Tuesday, May 13, 2008

The Impending Economic and Food Crisis; what are we doing about it.

The headline says, PM: Krisis Makanan Boleh Tumbangkan Kerajaan.
And that the Govt is discussing the issue.


So what are we going to do about it? Let me post what others have to say first.

A Malaysian in London wrote this short summary:

1. The current inflation and food crisis is a phenomenon that extends well beyond M'sia. What the gov should do is to provide subsidies, rebates and even outright cash to those in need.

2. But not surprisingly we can't do this. Why? Because we have been operating on a national budget deficit for some time now; this means the gov is already spending more than it collects from taxes etc. How come? Because Malaysia's economy is not really that healthy which means less money coming in from taxes and gov is wasting money through unnecessary projects, corruption and bad planning. How bad is Malaysia's economy? Some simple numbers: when I graduated from UM in 1996, my first salary was RM2,400 and a plate of nasi ayam around RM2.20. Today, a fresh grad gets around RM2,200 but nasi ayam is at least RM3.50. In 1996, one USD = around RM2.50, now one USD = RM3.20. Is this progress?

What are the immediate options? We can dip into our foreign reserves which stands at a healthy USD120 billion now. Bank Negara is actually doing a reasonably good job on the investment front. But spending our national savings now means less money for our children and our children's children. For the long term, we need to grow our economy to get more taxes. But how? Our education system really sucks now which means our students will not be competitive in terms of knowledge and skills and foreign companies will not want to come and set up a branch in Malaysia. Also note that our Trengganu oil reserves are finishing fast which means no more royalties from Petronas in less than 20 years. In short we are in deep shit. That's why I said whoever takes over will have a tough time.

The long term priorities should be the following:
1) Drastic reforms in the education system: Get the smartest Malaysians back as professors in our local universities and pay them well. Listen to them to revamp the primary and secondary education system. Pay teachers well. Remove as many 'dead wood' as possible.

2) Drastic reforms in the civil service. If you have idiots running the gov, nothing will help. Send our brightest students overseas on scholarships then make sure you bond them to serve in the gov. All races. MOST importantly, seriously clamp down on corruption. How? Make sure gov workers are paid decently. Do you know how little Malaysian policemen are paid? Maintain strict controls and send the offenders to long time in jail. Integrity and meritocracy should be key operating principles.

3) Drastic reforms in the economic/finance sectors. My proposals here would be quite technical.

When you have good people in gov, a strong education system and strong economic fundamentals, you can reasonably plan for the future. The problem? All these need money, where is the money coming from? You can raise money from gov bonds, borrow from foreigners etc but don't forget the interest payments. In short you can't do everything at once, you got to go step by step but any wrong step will result in one step forward, two step backwards. Of the 3 above, I think eradicating corruption is key, unless you have good honest people in the gov, everything will go to the drain.

Am I optimistic? Unfortunately not. I think my country has really too many deeply rooted problems and it takes at least 50 years before we can catch up with countries like S'pore. But as they say, hujan emas...

My 2 cents

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