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Weathering the Storm

Malaysian Today, 30 October 2008

LIKE Malaysian politics, the potential impact of the global economic crisis on our lives is tremendous, its inner workings sometimes mysterious and its effects unpredictable. But while it was economic issues that featured at the top of voters’ priorities this year (remember the effectiveness of the Opposition’s portrayal of Barisan Nasional as ‘Barang Naik’?) there seems still to be confusion as to how exactly Malaysia will be affected by the embroilment.

This confusion is understandable: as governments around the world attempt different solutions, debates as to the causes of the turmoil continue to rage. In the US, a popular target of blame is former Federal Reserve Board Chairman Alan Greenspan, who last week admitted fault in opposing regulation of derivatives which might have prevented the crisis from starting in the first place. Conversely, there are theories which blame the US government’s encouragement of Fannie Mae and Freddie Mac (government-sponsored institutions which help homebuyers secure loans) to expand subprime lending while promising that government would make good on their debts, and that this was compounded by the push during the Clinton era for increased home ownership among the poor which encouraged banks to lend more in low-income areas.

“Ultimately, the best regulation is greater transparency and accountability to ensure that stewardship of the economy is as open as can be.”

One small consolation of the recession’s effects coming to Asia relatively later in the day is that we can see how the different methods pan out in other countries before adopting a strategy of our own. Some analysts argue that Malaysia is well-shielded against a recession, on the basis that domestic demand together with private-sector spending and stimuli from government may be sufficient to maintain growth. The employment situation is good and judging by the hypermarkets’ double-page price wars, Middle Malaysia is still spending. But yesterday, a Hong Kong-based consultancy placed Malaysia in the ‘most risky’ category in terms of weathering the financial crisis. Intriguingly the report didn’t blame vulnerability to the financial fallout for this, but internal developments.

Former Prime Minister Tun Dr Mahathir also blogged that all may not be well, citing Malaysia’s dependence on trade with US and European markets: weakening exports would hurt our manufacturers and put pressure on our financial system. New Finance Minister Dato’ Sri Najib, on the other hand, said last week that ‘the economic management is stable and our fundamentals are strong, so Malaysia is not in a crisis’. Still, this recent announcement by Dato’ Sri Najib to boost Valuecap (the government investment agency to buy undervalued stocks) by borrowing RM5 billion from the EPF has had a lukewarm reception. Any expansion in government control of taxpayers’ money is a cause for concern and here, there is the added angle of whether it is wise to use it to buy up undervalued shares. Furthermore, the ongoing nominations for the UMNO elections (which will happen in March 2009, by which time the US will have inaugurated a new President) has further heightened sensitivity in what the politicians are saying. It is now confirmed that a multi-billion ringgit deal to buy a fleet of military helicopters has been put on hold but it remains unclear how the probable future Prime Minister plans to reform the NEP: both policy areas with ramifications on our economy.

This is why it’s important also to push for continued strengthening of our democratic institutions. Ultimately, the best regulation is greater transparency and accountability to ensure that stewardship of the economy is as open as can be. This is the way forward, unlike some jubilant socialists who are advocating all sorts of nationalisation in response to the ‘end of capitalism’.

Democracy and capitalism are the twin pillars of a free and prosperous society, and that is why our forefathers proclaimed our independence and fought the communists. This year, Malaysian democracy was reinvigorated: let’s hope that Malaysian capitalism adjusts itself to weather the storm too.