CURRENT ECONOMIC LANDSCAPE & NEM

Current Economic Landscape

Last February 4, I wrote that Dato’ Sri Najib has performed better than Obama, Brown and Sarkozy as an economic driver.

Now I wish to congratulate him and his Cabinet for the outstanding achievement in maintaining the momentum of turning around the economy. Latest economic data such as IPI, export and inflation seem to suggest that the country’s economic recovery is steadily gaining ground. Leading indicators also indicated that the economy will continue to expand over the next 6 month period.

This success is indeed very extra ordinary since it is achieved against a background of a much reduced government expenditure of 31% in 2010 (RM191.5b) when compared with that of 2009 (RM277.7b). In actual fact, the government has quietly withdrawn the stimulus package in order to maintain fiscal prudence and financial sustainability.

Notwithstanding, the phrase ‘cautious optimism’ remains as a useful reminder since China’s PM had also cautioned about the possibility of a double dip recession. Indeed, if it does happen, fortunately, Malaysia still has the capacity to dig into its pocket since its fiscal deficit as a percentage of its GDP and its debt-service ratio are relatively low.

At the same time, may I highlight rakyat’s problems which may not be news to PM anymore. An average rakyat is yet to feel the benefit of the recovery and at the same time he is feeling the strains of the deep cut. For examples, SME Corp is suspending all the grants, TEKUN seems to have no more fund and no news about PIA/PIAS.

What the poor rakyat, single mothers, orphans, OKU, chronic patients and senior citizens want are only a few hundred Ringgits a month and about RM5,000 to repair their houses. And they want the financial help NOW – RM10 today is better than RM10,000 tomorrow! They may no longer be around.

Such financial help for this group will generate a higher political dividend; hence, better value for money politically.

The government may not have to cough out additional fund in order to pursue this agenda. As I always maintain, it can be achieved by restructuring the various subsidy schemes, especially petrol, diesel and sugar,  by giving only to the poor.

Concurrently, the government has to overhaul the delivery system. Implementation is still slow because decision is very much centralised; for examples, even 1 lamp post under BELB, 1 PBR, RM1 under RISDA economic program must be approved by Putrajaya. Perhaps this is one of the real reasons why PM is introducing the GTP.

New Economic Model (NEM)

I fully support the NEM concept since it is also in line with the spirit of Zakat (growth). Only when the economy is growing can we share the riches; otherwise we are sharing the poverty. Besides Biotech, ICT, green tech and renewable energy as the new sources of high growth / high value-added, perhaps the PM can consider de-manufacturing of old vehicles.

Malaysia can be the hub for ASEAN. It consumes less energy, at the same time generates energy and produces metal / non metal, ferrous / non ferrous products.

Nonetheless, the identification of high value-added industries still has to be guided by input / output ratios.
Whatever the input that goes into the NEM in order to catapult Malaysia into the high income bracket (in US$), the outcome for ALL rakyat ought to be:

* full employment,
* higher household income
* lower poverty
* narrower income gap between races, intra race, between regions and urban/rural (Gini Coefficient around 0.33)
* fairer distribution of wealth
* low / moderate inflation

In short, the NEM must have a human face and heart, guided by moral economics.

The above have been achieved under DEB. Hence I don’t understand why certain Malays/Bumis at the NEAC, I was told, were behaving like the Non-Malays. They joined them to condemn the DEB; by extension they were also condemning Tun Razak, the architect of DEB.

One has to ensure the Malays and other races will benefit from the NEM. The Malays in Kelantan, Kedah and Kuala Trengganu had sent a strong signal that they preferred development that generated RM500 which is theirs rather than development which generated RM10,000 but goes to others.

Purchasing Power Parity (PPP)

Low/medium/high income country is based on GDP Per Capita, as defined by the World Bank. It is measured in US$. For example, in 2009, Malaysia’s GDP Per Capita was US$6,818. Hence, Malaysia is categorised as in the middle income group.

If it is measured in PPP, it was US$12,826; nearer to the high income (minimum) level of US$14,818.

Since PPP is a better measurement of comparable purchasing power and, hence, comparable disposable income and, thus, a better approximation of a comparable standard of living, therefore, it is strongly urged that PPP be used instead of US$.

Ministry of Finance, Bank Negara and EPU can educate the World Bank on this subject.