Published February 17, 2009

Calls for bigger stimulus growing

AmResearch joins in, saying package should be 5% of GDP, or RM40b

By S JAYASANKARAN
IN KUALA LUMPUR

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YET another research house has joined the growing chorus in Kuala Lumpur for a much larger stimulus package that the government intends to present next month.

Not enough: A growing chorus of voices have made the call for a larger spending package. The government has so far doled out RM7 billion and Mr Najib is expected to table a 'mini-budget' that could unleash another RM10-12billion

AmResearch, a unit of the Arab-Malaysian banking group, said yesterday in a note to clients that Malaysia required a stimulus package equivalent to 5 per cent of gross domestic product, or RM40 billion (S$17 billion), to resuscitate the economy.

The government has so far doled out RM7 billion, around one per cent of GDP, and Deputy Prime Minister Najib Razak is expected to table a 'mini-budget' in Parliament next month that could unleash another RM10-12 billion in extra spending. But the government seems constrained by its growing budget deficit, which some economists think could hit as much as 7 per cent of GDP next year.

Even so, a growing chorus of voices have made the call for a larger spending package. Last week, former Prime Minister Mahathir Mohamad agreed with a panel of corporate leaders, including former deputy central bank governor Lin See Yen, that the government should at least spend an extra RM35 billion.

'I would generally concur with that view,' Dr Mahathir told reporters, adding that the government was perfectly capable of raising the money as the Employees Provident Fund 'alone' had over RM350 billion in its kitty. The corporate leaders had said previously that the amounts talked about so far were too small and ineffective to provide any kind of solution.

Indeed, some economists have suggested that the government raise its funding by having cash-rich government agencies such as the EPF, Socso and the National Equity Corporation take up long term government bonds. It is not clear if rating agencies would take a dim view of such an approach.

AmResearch did not tackle the issue of the deficit but used the experience of other countries to argue its case. It noted that other countries had unveiled stimulus packages that were, relative to GDP, far larger than Malaysia's. It said that the United States intended to spend US$1.5 trillion or 11 per cent of GDP. China was relatively larger with US$586 billion or 16 per cent of GDP, while Singapore intended to splash out US$13.8 billion or 10.7 per cent of GDP.

'We think Malaysia's package, as per GDP ratio, may not be sufficient to prevent a potential recession,' said the research house. 'While increased public spending is a step in the right direction, we are of the view that more money should be injected into Malaysia's system, especially when external demand is terminally ill and rising unemployment is impacting domestic demand.'