Published January 12, 2009

MALAYSIA INSIGHT
Second stimulus plan needs speed boost

By PAULINE NG
KL CORRESPONDENT
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Malaysia's Second Finance Minister has acknowledged there would likely be a need for a second stimulus package this year. For many, nervous after the raft of data showing a sharper than expected decline in economic activity in the fourth quarter, this can't come soon enough.

The latest was a plunge in industrial activity as manufacturing output shrank 9.4 per cent in November from a year ago, chiefly because of an external demand slump. This came on the heels of a significant weakening in exports and a dramatic swing in the balance of payment to a RM31 billion (S$12.7 billion) deficit in the third quarter, from a surplus of RM26 billion in the second.

Economists expect the second package to be likely of similar size to the first of RM7 billion, or roughly one per cent of GDP. If handled properly, the extra spending could help offset the deepening downturn and help meet the official growth target of 3.5 per cent this year.

Given the additional RM30 billion allocation last year in the mid-term review of the 9th Malaysia Plan - ostensibly to meet higher building material costs - coupled with 2009's expansionary budget, government spending would already be increased by double-digits. Moreover, substantial investments were planned for the five regional economic corridors, launched over the past two years.

The idea is to expedite these projects now so as to reduce further allocations, which in turn would help cap the budget deficit which is projected at 4.8 per cent of GDP this year.



Thus far, little has been seen or felt from the first stimulus package, announced in early November.

The keen January 17 by-election being contested in Kuala Terengganu, followed by the March elections of Umno (United Malays National Organisation) - the dominant party in Malaysia - could have distracted from the job at hand.

Likely compounding the matter is the multitude of government agencies - Malaysia has a disproportionate numbers of ministries for its population size - that could be involved in the allocations.

Once the initial momentum has been gathered, it would have to be repeated should there be a need for a supplementary package, resulting in a further time lag. A larger package in the first instance would have minimised the time lag.

In regard to speed, the private sector can undoubtedly do it faster - which is why Putrajaya ought to quickly draw up incentives to encourage investments and to cut the red tape for those that have broad base appeal and reach.

Private sector projects such as Sime Darby and AirAsia's to build a RM1.6 billion new low cost carrier terminal in Labu are the types of spending which economic spin-offs are worth looking at - leaving aside the controversy of building it away from the current main terminal at KLIA and the threat by airport operator Malaysia Airports to duplicate its efforts with another terminal at KLIA.

Also in regard to speed, the Treasury's decision to end its austerity drive for government departments and agencies - implemented last year when oil prices were at a peak - is a quick-fix that is unlikely to go down well with the public.

Over the weekend it said the ban on new vehicle purchases was lifted and that ministries and agencies could renovate, move into new premises, or buy assets that are work related.

Although the Treasury stressed funds had to be 'well- spent' and only 'when necessary', it's sending of the all-clear signal to spend and then some more, is likely to result in a rash of spending disproportionate to the value received.

Given the sheer waste of public monies running into the billions revealed by successive annual audits by the Auditor-General, there is much to be concerned about - and likely to reinforce the notion that the government's ever ballooning operating expenditure needs to be reigned in.

If demand needs to be so badly stimulated, a one-off cash payment or rebate to low income families would be far more meaningful. And certainly more popular.