Published March 19, 2009

Global crisis justifies RM60b stimulus: Najib

He says in the longer term, the economy will need a further transformation

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S Deputy Prime Minister and Finance Minister Najib Razak has indicated that he would rather err on the side of caution by coming up with an unprecedented RM60 billion (S$24.8 billion) stimulus package, the amount justified in his view by the continuing downward spiral in the global economy.

'Some may say this is too much. But with our low foreign debt, large international reserves and ample banking sector liquidity, we have the capacity to fund it,' Mr Najib wrote in a commentary carried by The Wall Street Journal yesterday. 'Given the magnitude of the still evolving global crisis, I am convinced the risk isn't that we do too much, but that we don't do enough.'

The package, which amounts to 9 per cent of gross domestic product (GDP), was far larger than expected, but Mr Najib said the country would use the current downturn and stimulus to better position itself for the future.

He acknowledged that in the longer term, a further transformation of the economy was required, and spoke of forging 'a new economic model that puts knowledge first', mentioning greater investments in education, technology, renewable energy and other emerging sectors of the new economy.

Perhaps reacting to criticisms of the 'mini-budget' which allocated RM15 billion to fiscal injection, the rest to guaranteed funds, tax incentives, and private finance initiatives and projects undertaken by Khazanah Nasional, Mr Najib said it was not about resorting to popular policies or handing out cash, but 'about achieving maximum impact'.

Unusually, his younger brother Nazir, who heads CIMB Investment Bank, has not made any public comments on the economic package, except for a brief observation at an investment conference organised by his bank yesterday about the benefits even one per cent of the mini-budget would have on the country's education system.

However, in a presentation paper on 'The Malaysian Outlook', the bank's senior economist Lee Heng Guie observed the country was in a 'not too bad position' to deal with the global crisis, citing its hefty external reserves and financial sector's stronger asset quality as some of the reasons.

Still, he warned the budget deficit of 7.6 per cent of GDP was set to balloon 'much higher' next year as oil earnings, which contribute over 40 per cent to national revenues, have shrunk sharply in tandem with lower crude oil prices

Even so, Malaysia's public debt to GDP was still low at 40 plus per cent and it could tap the ample liquidity in the domestic market in the short term, he said.

But because the government had run a deficit for 12 straight years, he suggested it commit to a blueprint on how it planned to lower the deficit over the longer term, or risk a downgrade to its credit ratings.

Big budgets aside, effective public spending would be the key driver in the downturn, with transparency of spending crucial to investors.

His current forecast is a contraction this year of 1.5 per cent in the worst-case scenario and a firmer recover in 2011 with economic growth of 5-6 per cent.