They don’t seem to have a clue!
ALIRAN
BN leaders don’t seem to have a clue about the grim outlook of the global economy and how it will affect Malaysia. Jeyakumar Devaraj laments that policy makers also seem incapable of thinking outside the neoliberal box.
Thank you Speaker, Sir, for giving me this opportunity to address the House on the 2012 Budget. I would like to start by referring to two articles that appeared recently in our newspapers. On 13 October 2011, Starbiz carried an article that read, “The Philippine President unveiled a 72 bilion peso (US$1.7bn) stimulus package of public works and poverty reduction projects as a weakening global economy forced the country to cut growth forecasts.”
On the same day there was another article in The Star which said among other things, “The Monetary Authority of Singapore warned that the headwinds from slower global growth will mean slower growth in Singapore in the next few years.”
In denial mode
It is clear that our neighbours are worried. They are aware that there is a real possibility of a global recession, and they are lowering their forecasts for growth of their GDPs. But we in Malaysia appear oblivious to this! Our Finance Minister declared during his budget speech that our GDP will attain an overall growth rate of 5.5 per cent for 2011. This is despite the fact that (annualised) growth rate for the first quarter was only 4.5 per cent and that for the second 4.0 per cent. Yet our Finance Minister remains confident that we can attain 5.5 per cent for 2011, and that we will grow our GDP by 5-6 per cent in 2012.
Our Finance Minister claims that our “fundamentals” are strong. What fundamentals may I ask? We are a trading nation – about 53 per cent of the goods and services we produced in 2010 were exported. Which among our “fundamentals” can protect us from a global downturn in demand?
But our government is in denial. They claim that a downturn in Europe will not affect us much as we have diversified our trade. According to their statistics for the period January-July 2010, exports to Europe ranked fourth, only RM39.8bn, compared to Singapore (RM48.6bn), Asean, and China (RM46.7bn). Therefore, argue the government planners, a recession in Europe will not have much of an effect on us!
What kind of thinking is this? Are they really that confused? Sure, Singapore was the number one destination for our exports for that period. But would Singapore have consumed most of what she imported from Malaysia? Surely not. Singapore would have exported to other countries including to Europe.
Another argument that our government trots out is that the slow rates of growth in Europe and the US will not affect us much because of the much faster rates of growth in China and India. Mr Speaker, the GDP of the European Union region was US$16.2 trillion in 2010 according to the IMF, even larger than the GDP of the US, which stood at US$14.5 trillion! Taken together the GDP of Europe and the US represents close to 50 per cent of global GDP, which stood at US$62.9 trillion in 2010.
In comparison, the GDP of China in 2010 was US$5.9 trillion while that for India US$1.6 trillion. So to argue that the 7-10 per cent growth rates seen in these two countries will offset a downturn in Europe and America is not based on fact. It is mere wishful thinking. And it does not take into account the fact that economic growth in China and India is based to an extent on the demand from the EU and the US.
Permit me to quote an article from the Business Times on 10 October 2011, which said, “The European Union is the world’s biggest buyer of Chinese exports – worth about US$380bn in 2010 – and a collapse in demand could trigger heavy job losses in China.” And that is the sober truth of the matter! So the government’s estimation that the Malaysian GDP will grow between 5-6 per cent in 2012 is not only unrealistic but also irresponsible.
Why do I say “irresponsible”? The Annual Budget is the economic plan for the nation. Through it the government of the day informs the public and the business community how the government intends to steer the economy especially in times of uncertainty and turbulence. We need a realistic budget to reassure all parties that the government knows what it is doing.
Larger deficit looms
The government says it wants to reduce the budget deficit to RM43bn for 2012. However, the government’s income is predicated on a GDP growth of over 5 per cent. Taxes, which make up about 70 per cent of the government’s income, are forecast to be RM35.6bn. What if we only grow at 2-3 per cent because of the downturn in Europe and America? Definitely tax revenue will drop. But public expenses will remain the same. It is almost certain that our deficit for 2012 is going to be much higher than the RM43bn forecast!
If our government takes a realistic look at the global economic situation, it would realise that a default in sovereign debt in countries such as Greece is almost a certainty. This has the potential to shake the banking system in the West and precipitate a sharp downturn. The capacity of many European countries to re-finance their private banks in their countries is severely curtailed by the size of public debt in Western countries. Public debt in Greece has reached 147 per cent of GDP. But public debt for Germany has already exceeded 80 per cent of their GDP, while that in the US stands at 99 per cent of the GDP of the US.
If we are realistic, if we are responsible, we can take several steps to protect the most vulnerable in our society from the effects of a serious downturn. We could, for example implement a Retrenchment Fund. During a time of recession, some workers will experience “lock-outs”, where their employers run away because they have no cash to meet their commitments. This happened to the Nikko workers in Butterworth not too long ago. And workers in this situation get no compensation at all. Even the pay for the last month of work may not be paid to them. If there was a retrenchment fund, this group of workers will get some relief!
Many families face problems keeping up with loan payments when there is a downturn. The government should set up a fund to help such families restructure their debts so that they do not lose their homes or their businesses because of the downturn. We have set up Danaharta and Danamodal for the big companies. Why not something similar and smaller for the ordinary citizens?
A government that is sensitive to the needs of its people will set up several funds and programmes that can help the ordinary citizens if a recession were to take place. But to be prepared in this way, the government must first recognise the risk of a recession. Unfortunately our government is in denial. They reject the possibility of a recession. We shall continue to enjoy a 5.5 per cent growth rate, says the Finance Minster.
