As expected Idris Jala recieved several brickbat remarks about his warning that Malaysia could go bankrupt by 2019 if the proposed subsidy rationalizations are not implemented. The most vocal voices are from the UMNO guys. I have review their reasoning and while the figures or statistics given seems sound, I feel all of them missed one important point.
It is not important whether Malaysia will be actually bankrupt by 2019 or whether Malaysia is likely to end up in a predicament as Greece. All of them exhort that Idris Jala was exaggerating ; similarly I feel they too are exaggerating their arguments. If you read through all their reasoning – they do agree that in principle subsidy rationalization is necessary and is only arguing about the word “bankrupt and Greece “.
The key here is , all of us NEED to know what is the country’s present financial status and what is the future ahead ? It is pointless to argue over the words “bankrupt” or “Greece” – it is purely academic. Let’s be realistic and be prepare to tighten our belts and face the difficult years ahead.
The arguments and reasoning by his detractors are typical “political” talk and is a temporary sweetener offered to the public to ease their pain of hearing that Malaysia could go bankrupt. It is simple economics – As long as one is living beyond our means , one will always be in debt. We are disillusioned and accept this way of life as acceptable. We do not foresee the possibility of a great economic depression ahead and all our assets threatened. Just look at the last 1-2 years at what is happening around the world – the numerous disasters and calamities had taken a big toll on the affected nation’s capital and economy.
Jala is just sending everyone a strong message – if we keep our current levels of extravagant spending, we could end up like Greece. Idris Jala is well known for his efforts at Shell and resurrecting MAS into profitability. It will be wise of us to listen to a person who has practical experience managing country’s resources rather than listening and accepting the politically inclined words of these “armchair” economists or politicians.
Naturally there are arguments from the public why is the government taxing the public especially the poor, the lower and middle income groups who would be most affected by any subsidy cuts. They will continually point to the various excessive and extravagant spending’s by the government. The Auditor General’s report on the government spending’s for the last few years remain unanswered and to most is just a “storm in teapot” news release. It is equally important that continual efforts to get rid of wastages , leakages and corruption be strengthened and prosecution be brought forward against those culprits without fear or favor – a wishful thinking ??? Let all us see positive results of the Government Transformation Programs – we wish to see the truthful statistics not some make-up modified numbers.
Listed here some calls for changes and action from the public in the alternative media:
– Was subsidy alone the cause of the mega fiscal deficit (reportedly the highest in terms of percentage of Gross Domestic Product for umpteen years)? What about the public spending side of the equation? How did it grow to be so large? And why? What about the issues of productivity, efficiency, wastefulness, redundancies, and even questionable public spending which the Government’s Auditor-General had disclosed year after year? What became of the Auditor-General’s findings?
– Rm 10b is wasted on corruption annually, purchase of armaments at astronomical prices, wasteful construction projects and lots more are spent to enrich the rich. Now the Govt wants to take subsidies away from the poor. Give subsidies to the poor and money is recirculated back to the economy, give it to the rich and money is siphoned off. In this case say no to free market.
– with subsidies, some people is still suffering and could not buy much food.
without subsidies, these people will suffer more. i agree, subsidies is given to everyone regardless of income level, but how should this situation be tackle. how to measure which income level should receive subsidies, which should not..
– please cut the subsidy to the toll operators and the gas used by the IPPs (independent power producers) before you cut the subsidy to the rakyat. Can you do that? I think not – the IPPs and toll operators will be the last to be cut, if ever, while the rakyat will be the first.
– The BN government spends more to subsidise gas for IPPs, who have fat contracts with TNB (Tenaga Nasional), than for subsidising petrol. Yet the first subsidy to be cut is petrol not gas for IPPs, who use the gas subsidy to make obscene profits.
– This is a government which robs the poor to give to the rich. Big corporations cannot be touched while the man in the street is a soft target to be clobbered again and again. Why ask the public to accept subsidy removal while the big corporations laugh all the way to the bank?
– Putrajaya must admit that its leaders are not good enough to manage the economy well. Why are the rakyat held resposible for all the mess and damages committed by the BN? What happened to all the billions of ringgit that was wasted in unnecessary ‘gaya’ projects?
