KUALA LUMPUR, Feb 7 — The government is belatedly stepping up efforts to limit the impact of the global downturn on the economy. The crisis has yet to hit Malaysia as hard as many other countries, and political jostling has hampered the policy response. But there is now a growing sense of urgency that robust measures are required.
That is certainly the view of the central bank, Bank Negara Malaysia, which cut its policy interest rate by 75 basis points on Jan 21. However, a successful response will require greater political unity and maturity, and even if this occurs, the economy’s heavy exposure to the external sector poses a significant risk.
The recent relatively healthy state of the Malaysian economy compared with its Asian neighbours may partly explain the slowness with which the authorities have responded to the downturn in the global economy that has occurred in recent months.
But politics may also have played a part in the recent shaping of policy. The opposition has accused Prime Minister Datuk Seri Abdullah Ahmad Badawi, and his deputy, Datuk Seri Najib Razak (who is also Finance Minister), of being too focused on party politics, and particularly on the preparations for the annual congress of Umno in March.
Umno, the dominant party in the ruling coalition, is due to hold elections for its top positions at the congress, and party officials have been observed to be jockeying for positions in recent months. The choice of party president has already been decided, owing to Abdullah’s decision not to stand for re-election and the fact that Najib is the only candidate to have received a sufficient number of nominations from within the party.
But plenty of other positions are up for grabs. This may encourage Umno members to put their own ambitions ahead of the common interest, despite the global crisis. And it will certainly distract attention from the bigger picture.
There is possibly a second political dimension to the situation. The government’s lethargy in formulating initiatives that will enable Malaysia to respond to the global economic slowdown may reflect the fact that most of the country’s export-oriented manufacturing facilities are located in states governed by the opposition Pakatan Rakyat coalition.
In early December the leaders of the five state assemblies then governed by the PR — Penang, Kedah, Perak, Selangor and Kelantan — announced that they would work together to mitigate the impact of the global downturn. Their first concern is to deal with the expected increase in unemployment. The five state leaders agreed to co-operate in the area of job creation and retraining programmes.
The menteri besar of Selangor, Tan Sri Khalid Ibrahim, criticised the federal government’s neglect of the states controlled by the PR. According to Khalid, the five states together account for nearly 60 per cent of Malaysian GDP — Selangor alone accounts for some 25 per cent — and over one-half of the country’s industrial workforce.
On Dec 10 the chief minister of Penang, Lim Guan Eng, outlined a blueprint to transform the state from a location for the low-value-added electronics industry to a capital- and technology-based centre. Penang is the country’s second-smallest state, with a population of only 1.4 million, but it accounts for 27 per cent of Malaysia’s exports.
Lim declared that the state government of Penang recognised the need to restructure and reinvent the local economy, in order to make use of its existing pool of knowledge-based workers and of their expertise, energy and entrepreneurial spirit. To promote restructuring, Penang has set up two advisory panels. One will deal with the services sector, which accounts for 57 per cent of Penang’s GDP, while the other will be concerned with industry, which generates 39 per cent. The two panels have been instructed to make recommendations on how best to support growth in the local economy.
Unemployment fears
At a national level, there is increasing concern about the social consequences of rising unemployment given numerous reports of job losses or impending retrenchment of workers. Alarmed by growing reports of lay-offs in the manufacturing sector, the Minister of Human Resources Datuk Dr S. Subramaniam told Parliament in October that his ministry was studying the possibility of creating a retrenchment fund, which could be launched early this year. Malaysia does not have an unemployment insurance scheme or unemployment assistance. Workers may be entitled to severance pay from employers on losing their jobs, but receiving it depends on their employers being able and willing to pay.
Past contributions to the Employees Provident Fund, a pooled pension fund covering both the private sector and the non-pensionable public sector, can be used to pay for medical treatment but not to provide income during periods of unemployment.
There is no social safety net for non-workers or those working in the informal economy. In the past, manufacturing associations have opposed the creation of a retrenchment fund, arguing that it would increase their business costs; the government has also been reluctant to implement such a measure. In 1999 the government rejected a proposal to set up a retrenchment fund when the economy began to recover following the 1997-98 Asian financial crisis.
