Monday, November 3, 2008

Doodles on the economy

In the immediately preceding post, I featured this passage:

7. Aseambankers expects the upcoming Economic Package to address this issue with measures to boost consumer spending and the enlarged public sector spending (Federal Government and GLCs), support key growth sectors/areas like tourism, as well as raising the competitiveness and attractiveness of Malaysia as a foreign direct investment location.

Here are my jottings:

Consumer spending
One of the most unfortunate decisions made by the government was the 45% fuel hike. soon after the March 8 General Elections. This contributed directly to Malaysia's inflationary spike to 8.5% by September.

Yes, fuel prices are coming back down in stepladder fashion. But has prices come back down? The Minister of Domestic Trade and Consumer Affairs, Shahrir, has his work fully cut out.

Inflation is sticky. It is sticky because the entire supply chain from producers to wholesalers to retailers want to preserve their profit margins. But, before we take our cudgels to beat their brains out, we have to recognise that overall consumer spending has declined. So, sales turnovers have been dropping.

This is the adverse outcome of the economic risk that the government took when it hiked fuel costs by 45%. It started a vicious downward consumption cycle that it now has to combat.

Word has it that measures afoot may include reducing EPF contributions by employees. Between Shahrir's pressure on the supply chain unstick retail prices and releasing additional disposable income to Malaysians the government hopes to stimulate consumer spending. Will it work?

Public sector spending
The budget deficit for 2008 and 2009 was earlier fixed at 4.6% of GDP and 3.2% of GDP respectively. As analysts and Pakatan Rakyat have been highlighting, those numbers were based on a few key assumptions that has become very, very shaky, if not already obviated.

One assumption was that oil prices would average at USD125 per barrel. Now, oil prices have gone to USD67 per barrel. Petronas, which contributes a whopping 44% to government revenues, may not have so much to give.

Another assumption was commodity prices, especially CPO prices, that were assumed at RM3,000 per metric tonne. Now it hovers at around RM1,200 to RM1,400 per metric tonne.

A reduction of the budget deficit is in order. But, against that is the pressure for fiscal stimulus and pump-priming, traditional Keynesian responses to economic downturns.

To that fiscal challenge, my favourite cryptic remark is, If you don't have enough bullets, don't use a shotgun. Use a sniper rifle instead. Select your targets very, very carefully.

Competitiveness in attracting FDIs
Frankly, I'm sceptical about this traditional obssession with FDIs. If you've been reading this blog you will have sensed my scepticism.

This is a type of quick fix that we can be certain, MOF1 Najib's coterie of fiscal advisors will put on the plate to serve to the Malaysian public tomorrow.

The level of thinking on FDIs is no higher than that of a landlord. Need more tenant's. Got more competition from other landlords in the neighbourhood?

Lower the rentals.

Give three to five years of free rent aka pioneer status tax holidays and, other customs and tariff incentives/waivers.

Those are the conventional and traditional tactics (not strategy) that Malaysia has been using to compete for FDIs.

True competititveness needs long-term planning
There's a sick economics witticism about a student asking an economic lecturer about the long run effects of fiscal policies. The tired old lecturer's reply was, In the long run we are all dead.

But, not to be deterred by such gallows humour, I want to make an observation that Najib's so-called Economic Stabilisation Plan scheduled for tomorrow will, of necessity, be looking at short-term and medium-term fiscal policies. These are quick fixes.

We should not lose sight of the fact that Malaysia's true challenge for true economic competitiveness is in the area of improving skills (which can only come from decent education in a competitive language like English) which, in turn, will have genuine long-term multiplier effects such as higher pay, higher consumption spending and greater productivity.

Malaysia's true economic success will be the creation of high-technology SME clusters that will provide ancillary support to the FDIs and, even large Malaysian industries. Such a development will make Malaysia a true economic competitor. By the way, SMEs are the BIGGEST GROUP of Malaysian employers.

So, it would be a truism to say that the good health of the SMEs will guarantee the good health of the Malaysian economy.

5 comments:

Unknown said...

deminimis, I think you have one of the best blogs around.

walla said...

..and THAT (what the blogger suggested for education)was what has been said ad nauseum by bloggers and commentators for the last five years.

Having said that, it must be noted this government is lucky. Its boo-boo in not recognizing the multiplier effect a price hike on fuel has on the whole spectrum of our human existence is now nullified by consumer disenchantment which will blunt the spike that was the result of the hike. (;P)

Latin is needed now. Under ceterus paribus, one should of course build inhouse excellence before inviting for FDI to come join the fun of making more money. But apart from rubber gloves and rubberwood furniture, treadmill swimming pools and ali cafes, has there been inhouse excellence built all these years of tolerating the roles and moods of FDIs?

Where are the brains which can make inhouse excellence a reality today? The people who make and run the policies that end up shooing them away are the same people who in the next few days will have to explain to the rakyat why inhouse excellence will have to be put on the backburners because in the immediate, short and medium-terms, we will still need those FDIs. To make it more digestible, their spinmeisters will add to the sentence the last clause '...until such time we can stand on our own.'

Fifty two years and we have not been able to stand on our own?

Here, click away at this simplest of examples until something opens to you:

http://tinyurl.com/58hpnf

The shooters before us will themselves face personal problems. One, they only see short horizons. Four years. Two, whatever they suggest has to be delicately advanced because no one has todate resolved the seemingly opposing issues. Three, the most important thing to do - not just the education that the blogger has in mind - but the education this commentator has in mind - has not been done and will not be done.

Because, a, everyone knows what that second module is, and b, everyone also knows why it will not be done.

We don't have another fifty years. Actually the hourglass has run out of sand.

The desertification of this country is imminent.

de minimis said...

Thanks, shari.

And, walla, I guess we'll have to keep hammering and chipping away at the stonewall of seeming indifference of the government to the importance of education as a key DNA for Malaysia's future economic competitiveness until the wall of indifference collapses.

walla said...

i don't doubt that, de minimis, but to your even-keeled tone, someone has to raise ascerbic ruckus in the eventuality that as they dismantle one wall, they may be erecting another behind it.

Goalposts have been shifted, what more brickwalls.

de minimis said...

Yes. Sometimes "even tones" fall on deaf ears. You're right about "other walls" being erected. Maybe a ranting and raving post is in order in the very near future!!! Jokes aside, this is a serious strategic oversight by Malaysia's economic planners.

Education is seen as a political issue involving different ethnic tribes and their Babel-tongues.

Education should be framed as an economic and development issue.

All the talk of moving to a K-economy is rubbish when the government cannot even articulate the need for English in Malaysian education.