Economists welcome Pakatan manifesto

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Economists applauded Pakatan Rakyat’s manifesto as a thoughtful review of the problems affecting the Malaysian economy despite doubts about a few of its more odd, populist measures. Critics said among its shortcomings was lack of a broader vision to unite all Malaysians.

Generally, they said that if it was implemented, the manifesto would be a boon to the Malaysian economy and iron out some bottlenecks such as the wealth gaps and leakages that have recently choked what was once Southeast Asia’s most dynamic economy.

“As far as the election manifesto goes, it is comprehensive and quite well written. It addresses serious issues in Malaysia that any government needs to deal with,” said Terence Gomez, University Malaya’s  political economy expert. “However, it’s a little micro-driven … it may be missing the big picture of the society they should be trying to create.”

The Pakatan coalition said that its policies will save RM49.5 billion. They said that the savings will come from curbing corruption, prudent spending and increasing government revenue by spurring economic development.

The thrust of Pakatan’s economic policy appears to be aimed at reducing the government’s role, a review of government-linked monopolies, removing unproductive subsidies, and a review of bloated infrastructure projects. Money saved would be injected back as handout measures to a broad base of groups such as women, the aged, veterans, students and plantation workers.

“It’s a fantastic budget. It would cut subsidy costs and plough it back to the people,” said an economist with an investment bank who declined to be identified. “What they are saying is that they are working on and improving the government to put in a more efficient management system.”

Economists agreed that corruption was a problem Malaysia. In a recent  Transparency International survey on bribery, Malaysia topped the list of 30 countries. Over 3000 executives were asked whether they had lost a contract in the past year from competitors paying bribes, and 50 percent of Malaysians said yes. It was ahead of India and Indonesia.

UM’s Gomez said that corruption was an issue that any Malaysian government – whether BN or Pakatan has to seriously tackle.  “Najib has had a chance since 2009 and  this manifesto has indicated that he hasn’t delivered,” Gomez said.

As can be expected for all political manifestos, there are plenty of giveaways.

pr-1PKR said annually, RM6 billion would go to abolish tolls on the North-South Expressway (Plus) and RM5 billion will go to building affordable housing. Another RM2.4 billion will be allocated special allowances for teachers, RM12.5 billion for the oil royalty, RM3 billion for the National Women’s fund, RM3 billion for senior citizens, RM2 billion to assist small- and medium-enterprises in implementing the minimum wage, and RM1billion to upgrade worker skills. Free education for all is promised through RM6 billion, to be allocated to abolish the National Higher Education Fund (PTPTN).

“Let’s look beyond handouts and goodies… the manifesto addresses the foundations for sustainable economic growth,” Teh Chi Chang, REFSA executive director wrote in reply to KiniBiz queries. “It would level the playing field by cutting down on corruption and emphasising open tenders.” Research for Social Advancement (REFSA) is an independent Malaysian research institute.

Economists were divided on whether some of the handouts would actually result in a multiplier effect and therefore become sustainable rather than put government further in debt. For example, Pakatan said it could further cut petrol prices in Malaysia, which were now among the lowest in Asia.

“An oil price cut at this point is misguided because it goes against the fundamentals of demand and supply. There are other ways to help with the cost of living, if that is the intention,” one analyst said.

Economists liked that Pakatan’s manifesto would address the government debt. “The government deficit is a problem now. To be fair, Malaysia emerged relatively unscathed from the global economic crisis in 2008-2009 because it embarked on a stimulus spending package that was counter cyclical, “ one head of research at a rating agency said.

Mahathir Mohamad

Mahathir Mohamad

Former prime minister Mahathir Mohamad claimed earlier this month that Malaysia’s current debt level was “healthy” at 53 percent of GDP, while comparing it to Greece.

Policy think tank Centre for Policy Initiatives (CPI)  said that “Neither the ministry of finance nor Bank Negara gives a full picture of Malaysia’s debt.”

“How much of the debt is borrowed from the savings of citizens? How much is borrowed from foreign lenders? How much of these debts is government debt, and how much is private?” – CPI asked on its website.

CPI said that various data revealed that in the last 15 years, the Malaysian government’s debt has increased at an unprecedented rate. In last five years, it ballooned by RM228 billion.

“There are too much leakages as government revenue has fallen into the wrong hands. So the budget deficit can be reversed if Pakatan’s aim is to plug the leakages,” one economist said.

One major change proposed by the Pakatan manifesto is needs-based rather than race-based economic approach, with the aim of every household to earn an income of at least RM4,000 a month within five years after it comes to power.

This would lead to the possible phasing out of the controversial New Economic Policy (NEP) which has yet to obtain one of its objectives of Malays and bumiputera having a 30 percent stake of the economy since the policy was introduced 40 years ago.

Economists said PKR has not quite spelled out how it would address many of the socio- economic issues. “The new policy says there is no more NEP but there are real social and economic issues that it hasn’t addressed,” Gomez said.

The Indian Malaysian community, through Hindraf, said that they felt slighted by the Pakatan manifesto which didn’t particularly address the problem of marginalised Indians who have some of poorest education levels in the country.

PKR also made a controversial declaration that it would send a million foreigners home to create jobs for locals. Gomez criticized this. “That’s too simplistic because these are people with vested interest in Malaysia, there are lives of people we are talking about here, not just a solution.” Pakatan however did make some promises to uplift Orang Asli communities, armed forces veterans, housewives and Felda settlers.

Among key PKR suggestions that may draw fire included a plan to quadruple state oil royalty for Sabah, Sarawak, Kelantan and Trengganu to 20 percent. Another was to scrap the Lynas project, the new government investment arm 1MDB and also review the Pengerang Oil refinery project. Big mega projects are cornerstones of Najib government’s Economic Transformation Program which plans to attract $444 billion foreign investments to help fastrack Malaysia to developed status by 2020.

“Malaysia’s federal system is rather ‘unbalanced’,” Institute of Southeast Asian Studies (ISEAS) research fellow Francis Hutchinson said in a research note forwarded to KiniBiz.

Hutchinson said the central government’s revenue before transfers was an estimated 90.7% for 2006-2010, making Malaysia one of the most heavily centralized federations in the world.

He noted that the federal government had in the past often withheld oil royalties from the states especially those ruled by opposition. Economists said that this has resulted in lopsided economic development with much of Malaysia’s economic activity focussed on Kuala Lumpur and west coast states. PKR’s manifesto could bring more even handed development and a check on power in Malaysia, which is now very much in the hands of the Prime Minister.

“Besides the economy, the manifesto also promises to restore the foundations of democracy in our country. It bravely talks about ‘reforming Islamic and religious institutions’, reforms for the Parliament, the judiciary, the Attorney-General’s chambers, and the police and promises media freedom. This is crucial….a vibrant parliament watching over the government, with a free media watching over everybody, can only be good for Malaysia, ” said REFSA’s Teh.

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