One reason for the lack of progress on unemployment insurance is the presence of a huge number of foreign workers in the Malaysian labour market: there are some 2.2 million foreign workers, around 1 million of whom work illegally in the country. Malaysia’s workforce stood at 10.8 million in 2008, out of a total population of 27.7 million. The large relative size of the foreign workforce gives some idea of the concern that it raises with local populations and the government.
Mindful of the fact that employment conditions are likely to deteriorate in the months ahead, in December the government stated that it intended to reserve jobs for local workers and step up the deportation of unemployed and illegal immigrants. The Ministry of Human Resources is also considering making the registration of job vacancies compulsory for employers — currently vacancies are filed on a voluntary basis — and reserving certain employment categories for locals with the right skills.
“Buy Malaysian” campaign
In early January the Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Abdul Samad launched a campaign to encourage Malaysians to buy locally produced goods. The campaign will run for a year, and is intended to increase awareness of locally produced items and thereby indirectly boost domestic demand.
Shahrir hopes that local producers will be encouraged by the campaign to introduce new value-for-money products to compete in the local market. However, the campaign raises concerns that other countries in the region could follow suit and attempt to increase demand for home-produced goods as global trade growth slows.
The prospect of “beggar they neighbour” economic policies is a particular worry given the already rapidly deteriorating conditions in Malaysia’s export markets. For much of 2008 Malaysia escaped the worst of the accelerating global downturn, protected by strong overseas demand for oil and non-oil commodities, which helped to offset a weakening appetite for electronic and electrical goods, the country’s largest export category.
Data releases in Malaysia have not been as gloomy as those in its major export markets, but the sharp deterioration in macroeconomic conditions experienced in those markets in recent months will have a pronounced impact on economic activity in Malaysia.
Singapore, Malaysia’s neighbour and largest Asian trading partner, recorded a sharp contraction in real GDP in the fourth quarter of 2008. Macroeconomic conditions in other markets that supported Malaysian export growth in the first nine months of last year, such as India, the Middle East and Russia, have also deteriorated sharply. —Economist
That is certainly the view of the central bank, Bank Negara Malaysia, which cut its policy interest rate by 75 basis points on Jan 21. However, a successful response will require greater political unity and maturity, and even if this occurs, the economy’s heavy exposure to the external sector poses a significant risk.
The recent relatively healthy state of the Malaysian economy compared with its Asian neighbours may partly explain the slowness with which the authorities have responded to the downturn in the global economy that has occurred in recent months.
But politics may also have played a part in the recent shaping of policy. The opposition has accused Prime Minister Datuk Seri Abdullah Ahmad Badawi, and his deputy, Datuk Seri Najib Razak (who is also Finance Minister), of being too focused on party politics, and particularly on the preparations for the annual congress of Umno in March.
Umno, the dominant party in the ruling coalition, is due to hold elections for its top positions at the congress, and party officials have been observed to be jockeying for positions in recent months. The choice of party president has already been decided, owing to Abdullah’s decision not to stand for re-election and the fact that Najib is the only candidate to have received a sufficient number of nominations from within the party.
But plenty of other positions are up for grabs. This may encourage Umno members to put their own ambitions ahead of the common interest, despite the global crisis. And it will certainly distract attention from the bigger picture.
There is possibly a second political dimension to the situation. The government’s lethargy in formulating initiatives that will enable Malaysia to respond to the global economic slowdown may reflect the fact that most of the country’s export-oriented manufacturing facilities are located in states governed by the opposition Pakatan Rakyat coalition.
In early December the leaders of the five state assemblies then governed by the PR — Penang, Kedah, Perak, Selangor and Kelantan — announced that they would work together to mitigate the impact of the global downturn. Their first concern is to deal with the expected increase in unemployment. The five state leaders agreed to co-operate in the area of job creation and retraining programmes.
The menteri besar of Selangor, Tan Sri Khalid Ibrahim, criticised the federal government’s neglect of the states controlled by the PR. According to Khalid, the five states together account for nearly 60 per cent of Malaysian GDP — Selangor alone accounts for some 25 per cent — and over one-half of the country’s industrial workforce.
