Wednesday, March 17, 2010

Anwar paints gloomy outlook for Malaysian economy

Datuk Seri Anwar Ibrahim (picture) today expounded on weaknesses in the Malaysian economy, blaming it on the government’s dependency for pump priming measures, over reliance on petro dollars, the widening public-private investments gap, and capital flight in the country.

The Permatang Pauh MP told Parliament that Prime Minister Datuk Seri Najib Razak’s optimism to say the “worst is over” was a stark contrast to the bleakness of the country’s present economic status.

The opposition leader pointed out that although the economy seemed on the mend in the fourth quarter of last year, Malaysia still continued to fall behind other nations in terms of competitive edge and attraction of foreign direct investments.

“At the same time, too much pre-occupation has been given to plans to upgrade the economy into a high value economy that we risk putting aside key economic issues concerning social justice; that should always take centre stage in any economic development agenda in Malaysia,” he told the House.

The former deputy prime minister also said that the government’s efforts to eradicate poverty had borne little fruit, and what was worse, figures from the UN Human Development Report in 2009 showed that Malaysia ranked 66 in terms of economic inequality, behind Singapore (ranked 23), Hong Kong (24), South Korea (26), Brunei (30) and Cuba (51), among others.

He said that despite the government’s incessant dependency on pump priming between the years of 2002 and 2004, the poverty rate still rose 12 per cent in the period.

“This should baffle everyone because this is a period of pump priming when a lot of state financial resources were diverted into the economy. Alas, only cronies and connected people benefit while the poor continued to suffer,” he said.

Anwar said that the economic gap between the different groups in the country was so bad that the task of leading the economy towards wholesome development was beyond today’s administration.

“A gigantic reform and monumental shift in the management of the economy is required if Malaysia is to upgrade itself into a high-value economy and ensure that prosperity is distributed equally to all groups and levels,” he said.

The government’s pump priming measures, undertaken since 1998, were also criticised, with Anwar saying that such measures should only adopted for short periods to boost the economy.

He said the government, overly-reliant on income from oil and gas, even resorted to “squeezing” Petronas when its profits could no longer support such reliance.

Citing examples, Anwar said that Petronas had to make escalating payments to the government in recent years, beginning with RM32.1 billion for the financial year of 2005, RM47.7 billion in 2006, RM52.3 billion in 2007, RM61.6 billion in 2008, and RM74 billion in 2009.

“In the year ending Dec 31, 2007, and Dec 31, 2008, Petronas contributed to 36.8 per cent and 44.9 per cent to the total government income for the years respectively,” he said.

According to Anwar, if income from other oil and gas companies were taken into account, it would mean that the country drew more than half its revenues from non-renewable sources.

“And despite the bumper income from Petronas in 2007 and 2008, the government continued to spend lavishly and registered deficit budgets,” he said.

Pump priming, he added, also resulted in the widening gap between public and private investments in Malaysia.

“The massive drop in private investment will continue to threaten any efforts to mould [the] Malaysian economy into a high performing, high-value economy.

“Furthermore, the pattern of public spending is not sustainable at the rate it is growing. Any attempt to re-model the economy must address the skewed nature of public-private investments in Malaysia.

“Pakatan Rakyat has always expounded that the country requires a holistic reform to the economic policy framework, especially so given the nature of lopsidedness of our economy now,” he said.

Anwar also claimed that the loss of confidence in Malaysia’s economic prospects were due to a spate of poorly managed issues like the “Allah” controversy, and the “disappearance or failure” of government assets such as missing jet engines and the “submarine which does not dive”, had eventually been the cause of the “shocking” extent of capital flight in Malaysia last year.

“Jon Anderson, an economist with UBS, shocked the financial market when he disclosed the extent of capital flight in Malaysia, which had reached 44 per cent of the GDP at one stage.

“Despite the alarm raised, the government rubbished concern on the pretext that this was reflective of ... government-linked companies’ more daring ventures overseas. At the height of it, an estimated RM355 billion left our country,” he said.

Anwar admitted that GLCs had embarked on a more aggressive stance lately by plumping up their overseas investments, but pointed out that the very quantum of the capital outflow suggested that the bulk of it was due to “genuine investment portfolios being pulled out of the country”.

He claimed that the GLCs’ act of putting more of their cash reserves into foreign investments instead of reinvesting in Malaysia mirrored the fact that their confidence in the country’s economy was waning considerably.

“The government must realise that it must combine its approach to the economic problem of capital flight with a political situation. Only with honesty, transparency, fair-mindedness and commitment to reforms that Malaysia can begin to restore confidence in its economy,” said Anwar.

The former finance minister also spoke extensively on other economic indicators like the severe drop in new capital investments, which he claims proved the country’s economic climate was not as robust as the prime minister had painted it to be.

“These indicators clearly point to an uphill struggle to achieve whatever crafty slogans on high value economy that [the] government has drummed up so far.

“Pakatan Rakyat is consistent that without a holistic reform involving a total fight against corruption, the tightening of the government procurement process, the dismantling of the state-politician business relationship, injecting integrity back into the judiciary and important institutions, and an overhaul of our education system, [then] the efforts to move to high value economy will remain as rhetoric,” he said.

courtesy of Malaysian Insider

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