Highlighting issues, giving the facts, make up your own minds.
Wednesday, October 12, 2011
Has the PM gone kaput! There are no measures to shield against global recession
Written by Moaz Nair, Malaysia Chronicle
The 2012 Budget has not made much impact to convince the people to vote for the incumbent Government. Malaysia's financial strength should not be taken for granted. Any fine economist would have recommended a development budget — pumping more money for development to encourage productivity, especially during these uncertain times of the looming global economic slowdown and recession which may cause many to lose their jobs. But this Budget seems not seem to adhere to this fiscal discipline. It’s more of a spending Budget to ensure the political survival of the incumbent government.
It’s definitely a Budget that throws some money here, there and everywhere, to get that "feel good moments" in order to gain votes in the coming General Election. Economic productivity has not been its main prong but a section of the population would get a small monetary reward each and in a month or so the handouts would have been spent. The total costs of these handouts would add up to a very huge sum which could have been better used to increase economic activities that are more productive. But this is not the case with the Budget; political interests have overridden the nations’ long-term economic interests.
In the 2012 Budget, a total of RM232.8 billion is allocated. The total revenue of the Federal Government is projected to increase 1.9 percent to RM186.9 billion. Taking into account the estimated revenue and expenditure, the Federal Government deficit in 2012 is expected to be around 4.7 percent of GDP. The shortfall in amount would in all likelihood be financed by borrowing. The government probably has to borrow to pay expenses beyond earnings. This would incur other financial encumbrances that are going to indirectly affect the economy.
Still dependent on foreign investors
The Budget has not provided enough boosts to bring in foreign investors and control capital flights from the country. Being a small country which lacks entrepreneurial productivity the country cannot wholly depend on local investors to generate the economy, as even the few established entrepreneurs in the country are leaving for other countries to invest. The country has little choice but to depend heavily on foreign investors and the export industries to generate the economy. The lack of confidence in the country’s governance, social and religious skirmishes and certain government policies adhered to have turned away many potential investors. Not only investors are shying away from the country but also capital flights to foreign countries are affecting the ailing economy.
The country’s exports are mainly to the developed countries, China and India. It is in this economic sector that thousands are employed. When we are heading for a recession depending too much on export industries would affect the country’s economy. Many locals would be out of job and the unemployed, including those immigrants — legal and illegal — in the country, would give the country oodles of social problems.
Neglecting the agriculture sector
The agriculture sector has never been a success story in the history of Malaysia except for a few export-oriented commodities like the palm oil and rubber industry and some private-owned ventures. The 2012 Budget plans to implement the Rural Mega Leap Programme covering 6,500 hectares in 11 Agropolitan Projects nationwide for the cultivation of commodity and cash crops as well as fish caged culture with an allocation of RM110 million. Most government-run agricultural projects had never been successful in the past. There had been too many financial leakages when it came to the agricultural sector under government agencies due to the lackadaisical attitude of agencies, prevalent corruption and incompetent management. The numerous inexpert government agencies could not make the agricultural sector profitable. Most government projects under agricultural schemes in the past were closed down due to loss of money, ineptness and negligence. Until the 12th Malaysia Plan we have yet to see substantial progress in the agricultural sector in the country despite spending billions of ringgit to sustain many agro-based industries. We still lag far behind Thailand and even Indonesia presently, in this important economic sector. The 2012 Budget is not going to induce enough for the private sector to spearhead the agricultural sector to make it further generate the economy.
Malaysia is better off than some industrialised countries in that workers could return to the farming communities in case there is a recession. Ignoring the agricultural sector to face any economic crisis is at the country’s own peril when the economies of developed countries collapse.
The problem would arise when the countries that are supposed to buy our export-oriented industrial and manufacturing products stop or have no means to buy them, and then the country would face an economic snag. The world economic situation is currently very uncertain and it might lead to recession anytime soon. That is when laid-off workers have to return to the farm in a bid to shore up agriculture as a driver of the country’s economic growth. Agriculture could no doubt be a driver of the country’s economic growth. Industry could keep on going but the agricultural sector should not be neglected.
