(Muar, Tuesday): Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim said yesterday that Malaysia’s growth rate this year was projected to be lower than the earlier forecast figures of between four and five per cent due to the deflationary impact of the financial crisis in Asia.
He said the earlier forecast was no longer realistic given the latest trade and economic statistics.
The forecast of four to five per cent economic growth this year was made by Anwar in his second 1998 budget on December 5, which slashed his earlier forecast of seven per cent in his first 1998 budget presented in Parliament on October 17.
On 22nd December, I had called on Anwar to give an explanation for the vast differences in the revised government forecast with that of the International Monetary Fund Interim World Economic Outlook released in Washington on December 19, which gave a forecast of 2.5 per cent GDP growth for this year.
There was no government reaction to the call for a further revision of its GDP growth forecast for this year until last week. It is clear that the government should be more nimble and realistic in reacting to fast-changing economic developments, especially in the present crisis.
Last week, World Bank forecast that the Malaysian economy would grow by about 3.5 per cent, and that Thailand, Indonesia and South Korea are projected to move into recession this year.
Uri Dadush, chief of the World Bank's Development Prospects Group, said in Manila that Thailand's gross domestic product (GDP) was expected to fall by 3.0% and Indonesia's by 1.0%, while South Korea would have no growth.
The World Bank forecasts are quite optimistic as compared to those of private economists.
On 25th Feb. , the Singapore government chopped its forecast for economic growth this year to between 2.5% and 4.5% from between 5% and 7% previously. There are private economists who forecast 1% GDP growth for Singapore in 1998.
A day earlier, the Thai government and the International Monetary Fund announced that they expected Thailand’s economy to shrink 3% to 3.5% this year. In November, the government had forecast zero to 1% growth.
The belated preparedness of the government to revise downwards its economic growth forecast for Malaysia this year is welcome, though the failure to react faster shows that the government has not completely shaken out of the "denial syndrome" in not wanting to admitto the gravity of the economic crisis as well as the internal policy and structural weaknesses and failures which have aggravated the crisis.
Government leaders still want to put the blame of the economic crisis, including the Employees Provident Fund declaring the lowest dividend of 6.7 per cent in 22 years and the troubles of Sime Bank, Bank Bumiputra, Abrar Finance and Cempaka Finance, on external factors and foreign speculators.
This is in sharp contrast to what leaders of other Asian economies are saying. For instance, Thai Prime Minister Chuan Leekpai blamed the recent economic crisis in Thailand on complacency, without any talk of George Soros or international conspiracy to sabotage to Thai economy.
In his speech to the Council of Foreign Relations in New York , Chuan said:
"During the period of rapid economic growth, we were too complacent. In the good times, we forgot many important truths and neglected many important tasks.
"We created wealth but were perhaps negligent in creating competitiveness.
"We were successful in our economic performance, so much so that we did not examine the fundamentals of our politics and governance, or tackle issues, such as bureaucratic inefficiency, lack of transparency, and lack of accountability.
"Once the cracks appeared, we compounded the mistakes by committing much of our fiscal reserve to shore up insolvent finance companies and our foreign reserves to defend the baht.
" Naturally, we were quickly and severely disciplined by the market."
Singapore’s Senior Minister, Lee Kuan Yew, in an interview on the East Asian economic crisis in the latest issue of Newsweek said:
"This (economic crisis) was not an act of God. This was a folly of man in making the damage worse by not responding in a way that commands the confidence of the market. The primary weakness was inadequate systems to absorb this huge inflow of funds in the last three years, during the period of euphoria about the Asian miracle."
One important reason why Malaysia is still facing the problem of confidence-restoration nine months into the economic crisis is the widespread perception that government leaders are still in denial and are not prepared to face up to the internal weaknesses and causes which have made the economic crisis worse that it should have been. This unrealistic attitude can only make it very difficult to arrive at a proper diagnosis and remedy of the crisis - dragging out the economic crisis longer than necessary.
(17/3/98)