MARCH 9 – Michael Jackson. Bank of England. Malaysia. Perak. What do they all have in common?
The one-time King of Pop is attempting a 10-concert run in London this summer, singing his hits list that can raise some RM1.48 billion to pay off his debts and beat the blues that have afflicted him these past years.
The Bank of England has announced a plan to pump up to RM780 billion into the British economy by buying government bonds or gilts to beat the recession. Effectively printing money, some RM390 billion or 5.4 per cent of the British GDP will come in the next three months to stem the effects of the global financial crisis.
Malaysia's next Prime Minister Dato Seri Najib Tun Razak will table for second reading the second stimulus plan or mini-Budget for RM10 billion in the country's efforts to beat the looming recession. A combination of tax cuts and incentives will push up the plan to about RM35 billion apart from the RM7 billion announced last November.
With Perak, almost everyone across the country and cyberspace is now a constitutional expert, offering free unsolicited advice, particularly on the Internet, and beating up each other’s opinions.
For the moment, at least in Malaysia, most have forgotten that the most important issue is the economy. Many seem to forget that a democracy cannot survive without a good economy to enrich its citizens.
Fact is, the public preoccupation with politics has been very harmful to our economy as it polarizes the country. The Malaysian Insider reported yesterday that a year on after the March 2008 general elections, the country remains divided.
Both the Barisan Nasional government and the Pakatan Rakyat have not given any comprehensive proposal other than giving direct monetary handouts to lessen the burden of economic stress and to provide short-term relief to the public.
Frankly, I am not surprised at the lack of ideas on the magic bullet to solve our economic woes because there is no other short- term solution.
Michael Jackson is hoping that his 10 concerts will change his bottom line from red to black permanently, just as the Bank of England hopes printing money will fill the yawning black hole of an economic crisis.
The United Kingdom, like Malaysia and many countries around the world, is struggling to find effective solutions to counter the downturn caused by the lack of demand for manufactured goods.
The repressed global economic situation requires governments all over the world to incur massive borrowing to inject funds into their banking systems. The liquidity injection is a short term measure to stabilise the lifeblood of most countries around the world.
Without it, many economies will fail because of the inter-connectivity of the world's financial system. The global financial system today is a product of the Keynesian cyclical economic policies adopted by most governments in the world.
However the global economic problem that we face today is caused by a fundamental shift in demand for goods and can no longer be fixed by the extreme boom and bust spending policies. Like musicians who must keep churning hits to stay popular and in the black rather than disappear after just scoring one hit.
Most economists have proposed that the current structure of the world economy be reformed to prevent similar crisis from repeating in the future. Malaysia has had that experience in the Asian Financial Crisis more than a decade ago.
But things are not as bad for us in Malaysia. Many companies and banks here had taken the opportunity to restructure and practice prudent lending policies in the aftermath of the 1997 currency crisis.
That is why Malaysia has not seen a more drastic downturn as Singapore and some of our Asean neighbours. It is because the government has been prudent in its economic management.
Add to that the fact that most Malaysians have continued to be cautious and save a bigger portion of their income.
But we have to remain vigilant. The government should take the opportunity to plan the future direction of the Malaysian economy and take into account our positioning in the world in general and Asean specifically.
The future of the country's economy still depends on our productivity and ability to move up higher in the value chain of manufacturing and services.
The government must take measures to mobilise the large pool of savings to direct it into productive sectors of the economy and avoid foreign borrowing which comes at a hefty premium due to the credit crunch.
This is also the best time for the incoming Prime Minister Datuk Seri Najib Tun Razak to review our economic fundamentals as opposed to the global situation and propose a new direction for our economy to fit into the new world economy.
In my opinion our economic strategy should still be underpinned by the following factors.
* The government should structure our economy on a low interest rate platform to allow corporations to flourish and create employment.
* Lower interest rates should also help our exporting companies to lower their costs and be stronger to compete overseas.
* The government should continue to actively assist in the creation and development of entrepreneurs who will be the corporate giants of the future especially in the areas of technology.
* The policy of currency depreciation should be reviewed and adjusted to a higher rate to reflect our higher value added manufacturing export capabilities.
* The government should stop the ringgit peg to the US dollar as this policy may import inflation as the US dollar is expected to depreciate in the longer term.
* The government must be more proactive to incentivise our existing manufacturers to move up the value chain and move their lower end manufacturing to our ASEAN neighbours to take advantage of the tax free environment.
This strategy would also reduce our dependence on foreign labour to man the factories which would be drain our foreign exchange , social and security resources.
In the short term, the proposed economic stimulus budget package to be announced tomorrow should be targeted to productive sectors that would generate a large multiplier effect.
There should be less emphasis on large scale construction projects which require foreign workers and equipment and cause payment outflows from the country. Such thinking will not contribute to stemming the red ink now.
Sabah and Sarawak should be given a big share of the funds to develop infrastructure like roads, water and electricity to spur economic growth and generate local jobs.
And lastly, the government should cut corporate and personal taxes to ensure tax payers keep a larger portion of their income and spend it in the local economy. The fact of the matter is, only about one million Malaysians pay personal taxes totalling RM4 billion which is just a few per cent of the government's budget.
Because, this great economic thriller is just about beating the recession. Just beat it, beat it ...