Wednesday, February 4, 2009

Dr M thinks RM28 billion stimulus is necessary

Dr M is reported to have suggested that an RM28 billion stimulus package is necessary. He also suggests that this large stimulus package can be funded from EPF's RM250 billion worth of savings.

Echoing what Ku Li had observed, Dr M said that any stimulus package needed to take into account the total economy. The package has to be selective and, the government should not merely dish out assistance to any sector alone.

He is quoted as having said that, "It is not a question of just giving out the money and suddenly the economy grows. You have to pick and choose what you do in order to really achieve some impact from the money that is being spent".

EPF as a lender to the government
Frankly, I'm comfortable if the government is the borrower of RM28 billion from EPF. Here are my reasons:
  • First, the yield on the borrowing and repayment terms must be reasonable. It cannot be lop-sided. The government collects a lot of revenue. It is the most reliable borrower in the current economic climate.
  • Second, detractors must not decry their EPF savings being put to work by the government. In the current economic climate, lending to the government is a damn sight better than to have EPF punt in Bursa Malaysia.
  • Third, if we all regard Malaysia as being one big boat that we are all in and, if lending EPF money to the government will enable a concerted and targeted fiscal stimulus package to be implemented, we should support it. Such a move will create more liquidity in the economy. It will create more economic activity. This will restore business confidence. Aggregate investment by the private sector will rise again. Malaysians will be assured of jobs. Aggregate demand and household consumption will increase. The boat will be saved. We will be economically saved.
MGS @ 6% p.a yield
To keep it simple, the borrowing should be made via issuance of 5-year term MGS at an annual yield of 6%. This should allay any concerns by EPF stakeholders.

The current state of play: Malaysia is the 3rd most exposed economy in Asia

Credit Suisse, in its latest bulletin (alerted to me courtesy of the great walla), reckons that Malaysia is Asia’s most exposed economy to the global downturn after Hong Kong and Singapore.

E&E sector is looking worse by the day
Almost half of Malaysia's GDP is directly connected to the export market led by the electrical & electronics (E&E) sector. It is estimated that more than one-third of Malaysia's GDP is directly related to merchandise exports, which are heavily concentrated in E&E products that form 40% of the value of total exports.

The tourism sector contributes to 7% of the total value of GDP. This is the highest tourism component in any Asian economy outside of Japan.

Commodities export values down
Petroleum products and palm oil contributed to 10% of Malaysia's GDP last year. This is expected to fall to 5% of GDP in 2009.

Consumer and business sentiment near all time low
Based on MIER indicia, Malaysia's consumer and business sentiment dropped sharply in 4Q08 and continues to be deeply pessimistic.

Business sentiment is at its lowest since the index’s inception in 1987, while consumer confidence is also close to its lowest point. Similarly, retail trade, residential property, and employment indices all fell sharply in 4Q08.

Now, does anyone dispute the government lending RM28 billion from EPF?
Given the bleak picture painted above, the current economic trajectory is headed towards a contraction of negative 0.5% of GDP.

I think Dr M's call makes sense.

But, I worry about the specifics of where the stimulus should be directed.

We need a big picture strategy. I need to re-visit my previous posts under the label strategy to embellish the proposals that I made earlier. Heaven knows, Malaysia's economic managers could do with some help. But will they listen to bloggers?


satD said...

EPF have always been the largest investor of MGS. To some extent exclusive via private placement for long term issues.

We can even introduced GDP Linked Bonds into the market to spice up things...

de minimis said...

Good point, bro.

walla said...

The real question is if the new stimulus has to be applied to those sectors avoided in the past due to the political expediencies applied to certain economic policies, would the government proceed to do so without further fanfare, taking courage from the fact that most of the fund's contributions would have come from those who work in those sectors in the first place?

Since this was not considered in the first package, it is not difficult to believe it won't in the second, and ditto in this new one if it comes to that.

One hopes it doesn't take a national economic crisis before people will really act pragmatically for once.

I add three links and they point to the one sector which really needs to be helped in more than lipserviced ways. That also applies to the blogger's concerned post about vocational training.

On which matter, some questions:

- was there ever a real attempt to elevate the standing of vocational training towards the german meistership level?

- teach the young to learn how to design and make things, rather than just follow today's task list?

- build real engineering knowhow applicable in the actual global market and founded in areas like actuator mechatronics and six-sigma industrial automation as opposed to pushing paper, drawing cables, testing consoles, laying bricks and maintaining lifts?

enjoy (and grief simultaneously for dear Malaysia...):


1. etheorist writes well too;

2. our locals make garments, gloves and furniture competitively; what's their common factor?

de minimis said...

As always, bro walla, you add more depth. The links are invaluable. Thanks.