We in the Barisan Alternative unveiled an alternative budget that factored in the need for change designed to check the drift towards a disastrous deepening of the crisis. I must express my deep-felt disappointment that the Minister of Finance has not heeded constructive proposals put forward by responsible analysts.
The Minister has presented this House with a budget based on rosy scenarios of growth, a downplaying of the down-side risks, both domestic and foreign, and inconsistent policies. The underlying policy framework he has employed is at best muddled and at worst a blatant exercise to mislead the Malaysian people, just like the farce over the abolition of television licences, purportedly from April 1 this year - which I had exposed earlier in my speech. His revenue and financing proposals are based on shifting sand. Many of his expenditure proposals are nothing but election hand-outs and "goodies" to what he believes are gullible voters.
The Deepening Crisis
The Budget 2000 presented to this House is the first one for the New Millennium but in many ways it represents nothing more than a continuation of flawed policies pursued by the Barisan National. It is a budget that is cast to bribe the electorate on the eve of an election; it is a budget that typically paints a rosy picture of the economy; it is a budget based on an unreal assessment of the economic circumstances faced by the country. It is an act of denial of the precarious situation we face as a nation.
The policies enunciated are flawed policies, policies that have been tried over the past two years in meeting the challenges posed by the economic crisis that overtook this region some two and a half years ago. The proposals presented are likely to heighten the problems we face in future. Once again the Barisan is playing with the future of this nation’s prosperity and well-being. It is an act of irresponsibility.
The budget must be seen in perspective. A year ago when Dr Mahathir presented the Budget for 1999, the economic scene was dark. Policy was in disarray. The Government had lurched in a panic mode into the adoption of selective capital controls and a pegging of the ringgit. Intemperate remarks were contributing to the havoc being wrecked on the markets as the Prime Minister railed and ranted, blaming the entire world while denying responsibility for the policies he had followed that led up to the crisis.
While contagion did play a role in affecting the Malaysian economy, the real causes of the crisis were clear. Unsustainable levels of borrowings both domestically and internationally to fuel the bubble economy that was being created were the real factors. The transfer of publicly-owned entities, under the guise of privatization or piratization as I have called, into the hands of friends and cronies was part of the culture that fed the bubble.
Regulatory and supervisory functions of the government were manipulated to protect corporate sharks. The capital flight that occurred was not just of short-term money invested by foreigners, it was the exodus of domestic money. The large offshore ringgit deposits did not just happen – they were created by the money-men of the Barisan who were evading taxes, parking their ill-gotten gains in off-shore accounts. The Prime Minister can deny these aspects of the crisis until the cows come home and attempt to shunt the blame onto the fund managers and currency traders, but the true facts cannot be altered.
On the heels of the economic crisis, the Prime Minister recklessly plunged the country into its most serious political crisis in its history. This was a crisis of his making - he turned an economic policy dispute and about corruption with his then Deputy into a vendetta. The dispute was no longer about policy differences but about power and its exercise by an entrenched group led by him seeking to perpetuate itself, not for the good of the nation but to protect and save cronies that that plundered this land for over a decade.
In the year since, we have seen the power of the state applied to destroy dissent through repression, selective prosecutions, manipulation of the institutions of the country including those charged with guaranteeing law and order and dispensing justice. We saw the highest police official in the land beat up a helpless handcuffed and blindfolded Deputy Prime Minister. The nation and the world were lied to. We then had the judicial system made into a joke as charges were amended and amended again.
Citizens peacefully protesting in the streets at gross injustices and abuses of power were beaten and greeted with water cannon. We broke new records - the jailing of a foreign correspondent, reneging on the promise to honour a World Court decision; innocents being killed by trigger-happy policemen; and political opponents protesting against government high-handedness dragged to lock-ups at the slightest excuse.
Whispered tales of gross corruption in high places are revealed not to be without basis, supported by documentary evidence. We do not hear a denial or have any indication that those named are being investigated for alleged high crimes and misdemeanors. The ugly cancer of corruption goes unchecked as the nation slowly suffers the pain.
These events, a sorry tale indeed of evil, cannot be seen in isolation as political events - they have had an impact far beyond - on the economy, the culture, and the moral fibre of the country. The events of the past two years have left their inedible mark on Malaysia.
It must be noted that the crisis that befell the countries in this region was in part due to the governance patterns prevailing in these countries. Authoritarian regimes conducted the affairs of their countries with little accountability and transparency. These were regimes that tolerated to an excessive degree corruption and the plundering of national assets.
Malaysia was no exception. Indeed, the levels of corruption were higher in this nation. As the crisis evolved, in several of the affected countries – Thailand, Korea, Indonesia – the old regimes were swept aside and replaced by governments that were committed to reforms and rescinding old ways of doing business.
