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Sakmongkol ak 47

Friday, 17 October 2008

Avoiding our own Grapes of Wrath.

No to Recession.

When we bloggers write on the looming economic slowdown that may converge in Malaysia, please do not jump to conclusion, that these bloggers have nothing to do but criticise the government. No, we have not arrogate upon ourselves, the back-patting mendacity of pontificating a cure all panacea. We don’t have the omniscient wisdom to right all the wrongs.

But, we remain as public spirited bloggers, writing with the hopes that our voices are heard. People like de minimis, analyst at large, Hantu Laut, Aspan Alias and many others whom Sakmongkol is not aware of. They write out of concern for our country.

They may well be motivated by the same intense feeling of loyalty and concern at what’s happening just like the officious people in the EPUs and other government departments. But we don’t pretend as though the fate of the nation depends on us and then demand the John Q public to stand up on ceremonies to us.

But we do get agitated when officious government employees go around the country advising ministers that everything is OK. So we don’t have direct exposure with USA and other leading economies in the world? But we have substantial trade relations with leading economies such as USA, Europe, Japan, and Singapore. Now, if these countries suffer economically, do you think that we are insulated?

Haven’t we heard of the expression that when America sneezes, the world catches a cold? Now, sakmongkol learnt this economic home truth way back in 1974 from his economics teacher. Mr. Tan Kee Chaw of Kuantan. God Bless him.

It was used to give a picture of how big, powerful and influential the American economy was at that time. Even today, it is still the biggest economy in the world. So combined with the other leading economies, it is not a stretch of the imagination to be aware of the effects of the slowdown of their economies on us.

Therefore to go around and dispense with what appeared as a nonchalant prognosis such as we thank god, we are insulated, or we can thank our lucky stars, insults our intelligence.

One of the institutions which study the Malaysian economy is the MIER- Malaysian Institute of Economic Research. It is headed by the very pious KAM Ariff. Sakmongkol knows this one time professor of UM who once lectured on International Economics at the Econs faculty at the UM. A very pious man who can be seen with handkerchief covered head praying at the Masjid India in KL.

As head of the MIER he has this to say:

There is a 40 per cent chance that Malaysia will enter technical recession in 2009, meaning two quarters of negative growth and a 30 per cent chance it could be a real recession lasting more than two quarters depending on what happens in the US.

MIER also said that the global credit crisis showed no signs of abating despite concerted interest rate cuts and massive liquidity injection by governments and central banks worldwide.Another observation was that consumer and business confidence in Malaysia has dipped and warned conditions would worsen if the credit squeeze dries up funds for investment and household spending. Fearing a dismal global outlook and hit by rising prices of raw materials, the government stretched the fiscal deficit to 4.8 per cent in ’08, reversing a 9-year progressive deficit reduction. This may be justified as difficult times call for drastic measures. The longer-term worry is the high dependency on oil revenue to finance fiscal spending. Government revenue will be affected by the decline in commodity prices if other sources of revenue are not sought. Given the heightening pressure on the economy and decreasing oil prices, the budget deficit is likely to exceed 5.0 per cent of GDP in ’08. The deficit may even exceed 4.0 per cent of GDP in ’09 with the increasingly unnerving outlook. MIER noted that Malaysia has no direct exposure to the US market but is increasingly feeling the shock from the slowing US economy through trade and investment linkages. MIER forecasts that Malaysia's growth in 2009 will be in the region of 3.4 per cent compared to the expected growth rate of 5.3 per cent this year.

MIER's report states that, It is likely that growth would deteriorate in late 2008, as the Malaysian economy takes the hit from the knock-on effects of a flagging global economy. The outlook for the global economy is turning increasingly dismal, MIER said.

We expect our leaders and those in position to be forthcoming and truthful in their analyses to the public. Because almost always, the first group of economic actors who will benefit from any government bail outs will be the financial sectors and corporate personages.

How about releasing some money by volunteering to cut off their pay say by 10%? Sakmongkol read the following:-

The Irish President Mary McAleese has announced that she will be taking a 10% pay cut in light of the current budgetary troubles. The finance Minister Brian Lenihan says he and his ministerial colleagues will also take a 10% wage cut. The opposition leader has instructed his party's parliamentarians to take a 5% cut. The governor of the Irish Central Bank and Financial Services Authority has volunteered to also surrender 10% of pay. RTÉ's top six executives are taking a "significant reduction" in pay. This follows the government's announcement of a round of spending cuts as recession bites. The Irish ruling elite realise that they need to show leadership by example in tough times. If they were all paid on a performance-related basis they should be losing 30% or more -

Now, would our finance minister consider paying ministers, top government officers and chief executives of GLCs on a performance-related basis?

Perhaps also, its now time to look at ways making more money available direct in the hands of the household sector. So Mr. Finance Minister, how about making more money available to us instead of the big boys?

Our tax system probably follow the British one in that whereas the bank corporations will be able to deduct loan interest payments from their tax bills, individuals can't. Why not bail-out homeowners too by making their mortgage interest payments tax deductible? Consumers are feeling the pinch, if they could claim the same tax relief that the bankers will, they would spend it and boost the economy.

Boosting the economy is key to keeping the recession short. Unlike the banker bail-out this isn't a handout from taxpayers, it lets taxpayers keep their money flowing into the economy.

The idea that people should be taxed less to promote spending growth is pretty straight forward. Keeping people's earnings in their pocket to spend promotes growth in a much healthier way than the government taxing their earnings more to spend inefficiently.


bangkai 17 October 2008 at 13:36  

This is why I hold your work in high-esteem, sir.

Unlike the multitude of others who just lash out at how incompetent the Government is, you, on the other hand, are able to proffer solutions. I guess this is what separates the men from the boys.

Anyone who can dial-up an Internet connection and have the smarts to start a blog can cry "Foul!" over and over again, ad nauseum. However, it takes substance (and courage) to be able to offer possible answers to the predicament.

Zawi 17 October 2008 at 14:27  

For the moment they are more intent on keeping the picture looks pretty despite the impending storm that may damage it. With confidence he announced to the world that we will be the least affected. Everybody knows that we are exposed as the bulk of our trade is with the US. I wonder who gave him such economic advice.

Anonymous,  17 October 2008 at 14:55  

Mr Sakmongkol,

‘The idea that people should be taxed less to promote spending growth is pretty straight forward. Keeping people's earnings in their pocket to spend promotes growth in a much healthier way than the government taxing their earnings more to spend inefficiently.’

I totally agree with you mr sakmongkol that the better way to see potential growth in economy is via tax revamp. By this way it would allow full incentives to spur business investments.
Just look at the USA in the 70’s. The huge pump priming exercise on their economy had caused stagflation due to government spending and tax fiddling. However this exercise had failed to increase productivity but making the inflation even worst. Japan on the other hand had injected multibillion yen spending package for the past two decades but to a little effect.


ctchoo 17 October 2008 at 17:33  

Bro Sak

Great post. I like the tax proposition. We'll have to give it some thought to flesh it out. Hopefully, the powers that be will catch on and adopt it. Never mind "lembu punya susu, sapi punya nama". Asalkan program tu ada, we'll all benefit, kan?

msleepyhead,  17 October 2008 at 17:42  

It's very obvious that they are still playing the everything is ok card to the ordinary folks without realizing that the trick does not work anymore in these days of the Internet and more so when the ordinary folks' political awareness has gone up a few notch since the 90s.

As long as they stand by their words and take responsibility for their statements when the economy starts crashing then it all doesn't matter. But as we know, by then they'll come up with a another excuse just like what is happening now with the fuel rise in June.

walla 18 October 2008 at 23:32

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