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FEER: A Sea of Troubles
By S. Jayasankaran

2/11/2001 3:17 am Fri

[Sedikit demi sedikit sumber pendapatan negara sudah terjejas. Kini bukan sahaja sektor elektronik sakit, industri kelapa sawit dan pelancungan pula telah tergugat ekoran tragedi 9-11. Cuma tinggal sektor minyak petroleum tetapi dengan Petronas menyalur berjuta-juta wang buat wawasan gila Mahathir yang tidakpun menyumbang keuntungan melainkan kerugian sahaja, Petronas mungkin tercekik mampus bila rezab minyak sudah tiada. Lagipun, sebagaimana yang ditulis oleh MGG Pillai, minyak Petronas kini dijual ke hadapan (forward sales). Hanya mereka yang tidak berduit sahaja melakukan sedemikian...... - Editor]


A Sea of Troubles

By S. Jayasankaran

Issue cover-dated November 08, 2001

The official forecast for Malaysia's economic performance this year, adjusted for inflation, is a GDP growth rate of 1%-2%. That is optimistic. "Most of us think there will be negative growth this year, if only slightly," says Dominic Armstrong, head of research at ABN Amro in Singapore. He believes GDP will contract by 0.7%.

For many people, however, it feels as if the recession is already here. Between January and September, more than 30,000 people were laid off, mainly from factories producing electronics products. And things will get worse. By the end of the year, the government expects more than 390,000 people to be out of work, with unemployment standing at 3.9%, compared with 3.1% in 2000.

Confidence about employment is extremely low. Almost 60% of respondents surveyed in September by, a recruitment Web site, felt it would be difficult to get a job--the lowest level since the survey began after the Asian Crisis in 1997. "There is a lot of real fear out there, " says Jomo Sundaram, an economics professor at the University of Malaya.

The government, resigned to a recession in the United States that will have a negative impact on exports, wants to stimulate domestic demand in the hope of getting the country out of a slump. The share of external to total demand in Malaysia is only 57% compared to 75% in Singapore. That's why Prime Minister Mahathir Mohamad, who is also the finance minister, announced a further round of pump-priming in early October. A further 4.3 billion ringgit ($1.1 billion) will be spent by the government on infrastructure works, in addition to the 3 billion ringgit spending programme announced by Mahathir in March.

On October 21, Mahathir increased Malaysia's budget expenditure for 2002 by 10% to just over 100 billion ringgit. It was the country's fifth straight budget deficit but, at 5% of GDP, it's not considered excessive. External debt is now at 50% of GDP compared with 58% in 1999.

Mahathir has also cut income taxes, slashed import duties and handed out bonuses to Malaysia's 800,000 civil servants as well as a 10% salary hike. Interest rates are at their lowest in a decade--the base lending rate is 6.2%.

There is no guarantee that these measures will work. Although most analysts say that Mahathir's tax cuts for high earners will boost consumption at the margins, they are still sceptical. "If pump-priming worked, Japan would have boomed over the past 10 years," says Kostas Panagiotou, regional economist at Kim Eng Securities in Singapore.

Perhaps the only consolation is that Malaysia's recession won't be as deep as that of neighbouring Singapore, where GDP is expected to shrink by 3% or even more. For one thing, Malaysia's economy is more broad-based. Petroleum, gas and palm oil all contribute significant export earnings. And in an ironic twist to the global tale of woe, exports of sterile rubber gloves, of which Malaysia is the world's largest producer, have been boosted by almost 50% as a result of the global anthrax scare.

Still, the September 11 terror attacks in the U.S. have also sharply illustrated Malaysia's dependence on external flows of trade and capital. Palm-oil stockpiles have begun rising because of a reluctance by shippers to go anywhere near Pakistan--one of Malaysia's big markets.

War risks amid a slowing global economy are putting downward pressure on palm-oil prices. Meanwhile, revenues from tourism, the country's second-largest foreign-exchange earner after palm oil, have fallen by 30% since mid-September.

Against such a a backdrop, there is little the government can do apart from making sure the fundamentals are right to capitalize on a global recovery.