by Lim Kit Siang on the 2009 Budget in Parliament on
Tuesday, 14th October 2008:
World financial meltdown – Malaysia’s
strong and weak economic fundamentals
Yesterday, the repetition by the Prime
Minister, Datuk Seri Abdullah Ahmad Badawi that Malaysia will not be hit
by the global financial meltdown is most disturbing as Malaysia has both
strong and weak economic fundamentals.
Malaysia’s past economic performance was in part linked to high rates of
domestic savings and FDI flows. Capital was readily available - it was
directed by the state, not necessarily into the most productive sectors.
Paul Krugman, the much-acclaimed economist now awarded the 2008 Nobel
Prize for Economics, in his analysis about the Malaysian economy had
drawn attention to this issue and questioned the capacity of the country
to remain competitive.
It is indeed remarkable that no heed was paid this feature in government
policies. Both in the Mahathir and Abdullah eras the essential economic
policies remained unchanged --- directed investments into large projects
with low returns; a less than transparent and accountable use of
national resources thus contributing to the growing level of corruption
The exploitation of oil and gas resources in an unaccountable manner led
markets to recognize the unsustainable nature of the Malaysian
development pattern. Malaysia has in this regard adopted some of the
first possible features of the Latin American economic development path.
It would appear that no account is being taken of the changed
The Second Finance Minister must take responsibility for much of the
preparation of the gravely-flawed 2009 budget. It is indeed most
troubling that despite the catastrophic developments in the global
economic scene in recent weeks, he continues to mouth statements that
Malaysia’s economic fundamentals remain strong; that Malaysian growth
rates will be only marginally lower in the year ahead; inward FDI flows
remain high; foreign exchange levels are sufficient to finance 9 months
of imports and thus Malaysia will not feel the full impact of the
These and similar statements have also been articulated by the Prime
Minister and the Deputy Prime Minister. These statements are greeted
with a degree of disbelief by investors, the markets and rating agencies
as they do not deal with the fundamental weaknesses associated with high
inflation, a unsustainable budget deficit, outflows of capital and a
mountain of contingent liabilities made up of guarantees that have been
signed as part of the various toll and other concessions.
This is a serious state of denial and Ministers appear to operate under
the assumption that markets and the private sector will accept
Ministerial pontifications as the true elaboration of the current
economic scene. Further, they assume that upbeat and fanciful statements
are sufficient to lull markets. If anything these statements have the
It is patently clear to all and sundry that Malaysia is a small economy,
open and therefore vulnerable to developments in the global economy. It
is not insulated or protected; it is dependent on inflows of FDI; its
growth and prosperity are linked to exports of commodities and
manufactures; demand and price developments in the global markets have a
direct impact on output growth, employment and prosperity.
Given these circumstances, the current global crisis will inevitably
impact on the flows of FDI, the demand for its exports ( both
manufactures and commodities), a deterioration in export prices. These
externally generated impulses will inevitably be transmitted into the
domestic economy and result in lower growth, a worsened labor market and
a decline in consumption.
In brief, Malaysia faces a severe and bleak economic outlook.
The danger to the economy is even greater when account is taken of the
already poor economic fundamentals represented by:
• The highest rate of inflation experienced
(8.5%) over the past quarter century;
• An unsustainable fiscal deficit projected
at 4.8% this year and 3.6 next year ;
• Billions of dollars of hidden contingent
liabilities --- akin to IOUs written to GLCs, crony corporations; an
unendingly flow of subsidies to private entities that believe in the
notion that profits can be privatized while losses are to be
• An interest policy that has been
irresponsible and largely favored to help over-leveraged “friends”
of the BN and to keep Government borrowing costs low;
• A manipulated and less than transparent
exchange rate policy that has contributed to imported inflation;
• The policy of “no bid” award of tenders and
projects to BN connected companies and contractors that has
contributed to increased project costs
• The loss of competitiveness through
corruption and poor governance.
• Credit rating agencies had lowered
This list is not exhaustive but indicative of
how the economic fundamentals have deteriorated in the recent past.
Kit Siang, DAP
Parliamentary leader & MP for Ipoh Timor