It is clear that the reform programs in these countries have contributed to the process of a faster economic recovery. Thailand and South Korea have recorded higher rates of growth whilst Malaysia lags in recovery, trapped in a mire of its own making. Reform is not on the agenda of the Barisan Nasional government.
We in this country have not seen reforms. If anything the Barisan National government has continued to act in a state of denial and has continued to follow policies that have given new strength to corruption, nepotism and cronyism.
Bailouts amounting to billions of ringgit have been mounted. Growth continues to be sluggish and the economy totters on the edge of a new economic crisis in the making. The lesson to be drawn is that countries that embarked on true reform – including political reforms - have done better, whereas Malaysia has made less progress towards a sustainable recovery.
The economic policies that the Barisan regime has followed have in one sense seen no change. Borrowing and spending to benefit cronies was the centre-point of its policies. It continues to be so today, and is promised in larger doses were the Barisan Nasional returned to power together with a commanding two-thirds parliamentary majority, as it will take this as a new national mandate for "cronies as usual"!
The Budget Policy Framework
The policy framework underpinning the budget is dangerously flawed: a loose monetary policy, an irresponsible fiscal stance based on levels of expenditure financed by rising levels of unsustainable debt, and an exchange rate policy that is beyond comprehension. This mixed brew represents a recipe for disaster. Daim’s assumptions concerning inflation and growth in the coming year are therefore very flawed.
We have seen a loose monetary policy in place over the past year. Daim now proposes to continue with this policy largely to provide funding to corporate cronies who have thus far largely ignored the need for radical and fundamental restructuring. Corporate governance remains abysmal. He has no new proposals on how the Government is to address these weaknesses that are central to the health of the private sector.
These policies translate into getting the banking sector to continue to pour money through politically-directed loans to the government’s corporate cronies. This approach nullifies efforts to strengthen bank balance sheets through the shunting of Non Performing Loans (NPLs) to the books of Danaharta and Danamodal.
Furthermore, a loose monetary policy will inject liquidity into the market thus fueling inflationary pressures. In this context the assumed inflation rate of 3 per cent in the coming year appears unrealistic.
The Minister has also down-played, indeed ignored the fact that there are renewed dangers of inflation in the global economy and that interest rates in the major economies of the world will rise in the year ahead. Those global inflationary pressures will be transmitted to Malaysia given the openness of the economy and the rigidity of a fixed currency peg. In the face of these trends, the policy in place can cause considerable harm to the Malaysian economy.
The Minister, despite his protestations, has gone on a fishing trip for votes. The growth in recurrent expenditure of 7.0 percent is sizable but clearly understated. It has been traditional for the Barisan Nasional government to present at budget time a low expenditure figure but to come back to the House for sizable increases through supplementary expenditure requests in the course of the year.
Based on this pattern, we are likely to have growth in ordinary expenditures exceeding the 9 percent projected for the current year. I base this assertion on another count – the rising cost of servicing debt.
I must also bring to the attention of the House and the nation that expenditure allocations are slanted towards giveaways and salary increases, much-deserved as they are, without any effort to bring about productivity and efficiency gains.
The expenditure allocations by object are also skewed. Debt service will increase to 18.4% to a little less than RM 10 billion. This is a clear reflection of the mindless policy of borrow and spend, largely on mega projects that bring little benefit to the people.
Despite the modest increases on social services, Malaysia continues to spend less on health services than many other countries at a similar stage of development.
As regards development expenditure, we see almost 46% allocated to "Economic Services". A large part of these will be transfers to fund bailouts and mega projects. It is revealing that the Barisan National intends to double the development expenditure on Internal Security, -- presumably to buy more water cannons and other means of suppression of the People.
Is this why in a letter dated 21st October 1999, the Home Ministry had urgently sought the approval of the Finance Ministry for some RM1.8 million in tear gas munitions through direct negotiations and not through open tender - giving as reason for the urgency the impending general election! Is the Home Ministry trying to ensure or forestall the next general election from being the "dirtiest" in the nation’s history?
Coming back to the 2000 Budget, a careful examination of the detailed expenditure patterns will show that despite the pious sentiments expressed by the Finance Minister in his speech about improving living standards and social services and a People’s Budget, this Budget is like its predecessors an exercise in "smoke and mirrors". It fails to address the deep-seated needs of society – better housing, accessible healthcare, and protection of the aged, the handicapped and the poor.
The revenue assumptions that the Finance Minister has used are far from tenable. He has projected revenue growth of 5.7 percent in the year ahead. This is inconsistent on several counts.
The tax giveaways amounting to well over RM 1 billion will erode the revenue base. Revenue growth has presumably been based on unrealistically optimistic assumptions about the recovery. Given that he has acknowledged slower US growth and a very fragile recovery in Japan - our key markets - the external stimulus will not be there.