On Dec 10 the chief minister of Penang, Lim Guan Eng, outlined a blueprint to transform the state from a location for the low-value-added electronics industry to a capital- and technology-based centre. Penang is the country’s second-smallest state, with a population of only 1.4 million, but it accounts for 27 per cent of Malaysia’s exports.
Lim declared that the state government of Penang recognised the need to restructure and reinvent the local economy, in order to make use of its existing pool of knowledge-based workers and of their expertise, energy and entrepreneurial spirit. To promote restructuring, Penang has set up two advisory panels. One will deal with the services sector, which accounts for 57 per cent of Penang’s GDP, while the other will be concerned with industry, which generates 39 per cent. The two panels have been instructed to make recommendations on how best to support growth in the local economy.
Unemployment fears
At a national level, there is increasing concern about the social consequences of rising unemployment given numerous reports of job losses or impending retrenchment of workers. Alarmed by growing reports of lay-offs in the manufacturing sector, the Minister of Human Resources Datuk Dr S. Subramaniam told Parliament in October that his ministry was studying the possibility of creating a retrenchment fund, which could be launched early this year. Malaysia does not have an unemployment insurance scheme or unemployment assistance. Workers may be entitled to severance pay from employers on losing their jobs, but receiving it depends on their employers being able and willing to pay.
Past contributions to the Employees Provident Fund, a pooled pension fund covering both the private sector and the non-pensionable public sector, can be used to pay for medical treatment but not to provide income during periods of unemployment.
There is no social safety net for non-workers or those working in the informal economy. In the past, manufacturing associations have opposed the creation of a retrenchment fund, arguing that it would increase their business costs; the government has also been reluctant to implement such a measure. In 1999 the government rejected a proposal to set up a retrenchment fund when the economy began to recover following the 1997-98 Asian financial crisis.
One reason for the lack of progress on unemployment insurance is the presence of a huge number of foreign workers in the Malaysian labour market: there are some 2.2 million foreign workers, around 1 million of whom work illegally in the country. Malaysia’s workforce stood at 10.8 million in 2008, out of a total population of 27.7 million. The large relative size of the foreign workforce gives some idea of the concern that it raises with local populations and the government.
Mindful of the fact that employment conditions are likely to deteriorate in the months ahead, in December the government stated that it intended to reserve jobs for local workers and step up the deportation of unemployed and illegal immigrants. The Ministry of Human Resources is also considering making the registration of job vacancies compulsory for employers — currently vacancies are filed on a voluntary basis — and reserving certain employment categories for locals with the right skills.
“Buy Malaysian” campaign
In early January the Minister of Domestic Trade and Consumer Affairs Datuk Shahrir Abdul Samad launched a campaign to encourage Malaysians to buy locally produced goods. The campaign will run for a year, and is intended to increase awareness of locally produced items and thereby indirectly boost domestic demand.
Shahrir hopes that local producers will be encouraged by the campaign to introduce new value-for-money products to compete in the local market. However, the campaign raises concerns that other countries in the region could follow suit and attempt to increase demand for home-produced goods as global trade growth slows.
The prospect of “beggar they neighbour” economic policies is a particular worry given the already rapidly deteriorating conditions in Malaysia’s export markets. For much of 2008 Malaysia escaped the worst of the accelerating global downturn, protected by strong overseas demand for oil and non-oil commodities, which helped to offset a weakening appetite for electronic and electrical goods, the country’s largest export category.
Data releases in Malaysia have not been as gloomy as those in its major export markets, but the sharp deterioration in macroeconomic conditions experienced in those markets in recent months will have a pronounced impact on economic activity in Malaysia.
Singapore, Malaysia’s neighbour and largest Asian trading partner, recorded a sharp contraction in real GDP in the fourth quarter of 2008. Macroeconomic conditions in other markets that supported Malaysian export growth in the first nine months of last year, such as India, the Middle East and Russia, have also deteriorated sharply. —Economist
1 comment:
Thanks for a really great review of our current economic predicament.
Visit Malaysia Facts for quick facts and interesting information about Malaysia.
Visit About ME Page for quick facts and interesting information about The Malaysian Explorer.
Post a Comment