Published February 16, 2009

MALAYSIA INSIGHT
Proper pump priming, please

Govt spending should be on infrastructure projects that promise the greatest multiplier effect

By S JAYASANKARAN
KL CORRESPONDENT
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ON March 10, Deputy Prime Minister Najib Razak, who is also Finance Minister, is expected to table a mini-budget and announce additional spending of close to RM10 billion (S$4.2 billion) to boost the faltering economy.

That the economy is faltering can no longer be dismissed out of hand. Indeed, the government is likely to revise downwards its highly optimistic projection of a 3.5 per cent expansion in real gross domestic product for 2009 to a more realistic level. The consensus forecast of private economists is between zero and one per cent, but pessimistic calls go as far as CLSA's dire 5 per cent contraction.

Exports are falling off a cliff. In December, the drop was almost 15 per cent. And it's across the board - affecting textiles, furniture, electric and electronic items, and to every other country. In November alone, over 10,000 workers were laid off. People losing their jobs means domestic consumption will start drying up.

The gloom over the economy is palpable. What should the government do about it?

The main thing is to preserve jobs so the government should try and cut the cost of doing business in Malaysia. The employers' mandatory contribution to the Employees Provident Fund of 12 per cent of worker pay should be slashed. Corporate taxes should also be cut by a meaningful amount, say five percentage points to take it down to 20 per cent.



Spending should be targeted at those infrastructure projects that promise the greatest multiplier effects, which means not pork barrel projects that please Class F contractors and nobody else. Do the Penang second bridge, the Pahang-Selangor interstate water project, the KLIA low cost carrier terminal and enhance the capacity of the light rail transit system in Kuala Lumpur.

These are meaningful projects and can help boost productivity and, in the case of the LCCT, actually earn foreign exchange for the country. Indeed, the LCCT should be fast-tracked as tourism has been the one shining star in the gloomy economic environment: tourist arrivals actually rose 5 per cent over 2007.

An obvious measure would be to scrap some of the more onerous requirements of the New Economic Policy, particularly the need for companies to have at least 30 per cent bumiputera equity, and the need for certain investments to get the nod from the Foreign Investment Committee. Indeed, the FIC should be scrapped: what investors need is speed and agility among our decision makers, not bureaucratic inertia.

The development financial institutions should open its doors to businessmen of all races. Bank Pembangunan Malaysia and its subsidiary, SME Bank, must furnish loans to all small and medium businesses, the most successful of which happen to be ethnic Chinese.

The SMEs are the bedrock of the economy and we neglect them at our peril. Expecting them to raise funds in this environment through means that exclude institutions specifically set up by the government to boost the economy is nothing less than cutting off one's nose to spite one's face.

And Mr Najib might want to throw fears about the budget deficit out the window. Forget Fitch and the rating agencies. High unemployment and a miserable economy are far worse dangers than a downgrade from rating agencies which could be said to have played a significant part in making all this come about in the first place.