Friday, May 8, 2009

Msia's Top 4 Macroeconomic Problems Remain Unsolved

According to the World Bank, in 2007, Malaysia had a GNI per capita of US$6,420, far behind high income societies such as Singapore (US$32,340), South Korea (US$19,730), Japan (US$37,790), Hong Kong (US$31,560), Australia (US$35,760), Finland (US$44,300), and Switzerland (US$60,820) and Norway (US$77,370).

There are four economic reasons why Malaysia has fallen below the Gross National Income (GNI) per capita of Asia's Tiger economies since the early 1980s.

(1) Dutch disease: Our blessing of oil and commodity resources which meant that we had little incentives to upgrade our manufacturing sector to rise to higher value-added chains. The blessing can be a curse in the long term.

(2) Subsidy policies:
The subsidy implicit in the national car Proton at the expense of non-national cars which are overpriced due to high tax duties. The subsidy of food and fuel prices which makes cost of living articifially cheap so that wages can be low and cheap foreign labour can be employed. The hidden policy of keeping the Ringgit competitive vis the USD is also a subsidy for exporters. These subsidies prevent the proper allocation of resources and prevent manufacturing and other industries from rising up the value chain.

(3) The wealth distributive policies:
The NEP if implemeted properly should be to alleviate poverty of all races but instead is used as a political weapon. At the end of the day, affirmative action policies help no one except the rich and the political elite.

(4.) Corruption from the top to the bottom.
This is prevalent in the construction sector and other sectors where bidding for government contracts are not on open tender basis.

If the present government and policy makers seriously address these 4 economic bindspots, then Malaysia's long-term slide in the ranking of GNI per capita may be reversed. The current economic recession should be a good reason to review the above and open the eyes of citiznes about their sheltered economic existence in a world that is changing rapidly by China and India's economic resurgence.

Now, there is a new economic problem coming up and that is the strong possibility of the Opposition party Pakatan Rakyat (PR) in winning the people's mandate at the next general ellection in 2012/2013.

If PR can remain focused on these four issues and come up with workable policies while the economy's growth continue to stagnate at the 1-3% range in the next few years, then the politicial pressure will intensify for the incumbent government to fast-track real reforms in the economic and political sphere.

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