Monday, March 09, 2009
Daim says: Crisis also a time for opportunity
Based on the steps being taken by the government, is it possible for Malaysia to get out of the current economic situation?
This global crisis is the worst since the 1930s and some say in the past 100 years; and it is affecting
severely major sources of global growth, namely trade and investment.
Malaysia needs to take the right measures to help the affected sectors overcome this crisis. The first
stimulus package is an initial response. So, it is too early to say whether the government's response will help Malaysia overcome the crisis.
The government has announced that the Mini- Budget will be more comprehensive and bigger. The
Federal and State governments will have to work together to ensure effective implementation to produce quick results without wastage.
This crisis is also a time for opportunity. It gives the government time to plan for the next five to 10 years. It needs to put on its thinking cap. Identify new industries. Old manufacturing policies are dead. We can’t compete with countries like China or Vietnam in low-cost and labour-intensive industries.
In your opinion, given the current situation, what form of drastic but effective measures should the government implement?
The government should implement measures that can expand domestic economic activities and boost
domestic demand. These may include quick-to-implement infrastructure projects with large multiplier effects. It is also important that the government boosts public confidence so that people will spend and the private sector will invest.
Unemployment is another major area to be tackled. It is estimated that during the present crisis, 50 million people will lose their jobs globally and American intelligence sources say this will be a bigger threat to the world than terrorism.
How large should the allocation in the stimulus package be to stimulate the Malaysian economy?
The stimulus package should be sufficiently large to give the necessary expansionary effect. It should be, in my opinion without the benefit of figures, at least two per cent of the GDP. But the size of the package alone is not sufficient. We must also consider the types of measures introduced, the multiplier effects of the measures as well as the effectiveness of the implementation, including the capacity to implement.
The government claims that the country’s economic fundamentals and financial system are sound enough to face the global economic crisis. Do you agree? Can Malaysia sustain itself just by relying on a strong banking system?
Malaysia has benefited from having a sound and strong financial sector in facing the current global crisis because we were not affected by the first phase of the crisis, namely the financial sector
turmoil, except for the sharp fall in the stock market.
However, the health of the financial system is also dependent on the state of the economy. If there is going to be high number of defaults, then non-performing loans may increase and this will
affect the banks’ capital base. The banking sector also has an important role to play in this crisis – it must continue to extend loans because if banks are overtly cautious, the private sector will not be able to continue its operations because of lack of financing. Banks must be encouraged by the government to lend to productive sectors and help small businesses.
Bank Negara should do stress tests on all banks on the assumption that there will be negative growth,
unemployment will increase, exports will go down and NPLs will increase.
Will the Mini-Budget be enough to resuscitate the economy?
We have to wait until the Mini-Budget is announced.
What should be the main focus in the Mini-Budget?
The areas that should be focused include the boosting of the domestic economy through supply side
measures (eg government investment on infrastructure projects) and demand side measures (eg increasing consumer demand through incentives for consumers to spend), unemployment and training.
The prime minister has indicated that the Mini- Budget will focus on saving jobs and helping businesses. The government has announced a number of measures to extend credit to businesses, but I am not sure businesses can get credit. Thus, it is very important that the funding schemes announced be implemented immediately so that businesses can get capital to continue their operations.
At the same time, the Mini-Budget should also include measures to prepare Malaysia for the future and to restructure the economy — for example measures to improve technology capabilities
and energy-efficient technologies.
Given a choice, would you opt to announce a stimulus package or a Mini-Budget? What advantages do either of these have?
As the package may require a substantial allocation, the government may have to go for a Mini-Budget.
There has been some views that the government should reform NEAC or create SPVs like Danaharta and Danamodal to help face the global crisis. What do you think?
The government needs a focused approach and a quick response and implementation of measures to overcome the economic slowdown. In the 1997-98 crisis, Tun Dr Mahathir Mohamad decided
to establish the NEAC. I was appointed executive director. It was a fulltime job. The exco met daily to monitor and make decisions. We formed a working group and met about 250 individuals and organisations, then came up with an Action Plan.
Today, the crisis is worse than 1997-98. It is global compared with 1997. The public, including the private sector, want to see a clear, quick and coordinated response to developments affecting Malaysia. Therefore, it is up to the government to decide what the best mechanism is to respond to the crisis.
What is important is that the public is confident that the government is responding quickly and effectively to the crisis. The government should restructure the existing response mechanism so
that it has a central response point. In my view, we don’t need to set up special vehicles such as Danaharta and Danamodal because this crisis is different from 1998. However, communicating to the public about government’s efforts to overcome the crisis and the state of the economy is essential.
Has the government given sufficient focus to overcome the nation’s economic problems?
There are many non-economic issues that are happening at the same time. I hope that while the government is attending to more non-financial-crisis matters, it is not distracted from focusing on economic matters and immediate needs. We had a similar situation in 1997-98. We knew which were the priorities.
I think the rakyat is fed up with too much politics that is happening today in both the government and the opposition. We should be concentrating on economic issues and put the nation first.
Should the higher Budget deficit be a bigger concern in efforts to keep the economy strong?
Under the present circumstances, the level of the Budget deficit should not be the main factor deciding on our response measures. What is important is to effectively deal with the economic contraction. However, in the medium term, we should go back to a prudent fiscal management.