my letter in malaysiakini

Economics, perception and deception
Noor Hamzah | Dec 8, 08 1:28pm
I refer to the Malaysiakini report Deputy finance minister's head in the sand.

Deputy Finance Minister Kong Cho Ha said in Parliament that “Malaysia is only feeling the pinch indirectly from the minimum impact of the sub-prime mortgage crisis cushioned by the strong domestic economy”.

Wow, that’s a mouthful. Malaysia has such a strong economic base that we are detached and independent from the goings-on in the world economy.

Klang member of Parliament Charles Santiago had this to say about it: “To say that we are detached from the world economy, is completely wrong.”

Santiago is right in saying that the deputy minister has his head in the sand. Yes, Kong has his head in the sand and purposely, too - for the government to open its eyes and take the problem head on may be too difficult.

If deputy premier Najib Abdul Razak can say that the economy is “strong” and there is nothing to worry about, and premier Abdullah Ahmad Badawi can say that next year’s growth rate is projected at 5.5 percent, what else is there to say?

Who is Kong to say otherwise, that there will be a very rough landing, soon, maybe as early as March.

Given that exports make up a large proportion of our GDP, and a large proportion of assets in Malaysia are owned by foreigners, there is no way that we are not going to be affected.

Yet there are ways to minimise the impact of economic turmoil, but only to a certain extent. I can list some points:

1. Let the ringgit fall, this way our exports will still be competitive.

2. Reduce imports and implement a campaign for import substitution - grow our own as much as possible.

3. Minimise the impact of job losses in the exports and service sector by distributing our income fairly, i.e sharing our resources by unemployment benefits, pension for older people, etc.

4. Embark on new fiscal expansion initiatives to stimulate the economy.

5. Monetary expansion, i.e by reducing interest rates to effectively ‘zero’. And make borrowing easier, so entrepreneurs can embark on profitable ventures.

6. (Much as I don’t like to suggest it) Use our foreign reserves to prop up the ringgit and to pay for imports.

the last one, number 6 is a bit confusing, contrary to the first one. what i mean is, when you let the ringgit fall, it has to be gradual, not drastic fall. to have a gradual fall, you still have to buy the ringgit here and there.