Competitiveness and productivity
Facts and figures on the GDP may not always promise a viable and visible economy for the country. Productivity growth in figures may not really reflect the actual picture of the economy on the ground. Talking about GDP estimates and growth is only for a feel-good reason in any economic plan. At the end of the day it’s always productivity that matters – industry or agriculture. Pay increase for workers – public and private sectors — that does not commensurate productivity would fail to reward the nation at this moment. This is bound to cause further inflation – more money in the hand would spur more spending. The supply-demand theory would then see the prices of commodities escalating. When so much money is going to be spent on “free lunch” the Budget is not going to induce competitiveness and productivity to ensure economic output that could be enhanced to counter growing inflationary pressures.
No one is denying that there has been some significant growth in the national economy since the last economic downturn in 1998. However, as the present income distribution pyramid depicts, the distribution of income in Malaysia is skewed towards the rich, and there is still significant poverty in Malaysia. The 2012 Budget stipulates that Income per capita is estimated to increase to RM28, 725 in 2011 compared with RM26, 175 in 2010. But this does not really reflect on the 40 percent of Malaysians who earn less than RM1500 per month. The one-off RM500 payment to households 53 percent households (3.5 million) earning less than RM3000 indicates that poverty is still a significant issue in the country.
The country’s economic performance registered 4.4 percent in the first half of 2011. It seems that this growth was driven by expansion in the domestic economy. This growth momentum is expected to increase in the second half of 2011, spurred by a more “vibrant” private consumption and investment. Growth in 2011 is, therefore, estimated to expand between 5 percent and 5.5 percent. These figures, however, may not be achieved with ease with the present and future economic slowdown. The economic growth for 2010 would in all likelihood not reach 5 percent with all the uncertainties clouding the world economy. At best it would only buzz around 4 percent or less. This is due to the economic slowdown in the United States, Europe and Japan, inflationary pressures due to rising commodity prices, European debt crisis as well as slower world trade. With global economic decline, the economy would see a continuous downward slide, and projected figures are bound to change.
Inequality fell over the past few decades
Malaysia ranks among the most unequal societies in Southeast Asia in terms of income distribution despite having figures on impressive growth rates and higher per-capita incomes. The 40 to 53 percent of the poor Bumiputera, Indian and Chinese are still disillusioned as they are economically and socially marginalized. There is little sustained welfare or employment-based support for low-income Malaysians who are finding it increasingly tough to make ends meet.
Reports often point to the fall in absolute poverty levels in Malaysia — from 29 percent in 1980 to about 5-6 percent in 2000 and to less than 3.0 percent in 2010. But critical analysts complain that these figures are disingenuous. They point out that the income threshold used for the poverty line — currently an average monthly household income of RM500 — is unrealistic given the higher cost of living. If RM1, 500 per month — a more realistic figure — is taken as the sensible poverty line, then around 60 per cent of Malaysians are categorised as poor.
According to the World Bank, Malaysia is one of the few countries in East Asia where inequality fell over the past few decades. Despite this long-term reduction in poverty rates in all its past Plans, the trend has not significantly changed for the past two decades. It has no less than increased the gap between the rich and the poor.
Inequality worst among all ethnic groups
Another report indicates that Malaysia’s Gini Coefficient — a measurement for income inequality where 0 indicates perfect equality and 1.0 indicates perfect inequality — of around 0.49 is among the highest in the region. This is significantly greater than the levels in poorer countries such as Indonesia (0.32), Vietnam (0.36), and Laos (0.37). It is also higher than Thailand’s 0.41 and the Philippines’ 0.46.
According to another study, intra-ethnic inequality appeared to be worst among ethnic Malays and the Indigenous people of Sabah and Sarawak followed by ethnic Indians, who make up more than half of the country’s 27 million people. Four decades of affirmative-action policies did not increase much the stake in the economy of the Bumiputera (ethnic Malays and other indigenous groups) though it led to the emergence of a Malay middle class. And for the marginalised Indians and Chinese they were forlornly left to fend for themselves against the wretchedness of poverty without much government aid.
