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Press Statement Charles Santiago in Klang on Wednesday, 11th March 2009:

The RM 60 billion stimulus package

The second economic stimulus package of RM60 billion, presented to Parliament by Deputy Prime Minister and Finance Minister Datuk Seri Najib Tun Razak, is a measure that’s too little, too late and too laxly structured to generate the positive economic impact that the rakyat is expecting from the government to save the country from the throes of a financial meltdown.

The government’s handling of the first stimulus package of RM7 billion was dismal, to say the least. Too much precious time and resources was wasted on the politicking over the past few months that there had been too little political will to effectively implement the package.

With its delayed response, the government lost a golden opportunity to cushion the economy from further deterioration. Now, we are being presented with Stimulus Plan 2, with all the inherent woes and inadequacies that scuttled the November stimulus package.

The impact from the global recession on Malaysia’s production, trade and employment is, meanwhile, all too real. The growth of the Malaysian economy dropped by 0-1 per cent in the last quarter of 2008.

Net real exports of goods and services fell 40 per cent year-on-year in the last quarter of 2008, as compared to a decline of 15% in third quarter of 2008. Interim January 2009 data suggest that exports fell 28 per cent year-on-year from RM53.0bln to RM38.3bln.

This is the worst fall in the last 28 years since 1981.

The decline is on all fronts, affecting manufacturing and also domestic-oriented industries. Even the oil and gas industry – usually a highly profitable sector – is showing an unanticipated slump now, due to the collapse of global oil prices.

Fourth quarter earnings in 2008 fell 127% year-on-year for 11 leading companies in Malaysia’s O& G industry, including Petronas Gas, Shell Refining, Tanjong Offshore, Dialog, Alam Maritim, EPIC, KNM, Petra Perdana, Ramunia and Wah Seong.

These data demonstrate such a steeply accelerating decline of the economy, that the Malaysian Institute of Economic Research predicted there is a 50 percent chance of the country going into a recession by the end of the year.

If this is true, then at this very moment we are in a recession – technical or real.

It is, therefore, shocking that the government has taken a rather cool attitude in responding to this economic devastation when the first signs of trouble emerged outside our shores in October 2008.

To give Najib credit, the very volume of the budget for the stimulus package – RM60 billion – indicates that the government at least has some idea of the scale of the crisis confronting us at the moment.

But what has been left largely unanswered is how the stimulus package will create additional income and enough jobs for Malaysians to help them weather the crisis in the short term.

For example, Najib has proposed the creation of 163,000 “training and placement opportunities in the public and private sectors” over the next two years. The Finance Minister reports that at this time, about 55,900 jobs have already been lost. Another 23,900 workers have taken pay cuts, while 100,000 people have been denied overtime work .

In my view these numbers are rather low and thus underestimate the severity of the problem faced by ordinary Malaysians.

But assuming that the last two categories of workers in this list lose their jobs in the next two to four months given that their companies are already having financial difficulties and combining with the 55,900 who are already unemployed, clearly there will be more unemployed workers than jobs created in the next two years. Independent studies suggest that up to 1 million Malaysian workers can be retrenched by year end.

What will be done about them?

To generate new jobs, the government proposes to use only RM 2 billion from RM 60 billion allocated from Stimulus Plan 2. But most ordinary Malaysians would think if RM 2 billion is enough. However, if the Ministry of Defence can award one company RM2.45 billion for the provision of submarine rescue systems, then my answer to the lingering question would be that the sum is simply not enough for 1 million retrenched workers.

Another question that should have been looked into is whether it is economically wise to dish out direct assistance – such as cash hand outs, vouchers, etc. Studies have shown that direct assistance has the tendency to induce rapid multiplier effects and generate additional spending, increase income, output and employment, and create demand over time than indirect methods such as tax cuts. ?Fiscal policy that provides more wage income directly to unskilled workers and in rural areas is likely to be much more effective in increasing aggregate incomes than other forms of public spending, because of the higher value of the multiplier in such expenditure.

The point is that direct spending is not only desirable from a social or welfare perspective - it also provides very direct economic benefits because it is much more effective in dealing with the economic situations of credit crunch and aggregate demand slowdown.

Wage employment schemes increase the incomes of those who are most likely to spend their income rather than save it, which means it will lead to higher multiplier effects and make public expenditure more effective in reviving output and indirect employment. We need to generate additional spending, increase income, bring up output and employment and create demand.

Therefore, I suggest that the government reviews its policies in relation to direct expenditure or assistance as a strategic effort to stimulate the economy.

I also suggest that a Parliamentary select committee be formed to oversee the stimulus packages and report to Parliament on a quarterly basis. The public did not hear a whimper for almost three months on how the first stimulus package was spent.

It was only very recently that state news agency Bernama ran a short article giving a scant breakdown of the disbursement of the RM7 billion, with the chief operating officer of the Finance Ministry’s Project Management Unit Mohd Othman Zainal Azim being the only source for the story.

The dismal lack of transparency and accountability, appalling as it may be for a project worth RM7 billion, characterizes our system of governance which sorely needs credible institutions of oversight to ensure fair play and merit in almost anything.

I call upon the Ministry of Finance to post all necessary public information on a website so that Malaysians and investors can scrutinize expenditure, including open tenders and ensure transparency.

Up-to-the minute information, all posted on the Internet, is the manner in which the Obama Administration in the United States is keeping Americans updated on how taxpayer money is being spent on stimulus packages in the country.

With all the multi-media super highway capability and fibre-optic technology in Malaysia, it would be a shame if we cannot emulate such as a Web-based model of bookkeeping for our stimulus packages too.

Such transparency will ensure that the new stimulus package progresses according to principles of integrity and merit, and will not quickly turn into a selamatkan UMNO and BN project.

* Charles Santiago, MP for Klang



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