Domestically, he appears to be assuming a recovery in corporate earnings and increased domestic consumer demand. The prospects for both these elements are at best weak. Corporate and personal earnings are unlikely to recover sufficiently to generate a growth of 7.6 percent in tax revenues from income taxes, particularly after account is taken of the tax giveaways. The same can be said about indirect tax revenue - growth of 5.7% -in the face of weaker commodity markets linked to global economic conditions and a still skittish recovery in domestic demand for goods and services.
Unrealistic assumptions of this nature will not escape the attention of market analysts and not lead to the restoration of confidence in the policies of the Barisan Government. The Finance Minister has loudly proclaimed recovery and a further rebound in the year ahead, but has done little to rebuild confidence.
He has missed the opportunity to rescind flawed policies – capital controls and the ringgit peg are to remain in place despite the mounting evidence that they serve no purpose in aiding recovery, but are an irritant and a disincentive that make foreign investors avoid Malaysia as an investment destination.
Before I leave the subject of revenues, I would like to draw attention to the fact that projected revenue in the year ahead at RM 59.9 billion (even before taking into account the RM1.1 billion tax cuts), will be lower than the level of RM 65.7 billion attained in 1997, the year in which the crisis broke. So much for the robust recovery.
The third underlying pillar of policy is exchange rate policy. The continued pegging of the ringgit is inimical to the nation’s long term interests. This policy has put the determination key policy variables in the hands of US policy makers – the US Federal Reserve Bank and the US Treasury.
Our ringgit now moves with the gyrations of the US dollar against the currencies of our major trading partners, Japan and the European Union in particular. We may well have stability against the US dollar but certainly not against other currencies. Our borrowing costs are affected, and so too our trade. Thus we are not completely isolated from global turmoil in currency markets but pay the heavy price of having lost control over a key instrument of policy. The Prime Minister and the Minister of Finance are naïve in their belief that we have erected a defense ring. The truth is that we have not.
I note that the Finance Minister has now joined the Prime Minister in attacking the Opposition by charging that we are engaging in sustaining the recolonizers and evil, envious foreigners by espousing sane alternative policies. This is hypocrisy at its height and a total distortion of the truth. The adoption of the ringgit peg and the surrender of exchange rate policy control to the US Federal Reserve shows who is surrendering sovereignty and our ability as a nation to adopt independent policies. It is the Barisan Nasional – not the Barisan Alternative. The cloak of nationalism that the Prime Minister is pretending to wear is no cloak. It is no more than an exercise in futility, a projection of ego and petulance. I call on both the Prime Minister and the Minister of Finance to stop falsely accusing us of being less than patriotic or loyal to this beloved country of ours.
It was most noteworthy that the Finance Minister in his two-hour long presentation had little to say on what new policies he has to restore foreign confidence in the Malaysian economy with the objective of reassuring foreign investors.
He said little about the importance of attracting foreign capital flows that are critical to future growth. The private-sector need for capital is not being met as it gets crowded out from domestic capital markets because of excessive government borrowing.
He was wholly inconsistent in yet another regard. While arguing that the private sector must play a role as the engine of growth, he gave no indication of where it was to obtain investment funds. Indeed, it is most revealing that neither the Speech nor the Economic Report provide projections of the level of private capital inflows for the year ahead. We can only conclude that there is grave uncertainty and the government is fearful of an outcome that will be a devastating indicator of failed policies.
The Finance Minister was also largely silent on how he proposes to finance the deficit projected at 4.4 percent of GDP. Tucked away in the Economy Report (Statistical Table 4.7) are some rather revealing figures, which must not be glossed over. According to these numbers, the government intends to borrow a total RM7.3 billion of which a net RM3.1 billion is to be borrowed from abroad.
This represents an increase of 77 percent, a significant proportion, RM 2.8 billion, will be in market borrowings. On a gross basis foreign borrowings of the Federal Government will be RM 4billion. These are very sizable borrowings and will be costly given projected higher interest rates in international markets and the premium that markets will demand on Malaysian borrowings, given the experience with bond issues in the past year.
The deficit of 4.4 % of GDP projected by the Minister is itself suspect if in the course of the year expenditure rises over budgeted figures – a forgone conclusion based on supplementary provisions that will inevitably be presented - and lower than projected revenues.
Briefly put, the policies now being pursued are dangerously wrong, irresponsible and will do irrevocable damage to the long-term health of the economy. This is a view that has been echoed by eminent economists both in this country and abroad and yet the Prime Minister and the Finance Minister have chosen not to heed these views. They are committed to policies that will lead to unsustainable debt levels, erode our ability to compete in the global economy and affect our long-term prospects.
This budget is nothing but a plain and blatant exercise with twin objectives: fish for votes and save the floundering corporate empires and wealth of the ruling elite and its cronies. Many Malaysians view these as anti-national objectives.
(1/11/99)