got your 98 million deal a year for doing nothing (where others are prepared to do it for 80% less)? by the way, what do you know about submarines?

Anonymous said...

When pendatang all leave ( pendatang = chinanese and indians) there will be less material needs.Peace will hence prevail in this Tanah Melayu