Malaysia and the Asian Crisis
LIM GUAM ENG
Is the worse really over like our local newspapers say. Or is the government-controlled press lying to us again? And that the worst is yet to come. The Economist has outlined four phases that countries facing economic crisis go through before there can be any recovery. Like death these phases are shock, anger, denial and then acceptance.
First there is shock that the economic crisis is happening at all when we feel that we have done everything right. Secondly, anger at certain scapegoats and blaming others for the economic crisis. Thirdly, denial that we are responsible for the crisis. And finally acceptance that what is happening is due to our own fault and responsibility as well as recognition of what measures must be taken to revive our economy.
Malaysia has gone through all those phases during these last 6 months, as most spectacularly shown by our Prime Minister Datuk Seri Dr Mahathir Mohamed blaming everyone except our own government policies for causing the economic crisis. Hopefully, our country is now at the last phase of acceptance when the Prime Minister for the first time on 12 January admitted that he did not blame foreign conspiracies as the root cause of our economic crisis. However, then again we read about him criticising multinationals and even foreign investment in Teheran in today's papers.
The Malaysian government must bear full responsibility for the economic crisis in allowing overlending in the property and stockmarket as well as overspending in carrying out huge mega projects that are a waste of public funds and have no value except to boost the prestige of the Government. What can we do now? The 1998 Budget is a failure, especially the 2% corporate tax reduction costing the Government RM1,196 million but failing in its purpose to prevent companies from raising prices. Now the Government has formed the National Economic Action Council (NEAC), which so far is all talk and no action.
Even the 10% reduction in Ministers' pay and freeze on workers' pay will hurt the people more than the leaders. I am not saying that we should not support such actions but that the poor and middle class should not be asked to bear a heavier burden. I oppose such a pay freeze on Government A & B officers,the middle class and poor for two important reasons: 1. Any pay freeze on nominal pay is actually a reduction in real wage because of inflation; and 2. The poor and middle class use almost their entire pay to meet their basic daily needs as compared to the rich who only use around 60%. Any reduction in real wage will hurt the poor and middle class more than the rich who can afford to save more.
The Government must realise that only increased democratisation, transparency and accountability in our economy can save Malaysia from having to seek IMF assistance to resolve our financial and economic crisis. I agree that we should try to avoid seeking IMF to rescue our economy because of the high economic costs that Malaysians have to pay by: 1. Opening up of our financial sector by allowing foreign banks' licenses and free entry resulting in our local banks not being able to compete; 2. Increasing interest rates resulting in higher costs, affecting economic growth and causing unemployment; and 3. Increasing taxes and reducing government spending to cut down the current account deficit.
The painful experiences of the people from Thailand, Indonesia and South Korea show how cruel IMF medicine can be, some say it is even worse than the cure. But we should learn from the experiences of Thailand, Indonesia and South Korea to avoid making the same mistakes. These countries show a similar characteristic business cronyism and money politics. So long as we do not stop business cronyism, money politics and corruption we shall be the next country forced to seek assistance from IMF.
We must show our strong objections with the approach taken by the Government to address the economic crisis by only blaming foreign currency speculators and not our own economic shortcomings. Such a short-sighted approach appears to overlook the crucial fact that currency speculators could succeed in attacking our currency and economy precisely because of our own economic weaknesses that were not resolved. Perhaps that is why Datuk Seri Dr Mahathir refuses to allow opposition parties to sit on the National Economic Action Council (NEAC)! How can a council be truly national if the opposition parties that represent 38% of the voters are excluded?
Datuk Seri Dr Mahathir has said that the losses from the depreciation in the ringgit are very great. For example the 1997/8 Economic Report estimated a per capita GNP of RM12,102. If our ringgit has depreciated by more than 50% against the US dollar, in foreign terms we have actually lost more than RM6,000 for every Malaysian. Or more than RM120 billion for 20 million Malaysians!
In terms of losses of market capitalisation for the stockmarket, it is even more frightening. From a market capitalisation of RM807 billion, the Kuala Lumpur Stock Exchange (KLSE) at the end of last year dropped to a 5-year low of of only RM363.03 billion on 26 November. Or losses of market capitalisation in the KLSE of around RM444 billion! If these losses of RM444 billion were distributed amongst 20 million Malaysians, we have lost RM22,200 each in the stockmarket since last year!
Such losses are huge and frightening. However what is even more frightening is that the worst may be yet to come. Some foreign fund managers feel that Malaysia's economic crisis has not hit rock bottom yet because we have not fully felt the chain effect reaction on our financial banking system.
It can not be denied the impact of the currency turmoil on our stockmarket. The concern now is the contagion effect of the collapse in the stockmarket on our property market. To meet their obligations caused by falling shares prices, property may have to be disposed off causing property prices to drop. Any crash in the property market may cause our whole financial system to collapse because our banks and financial institutions are so heavily committed with property lending.
By stopping the search for foreign scapegoats, the country can give full attention to the problems that affect our economy and take immediate urgent steps to overcome them. The UEM-Renong RM2.34 billion deal that caused the KLSE market capitalisation to lose by more than RM100 billion highlights how important accountability and democracy is to our financial system.
Finance Minister Datuk Seri Anwar Ibrahim may have taken the first correct steps towards greater accountability by withdrawing the waiver (exemption) given to United Engineers Bhd (UEM) from making a mandatory general offer for the remaining shares of Renong Bhd owned by minority shareholders. Such action may protect the interests of minority shareholders of Renong, but what about those investors in the stockmarket that suffered more than RM112 billion (24%) in market capitalisation losses within a week because of using a cash-rich company like UEM to rescue a company in financial trouble such as Renong. Who is going to protect and compensate the KLSE or investors from such huge losses? The KLSE suffered such huge losses because the Government failure to respect the principles of accountability, transparency and democratisation. The Government must therefore redeem itself by punishing those responsible for being involved or approving the RM2.34 billion UEM-Renong deal, that has caused losses of RM112 billion. Local and foreign investors' confidence in our economy can only be restored when those responsible for harming our economy are punished whether they are close to or are relatives of government leaders.
This is the message that we must give the government. The worst of the economic crisis will never be over so long as the government refuses to separate business from politics and recognise that only increased accountability, democratisation and transparency can save our economy.
The Irish author George Bernard Shaw wrote: 'The reasonable man adapts himself to the world. The unreasonable man persists in trying to adapt the world to himself.' Clearly, all change and progress depends on the unreasonable person. Likewise, our economic crisis can be overcome if we face up to the painful truths of the causes before we ponder over the remedies from us all unreasonable persons here tonight.
Lim Guan Eng is DAPDeputy Secretary General &MP for Kota Melaka. This article is from his recent speech on the economic crisis in Malaysia.