Disparity: the rural-urban divide
By 2010, rural household incomes stood at just 60 percent of the urban figures. Many of the poor rural households could be found in Sabah, Sarawak, Kelantan, Terengganu, Kedah, Perlis and parts of Pahang, Johore, Negeri Sembilan and Melaka states. The indigenous groups in the rural and interior areas of Sabah and Sarawak are among the worst affected. Economic aid has not significantly reached the poor natives of these two states. Among the indigenous minorities in Peninsular Malaysia, the Orang Asli remain desperately poor despite all the attempts to alleviate poverty.
In the urban areas, a significant number of poor among all ethnic groups has emerged as well over the decades. Squatter settlement conditions are depressing. A sizable number of street children, undernourished children and single parents with children living in dilapidated shelters could be found in almost all squatter areas in most parts of the country. And this also includes the poor in estates and plantations. This is not the kind of image of economic success the country would want to portray to the world.
There is still significant poverty in Malaysia, which the pro-government media chose to ignore to paint an angelic image of the Government. Unfortunately, only poverty found in Opposition-controlled states are often highlighted by these media to fallaciously represent the performance of the states.
Proportion of poor has increased
There are still a significant number of families of all ethnic groups in the country earning less than RM1500 per month. The cost of living today is affecting them most. The proportion of Malaysians living in urban areas increased from 25 percent in 1970 to about 65 percent in 2010. The official figure for abject urban poverty is given as less than 3 percent but this significantly underestimates urban poverty, as the poverty line is set at RM500 per month for a family of four — a monthly income which has been disputed as unrealistically low for a family of four to meet its needs. A survey of some urban areas in the country has suggested that about a quarter of the country’s urban population lives in squatter and quasi-squatter settlements and this is a reasonable estimate of the poverty rate. At one time, urban poverty was largely a problem confined to the non-Malay communities in Peninsula Malaysia, as they were significantly urbanised at the time of independence and after. However, ethnic Malays from the rural areas have since shifted to the urban areas and the proportion of ethnic Malay poor has accordingly increased. The poor in Sabah and Sarawak has remained at not less than 60 percent when poverty line is set at RM1500 per month.
Financial leakages and mismanagement
The budget has not looked into longer term measures to defend the resilience of the Malaysian economy. The 2012 Budget is full of goodies perceptibly intended to prepare for the next General Election but it has not taken into consideration on how to shield the Malaysian economy against the declining global economy.
Fiscal and financial discipline by the authority was never the norms in the past. With financial leakages, lack of competitiveness, too much bureaucracy, lack of transparency, incompetence, corruption and mismanagement the country would again not see this Budget implemented effectively. As ensued in the past, the lack of transparency, accountability and competency has failed many of the Plans. The clear as crystal Auditor-General’s Reports in the past are testimony to these perpetual problems bilking out the Government Treasury.
The Auditor-General’s Reports had in the past highlighted the many flaws in the financial management of government agencies yet no stern actions were taken to this effect. Again taxpayers’ money has been abused as a result of inept governance of the country. Many agricultural and industrial plans went kaput, huge contracts given to incapable cronies were subcontracted to others for quick and easy profits and there were cases where money was siphoned out before a project could take place. Exorbitant and unreasonable payments were found to be paid by some government agencies for procurement of goods and services. Millions of ringgit had been wasted because of mismanagement of public funds by some government agencies under all the previous Plans.
No sustained economic plan for the poor
To the poor 60 percent of the population it is bread and butter that is the issue. Despite giving out some free candies – a very short-term remedy — to a section of the people the majority of the people are still deprived of any tangible benefits, as there are no sustained economic plans for them especially the marginalised Bumiputera, Indians and Chinese. When there are many special allocations in the Budget for a single ethnic group in terms of business, loans and other opportunities the poor Indians and Chinese are left out with no palpable plans for them to uplift their economic status. This is the fate that the marginalised groups have so patiently endured for the past six decades.
The ordinary self-employed citizens would have to face another price hike of all goods in the market after this Budget. As happened in the past, each time a national budget was announced and a slight pay increase or bonus payment was announced the prices of commodities and essentials shot up in geometrical proportions. This would offset whatever little gain wage earners would make. Unlike some other efficient governments this Budget has announced no effective mechanism to stop this inflationary effect that would keep on haunting the poor more than the rich. The poor Bumiputera, Indians and Chinese would be the most affected by this Budget in the long-run.