My Say: Forthrightness and prudence the key to economic management

This article first appeared in Forum, The Edge Malaysia Weekly, on July 23, 2018 - July 29, 2018.
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There is a Chinese idiom, “drinking poison to quench thirst”, which describes a desperate situation with little or no recourse.  Fortunately, Malaysia’s national debt, though daunting, has not yet reached a point of no return, as is the case with many a developing country in Africa and South America.

When the new administration took over two months ago, it was faced with an unenviable dilemma. The national debt was in fact much higher than the official figure announced by the previous administration as many of the otherwise extra-budgetary sovereign guarantees granted to many “projects” saw the funds siphoned to untold destinations, in effect saddling the government with unfavourable payment terms.

Such horrendous disclosures would almost certainly spook the markets, as some have it, since the foreign and domestic business communities, like their counterparts in many other developing countries, may be said to have been jaded over the years, to such an extent that they are often “desensitised” to the rampant corruption and unchecked collusion that are the hallmarks of kleptocracies.

Many businessmen, deep in their hearts, would be more concerned about whether they can get to collude with the right senior officials at the right amount such that they can obtain the fattest projects. Corruption is for the civil society to create slogans about, and businesses only pay lip service to anti-corruption efforts.

The new administration could then have chosen to “drink poison” and allow the explosive debt figure to pass unnoticed by most, such that the nation’s overall thirst for more capital investment could have been quenched more readily. After all, they have assumed power and could just smooth things over and not rock the boat, so to say. But they decided to share with the public the true nature of the government’s jaw-dropping indebtedness.

The jaded business communities reacted accordingly, with the markets continuing to wallow and capital flight reported to be in record figures. But the new administration seems undaunted, disclosing recently unearthed scandals and financial irregularities one after another. For choosing to take bitter medicine over temporary poisonous relief, the new administration should be roundly commended.

Malaysia cannot go on doing business as usual, with corruption and collusion being the order of the day. The country has been trapped in the middle-income category precisely because there is too much leakage and wastage in the system, with resources that could otherwise be put to fruitful use in development being siphoned off by the privileged few who dominate and sometimes even monopolise the business scene.

It is time to clean up the mess, with skeletons pulled out of the closets for forensic examination and dirty linen hung out to be sanitised under the glare of publicity. Paraphrasing the new finance minister, Lim Guan Eng, we should welcome those investors who can handle the truth, and not those who would like to hide from the truth. For the long term, the economic viability of the country and business community depends on the competence, accountability and transparency in how the government and businesses carry out their work.

The government must also introduce harsh measures to reduce the mounting national debt. The pay cuts undertaken by ministers and the setting up of Tabung Harapan Malaysia are nice but, frankly, merely symbolic gestures that will not make an appreciable dent in the RM1 trillion debt.

More significant are the cancellations or postponements of various mega projects undertaken by the previous administration, which are alleged to be overpriced, with the excessive costs used for purposes other than project-related ones. Some or many of these projects admittedly make practical sense in improving public transport and bringing about peripheral development. But as they stand, the country simply cannot afford to continue with them, unless the terms are renegotiated and the country’s debt situation improves. The creative suggestion to secure new loans with much lower interest rates to pay off old ones with higher-than-usual rates should also be looked into and, if feasible, tried out.

On the other hand, I must admit I am less impressed by at least two other aspects of the new administration’s handling of the economy. The first is the somewhat ambivalent attitude towards subsidies in many forms. There is, for example, talk of reintroducing the petrol subsidy. I think the funds intended for this can perhaps be put to better use in reinvigorating the much dilapidated public transport system, especially in the rural areas.

Besides, the BR1M handouts introduced by the previous administration have long been criticised by Pakatan Harapan politicians as being wasteful and a form of vote-buying. It is very curious why, now that they are in power, BR1M is not cancelled, but given out in some form. The new administration must be firm in getting rid of subsidies in their various manifestations. Subsidies distort an otherwise self-optimising free market. And distorted markets, whether through subsidies or monopolies, have proved to be recipes for economic disasters worldwide.

Then, there is the spectre of the revival of yet another national car project, which is my second nightmarish concern. Car manufacturing, with its attendant spurring of heavy industry, could be useful for transforming the economy of a country for the better, but that was the vogue of the last century. It worked only in several selected countries with a highly disciplined workforce and, one might even say, perfectionist mindset.

Malaysia, alas, is not such a country. We have tried a national car project before and failed miserably because it rapidly degenerated into yet another project for rent-seekers to enrich themselves at the expense of the average car buyer, who was unsympathetically saddled with the choice of purchasing a cheaper but lower-quality national car or a more expensive but superior-quality imported car.

The sale of Proton Holdings Bhd to a foreign carmaker was, for many, one of the least despised decisions of the previous administration for it killed two birds with one stone: getting rid of a losing national concern and hopefully precipitating the repeal of the much-despised high import tax for foreign manufactured cars, or at least car buyers hope so. As long as the baseline local socioeconomic conditions and “arrangements” do not change, there is no reason to expect a second national car project to have any prospect of succeeding.

The new administration has done right to be forthright about the true economic situation of the country. It should extend the same thoughtfulness and prudence to other aspects of its economic management, for example, with regard to subsidies and other massive undertakings.

Dr Oh Ei Sun advises policy institutes in Malaysia and abroad. He was political secretary to the prime minister from 2009 to 2011.

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