– Abdullah Badawi can write off oil fields worth hundreds of billions to a neighbouring country. Yet the rakyat must tighten their belts. Time and again, the same mistakes and no sense of remorse.
– We are already suffering with low wages and rising inflation. Any removal of the subsidies and GST implementation will burden us further. Every individual and every NGO must reach out to as many citizens as possible so that all of us will reject the implementation of subsidy removal and GST.
– Idris Jala needs to do his part by telling us the leakages and corruption that have taken place over the last 30 years and bring those responsible to task. Idris, can you explain Perwaja Steel, BMF (Bank Bumiputra Malaysia), currency speculation by BNM (Bank Negara), over-inflated mega-projects, etc, etc?
– To begin with, we could recover the RM500 million paid to a crony company as commission for the purchase of submarines which we don’t need in the first place. That’s a lot of money. Then we could go after the about-to-retire S Samy Vellu and recover millions in the form of Tenaga shares and Maika assets as well as the MIED property. The list could go on and on.
Just compare Malaysia to our nearest neighbor Singapore who in the last 40 years after separation from the peninsular has achieved. Singapore is a country with practically no natural resources – what it has is a strong prudent government which knows how to manage its finances well. In Singapore – we rarely hear of corruption and extravagant projects ending up as “white elephants”. Our politicians should compare Malaysia with Singapore not Greece. In management talk – we can only improve when we compare with the 20 % who is better than us rather than the 80 % who is who is worse than us. So let’s all get our priorities right.
The Malaysian Auditor General reports are only the tip of the iceberg on the wastefulness and leakages in government spending. Accusations of cronyism and mega-projects benefiting only a few who are politically linked is abound. The common folk do not realized such benefits from these mega-projects.
In principle I do agree that we need to accept some subsidy cuts which should be implemented progressively say in 3-6 months period over a 5 year plan. This will reduce the rakyat’s pain in their daily expenditure. The truth is we have been “spoilt” and had been customized to accept such “low prices”. Price controls and subsidies not only distort price signals, but they also result in over-consumption and waste. Indirectly these subsidies had created a “crutch” that we always need to lean on especially on industrial and manufacturing costs ; competitiveness has been affected as the need to improve efficiency and productivity is not seriously attended to by management. With the reduction in subsidies all industrial concerns is now forced to reduce costs through productivity initiatives which ultimately is good for the industries. Subsidy cuts do not always need to be follow by a price increase of goods – this is the quick and easy way out by manufacturers. For the working man, savings and expenses control will become a more important aspect in one’s monthly budget.
Below posted are excerpts of the detractors opinion on Idris Jala presentation on subsidy rationalization:
The conjecture that “Malaysia will- go-bankrupt by 2019 like Greece if subsidies are not withdrawn”, while terribly dramatic, overlooks the country’s key pre-emptive strengths to prevent such financial catastrophe — Malaysia’s economic outlook, prudent financial management and tight monetary policies, said Umno supreme council member Dr Norraesah Mohamad, a Sorbonne University-trained economist.
Norraesah supported her contention that :
• Malaysia’s most important saving grace is its economic outlook: Positive two-digit growth was registered for the first quarter of this year;
• Malaysia’s budget situation will substantially improve over the next couple of years because the economy is growing;
• Malaysia’s very prudent financial management and tight monetary policies do not allow for dubious cross country swaps like what happened in Greece that further aggravated its debt situation;
• Malaysia is not caught in the euro capsule like Greece.
“We have our own money and therefore can deal and manage our costs and prices,” said Dr Norraesah in analysing the declaration
last week by Minister in the Prime Minister’s Department Datuk Seri Idris Jala that Malaysia would go bankrupt in 2019 if subsidies are not reduced across-theboard over five years, a move which Idris described as the “most unpopular decision that the government has to make since independence”.
In addition, Dr Norraesah said:
• Malaysia enjoys a high saving rate, another saving grace (The Employees’ Provident Fund has accumulated savings of RM360 billion as at Dec 31, 2009);
• Malaysia’s abundant resources and diversified economy are reinforcing factors that guarantees the country will not plunge into bankruptcy.
