Press Statement by Charles Santiago in Klang on Thursday, 4th December 2008:

Deputy Finance Minister's head under the sand  

The Deputy Minister of Finance Datuk Kong Cho Ha told the Dewan Negara yesterday that Malaysia has not been directly exposed to the full impact of the global financial crisis. He further indicated that "It is only feeling the pinch indirectly from the minimum impact of the sub-prime mortgage crisis cushioned by the strong domestic economy."

This is an irresponsible statement to make and amounts to misleading the country.

His argument does not hold water as the local business media in the last few weeks have been reporting that Malaysian corporate earnings may contract by four percent in 2008. Furthermore, corporate earnings in the third quarter were weak and point towards a gloomier set of numbers in the final quarter. The estimates can be further reduced depending on the severity of the global economic and financial crisis.

Clearly, lower corporate earnings are a reflection of a slowing economy.

Companies are also reducing the length of the working day, existing orders are being slashed, future orders cut down to critical levels and retrenchments are being planned. Job losses will be significant. The unemployment rate is expected to hit 4.9% next year. The country's manufacturing exports are expected to drop.

The country's revenue will dip critically with deteriorating oil, oil palm and other commodity prices. Crude oil prices dropped to a three-year-low to USD 48 yesterday. Malaysia's timber based exports for 2009 is predicted to be lower, as well.
Last week Bank Negara Malaysia indicated that the country's gross domestic product (GDP) growth for the third quarter of this year slowed to 4.7%, a substantial drop from 6.7% in the previous period.

Analysts are indicating that if commodity prices continue to drop or stabilize at low levels and manufacturing deteriorates, the possibility of the country slipping into a recession cannot be ruled out. Brokerage houses have downgraded the economic growth of the country with one suggesting that Malaysia will experience zero economic growth rate next year. However, all of this would be fundamentally dependent on the severity and duration of the crisis and the country's response to it.

Previous assumptions underlying the various projections are currently redundant. This is because of the daily painful unraveling of bad economic news triggering unprecedented levels of uncertainty and lack of confidence in the global market system.

Recession, economic slump, poor and weak earnings, slowdown, sales slides, pay cuts and lay-offs have become the buzz word in the last weeks and months.

A recent UN report entitled World Economic Situation and Prospects 2009 indicates that that "most developed economices entered into recession during the second half of the 2008 and economic slowdown has spread to the developing countries and countries in transition".

According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2008, Malaysia's foreign direct investment outflow surpassed inflow by RM8.99 billion in 2007. Malaysia was the only country to have recorded a negative investment flow among ASEAN nations.

The economic situation is grave and needs urgent, coordinated massive stimulus package both at the national and regional level.

Deputy Prime Minster and newly minted Finance Minister Datuk Seri Najib Tun Razak needs to acknowledge that we are not confronted with a pinch but a catastrophe that needs to be taken seriously.

Najib has to also remind his deputy that we have already begun to feel the direct impact of the global financial and economic crisis. Specifically, the global crisis is biting into the real economy and hurting people and business. 

* Charles Santiago, MP for Klang