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Sakmongkol ak 47

Monday, 16 March 2009

More Money to Households please.

How bad is the economic situation in the country? We need forthright answers. Just as we need to know for instance why EPF can afford only smaller dividends this year, so too with the real facts about our economy. Why should we now believe that our economy will contract by just minus 1% and not more? The last time we were told our economy will grow at 3-4%. Why not cancel the RM5b loan to Valuecap and pay it out as dividends. What is our stock market now? How much is our unemployment and underemployment?

So, we are now looking at a RM60b stimulus.

Look carefully at the RM60b. Where is it going? How much goes into direct spending? How much goes directly to households. I have long advocated direct spending to households in the form of higher real wages, cola payments, pensions etc. They will spend and also save in the form of buying shares to earn higher returns. We must ask ourselves how much of the RM60b is going to help ailing businesses with bailouts and rescues. At the end of the day, ask also; how much will this stimulus cost us taxpayers per head?

Of course we hear that the stimulus, other than being applied to augment future capacity, aiding the private sector and all that, is also being directed to building roads, schools, and more. Class F contractors will get another round of boon. All in all, the stimulus will jump-start our economy, they say.

The consensus is we need a big shot in the arm. It has to be a very substantial package. That's all we seem to hear from politicians and pundits with the usual endorsement from economists for respectability- every economist agrees that this massive stimulus is the only answer.

But wait. Is it possible that government spending will only worsen the situation? What if, we ask the government to cut the stimulus? Our request is built on our belief that the government simply cannot spend its way out of a crisis. Let us ask the first question: How is it the government is going to be able to spend one Ringgit in such a way that it generates one Ringgit or more in value.

How did we get into this mess in the first place? In an earlier article I asked, how does being an export driven economy be that bad? Was it because we are exporting consumer durables? Was it because our industry has very high gearing? Was it due to economic mismanagement that repels consumer and investment spending? Was it due to overspending? Was it caused by financial indiscipline? Because careless spending got us into this mess, should we be trying to spend our way out of it?

How much of the RM60b is going to save failure businesses? If they are failing shouldn't we allow the market to correct them? For example that amount going to Khazanah is for what purpose? That RM29billion assistance to private companies means exactly what? To help crony companies? Unless more information is forthcoming, we have to shoot in the dark even with an AK47.

Indeed there is a rational reason why we can oppose the bailouts. For a market to recover, it must discover its true bottom and cleanse itself of poor investment decisions. So don't bail out failing companies, let them fail. Assisting them by giving preferential financing packages prevents market self-correction because it causes widespread uncertainty among investors. We don't know many things and the FM has not revealed much too. We don't know what the characters in the treasury, or khazanah or whoever his advisers are doing- which firms are going to be bailed out, and which ones are going to get an extra check. We must see them.

I think after so much credibility has been lost by the government, we have to be circumspect about the whole thing. We can be forgiven into thinking that maybe this RM60b is a means to re-bubble the economy. If the firs bubble was created by lots of debt, should the answer be more debt? Maybe the less costlier approach is to allow the bubble to completely pop and grow back on its own. The allocation meant for corporations is better directed to households in terms of higher real wages, pensions, or like what Australian is doing, direct payments to those retrenched workers.


kuldeep 16 March 2009 at 21:40  

Total exports RM663.5 bil

Major components >>
Electrical & electronic RM255.3bil
Palm oil& related prod RM64.8 bil
Crude petroleum RM43.0 bil
(LNG) RM40.7 bil
Petroleum products RM29.0 bil
timber & timber-based RM22.5 bil

And which is the MOST LABOUR intensive industry?And which will be the most impacted by lack of global consumer demand?

This crisis is different from 1998..the Doctor's prescription that worked previously may not work for this ailment.

We need the wisdom of our good Doctor,TDZ and TRH among others.Are they being consulted?

GreenBug 16 March 2009 at 23:44  

Malaysians all feel that the economic team in the federal government is groping in the dark... there is little confidence whatsoever.

Anonymous,  17 March 2009 at 00:14  

Sir, this article sounds like anwar's mantra of 'creative destruction' back in early 98.
Also, too much questioning in this article and purposely failing to self answer them is extraordinary.
Sometimes it helps to find and suggest solutions instead of critically destroying any semblance of hope.
Direct monies to households may not be the long term solution here.
Remember the rm625 fuel rebate last year? What good did it make? The government wasted more money in that debacle.
The public used that money on perishable items with no multiplying effect on the economy whatsoever.

Good luck on your next article.


sakmongkol AK47 17 March 2009 at 05:43  


sorry hv never read anwar ibrahim on economics. so no chance to rebut him.
you r right about the effects of giving money directly to people only because there has been no studies examining its impact. iy would be good if there are studies comparing the effects of giving money directly to giving money thru intermediaries to buy up undervalued stocks. wld be interesting.

Anonymous,  17 March 2009 at 21:04  


I don't understand much about economics. But I do want to know the answers to the questions you raised.

The government must give us the details because it's public money they will be spending. There must be transparency. There must not be plain and outright giving of money to ailing companies belonging to cronies.

They should spend the stimulus money in ways that would benefit the rakyat, more money to households as you said. Wouldn't this lead to more spending and help stimulate the economy?

Far too often Khazanah has been used to help cronies in the past. At one time it was Pernas and the like. The corrupt ones think that because such was done in the past therefore they can also do similar things now. These things must stop. If they don't, we will vote the government out.

I have no love for Pakatan Rakyat. But I will again abstain from voting if the present government continues to be no good. PRU 12 should have taught the leaders a lesson. If they have not learnt, I am willing to gamble and see whatever comes out of a voted out BN.

If they don't explain, give details on the stimulus package and no transparency, they are no good and deserve to be voted out.

kuldeep 17 March 2009 at 21:42  

its worrying cos too few details on the mechanism of each of the THRUST...especially the guarantees for loans?It will be good for the banks cos they can give loans and be responsible only for 20 % on a default but enjoys 100 % of the benefits if everything works out.Would the loans be for NEW stuff or just recycling of the older riskier ones...

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