Dr Norraesah agreed that phasing out subsidies was a “pragmatic move and a sound economic decision” that must be made because it eats into Malaysia’s fiscal position, misallocate resources and distort more effective use of available development funds.
“Besides, the one-size-fits-all subsidy policy is unsustainable and socially unacceptable,” she said.
Nevertheless, Dr Norraesah described the prospect that Malaysia will be bankrupt in 2019 if subsidies are not withdrawn as a “terribly dramatic, albeit inappropriate way” to justify the burial of subsidies.
“Once we get beyond the crude look at budget deficits, a favourite attacking weapon of certain quarters, we immediately see that the parallel between Greece and Malaysia is not even close,” she said.
Greece, Dr Norraesah pointed out, has all sorts of problems that are not found in Malaysia. Her reasoning was based on the fact that:
• While Greece’s budget deficit is an unacceptable 13.6 per cent in 2009, Malaysia’s budget deficit has been brought down from 7.0 per cent to 5.6 per cent in last year’s budget;
• Compared to Greece, Malaysia’s deficit is respectable and is expected to shrink further in the 2011 budget; and,
• Greece’s total national debt is 113 per cent of its GDP, a level unimaginable in Malaysia.
“We have a strong current account surplus and big financial reserves,” she said.
Some government backbenchers have labelled a bankruptcy forecast for Malaysia as a “bit far-fetched”.
They have dismissed the notion that “Malaysia-will-go-bankrupt-in-2019-like-Greece” if the RM74 billion annual subsidies are not slashed as more of a “scare tactic”.
They felt that the comparison with Greece by some quarters in the opposition was “way off the mark” with little analytical basis.
Sharir, the former domestic trade and consumer affairs minister presented a comparative study of the two countries.
He said Malaysia had, more importantly, the ability to pay its interest payments, unlike the Greek government which had defaulted on interest payments, thus lending credence that Greece can be said as bankrupt.
He also said that Greek civil servants had a permanent bonus of two months, and they made up 10 per cent of the population and were also perceived as not that productive.
Shahrir said Greece was also overly reliant on tourism, and was resource-scarce and had no commodities.
On the other hand, tourism was just one of many economic activities in Malaysia while its other economic activities were well-diversified, he said.
Shahrir said Greece had to borrow just to pay interest while Malaysia has never defaulted on its interest payments.
He also stressed that Malaysia had built a strong financial system stemming from the consolidation of banks, cleansing of non-performing loans out of the system after the 1997 financial crisis through institutions like Danamodal and Danaharta.
Shahrir also said that the government had also reduced wastage and leakages by progressing to e-procurement to save money.
“In the 2010 Budget, the government had agreed to a 10 per cent across-the-board expenditure cut in all ministries,” he said.
“We have already spent on big ticket items like the North-South Expressway and Penang Bridge. So now the biggest government expenditure is the subsidies.
“The ongoing effort now is to improve the economy by promoting greater efficiency and productivity through the New Economic Model,” he said.
Greece is much worse shape
In analysing Idris Jala’s pronouncement on a technically economic view, Umno Youth chief Khairy Jamaluddin asked for an understanding of bankruptcy.
“In a nutshell, it’s a situation when you are no longer able to pay your debts and the next question will be, is that the (actual) reading of our economy?”
He contended that if the Malaysian economy was scrutinised from the point of national debt, savings rate, deficit level and trade performance, it was fundamentally stronger than Greece .
A further analysis, Khairy pointed out, would reveal that:
Malaysia’s national debt was 54 percent of GDP, less than half of Greece’s 113 per cent debt. Malaysians enjoy a high savings rate of 35 percent of GDP, which is seven times higher than Greece’s five percent. Greece’s 2009 budget deficit of 13.6 percent of GDP was 2.4 times higher than Malaysia. Malaysia gained a RM118.4 billion trade surplus in 2009 while Greece recorded a RM105.7 billion deficit in the same period; and In March 2010, Malaysia’s international reserves stood at US$95.3 billion, 17.3 times higher than Greece’s US$5.5 billion.