Delivering Malaysia Out Of Economic Doldrums

Delivering Malaysia Out Of Economic Doldrums

The global financial crisis is slowly lashing its power over the global economy. Take the United States for instance, the deteriorating credit crunch and dwindling corporate orders have shrunk the October manufacturing activities to an extent unseen for the past 26 years. Meanwhile, effects of the country's most severe property downturn in three decades have now spilled over to the overall economy, cutting back not only consumers' demands for manufactured goods but also dealing a powerful blow on the credit market.
Whether Barack Obama or John McCain is eventually elected the US president, he will have to crack his head to solve the issues of deficits of unprecedented proportions, the most turbulent market in almost a century, as well as political turmoil elsewhere in the world arising from recession.
Now let's take a look at South Korea. The Korean government has in the past half a year announced a series of measures aimed at lending support to the country's crumbling economy while bolstering the domestic market bruised by the continuous ouflow of foreign funds. Seoul has even announced an economic stimulus plan costing over ten billion dollars to help cushion the impact of economic downturn through tax cuts and increased public expenditures.
Given the increasingly gloomy external outlook, our government officials have for the first time admitted that the country's economic fundamentals are facing a rigorous test. It is essential for the government to realise the prevailing economic atmosphere and lead Malaysians through the latest bouts of financial upheavals in a more pragmatic approach so that the newly introduced stimulus package can produce the desired results.
First and foremost, it is imperative for the government to instantly announce a workable rescue package that could kickstart the economy again.
Other than the global financial storm stemming from the US subprime crisis, the recent economic slowdown in the national economy has also been attributed to political instability, rising production costs as well as worsening public security, which have checked the progress of foreign investors. The departure of foreign investors has resulted in the closures of many companies. This, coupled with the drastic falls in the prices of major commodities such as petroleum and CPO, has shrunk the national coffers.
With limited options available, the government has to resort to increased loans and expenditures, even expanding the budgetary deficit, to keep the economy rolling.
The government's RM7bn rescue package has offered some 15 measures aimed at relieving the plight of the people, as well as three strategies of expediting further market liberalisation. It remains to be seen whether such a rescue package will work in the short term.
Meanwhile, next year's economic expansion is expected to significantly slow down to a level much lower than the 5.4% anticipated for this year. UBS has pessimistically put Malaysia's economic growth next year to sub-zero levels, way below the government's 3.5% forecast.
Japan will be the only G7 country that can still hold on to a meagre 0.1% positive growth next year, while other member states, notably the United States, the UK and France, are expected to sink into recession.
With the external environment remaining hostile, it is hard for Malaysia to be spared from the scourge of the financial storm. Having said that, certain quarters in the country seem to be more interested in their engagement in racist discourse and political tussles, which will do nothing to improve the country's economic environment but will instead hasten its pace towards social instability.
It is now time for the government to offer pragmatic solutions to solve the current economic doldrums. While the government has reiterated that it will speed up the processing of foreign investors' applications to lure more investors to our shores, it is also equally important for the authorities to focus fully on reviving the economy without overlooking the political environment upon which economic development relies.
In addition, unemployment will escalate following the economic downturn. According to studies, the index for the overall employment outlook for the second half of this year has trended lower, with many sectors beginning to conceive layoff plans to slash operating costs.
A global youth employment trend report released by the International Labour Organisation (ILO) has also shown that some 47% of young people are currently employed. In other words, more than half of young people worldwide are still out of jobs!
The Malaysian government has hoped to absorb more unemployed graduates, but due to the fact that many government agencies are still struggling to stay afloat, there is a limit to what the government can actually do.
Unemployment could be of a cyclic nature, in which the number of unemployed people is inversely proportional to economic prosperity; but it could also be structural in nature, in which unemployment will continue to rise, unaffected by the economic conditions, owing to the rigidity of the labour market and escalating labour costs. It is therefore difficult for anyone to tackle this complicated issue without gaining an adequate understanding of how the job market works.
The other provisions under the rescue package, including optional reduction in EPF contribution to help the public through the current hardship, increased subsidies for low-income families, improved civic infrastructure, etc., should be seen as part of the government's preparatory works to weather the current economic downturn. (Translated by DOMINIC LOH/Sin Chew Daily)