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Malaysian economy left to drift
Asia Times - February 4, 2009
Anil Netto, Penang – The Malaysian peninsula's second-largest state of Perak is known here as darul ridzuan, or the land of grace. But there's little grace in the state's politics these days as it turns into the country's latest political battleground.
The opposition People's Alliance (PA), which rules the state with a slim majority, is bidding to ward off a challenge from the central government's ruling coalition, the Barisan Nasional (BN), which is seeking to wrest back control of the state. Much is at stake as deputy premier Najib Razak attempts to bolster his credentials ahead of a power transition, in which he is due next month to take over from Prime Minister Abdullah Badawi.
The BN has suffered two morale-sapping parliamentary by-election defeats after a general election setback last March. In both instances, Najib spearheaded the election campaigns, one last August and one this January, and ended up on the losing side. Perak was one five states to fall to the PA at last year's general elections, but its wafer-thin majority could be overturned if the BN succeeds in enticing assembly workers to its side.
The political stakes are high and analysts say Najib needs something to show his restless party members at the upcoming general assembly of the dominant United Malays National Organization after recent demoralizing electoral losses. The bigger danger to the country is that the political battles risk diverting attention away from the sliding economy, which is clearly losing steam as latest official statistics indicate.
A 7 billion ringgit (US$1.9 billion) stimulus package – equivalent to around 1% of gross domestic product – announced last November has so far failed to have much growth stimulating impact. The government has estimated 5 billion ringgit of the package will be earmarked for small construction and development projects, such as affordable housing, roads, schools, bridges, hospitals and the upgrading of police and military facilities.
Those outlays are widely viewed as too little, too late. Analysts have already pointed to leakage in the form of remittances by foreign construction workers, which will be sent back to their home countries rather than stimulating local growth. Opposition supporters believe that per usual rent-seeking and the lack of tenders for government projects will reduce the real multiplier effect of fiscal package.
The government is expected soon to announce a second stimulus package, but the worry is that increased spending will push the projected fiscal deficit for 2009 from 4.8% to perhaps 5.5% of GDP. Meanwhile alarm bells are ringing across the private sector, particularly for export-oriented industries. Bad manufacturing news is piling up, especially in the crucial electronics sector.
US tech giant Intel's closure of five plants worldwide includes two assembly test plants in Penang, the heart of Malaysia's electronics industry. The move is expected to affect between 5,000 and 6,000 employees worldwide, though the company said in a global statement that not all employees will be sacked and some "may be offered positions at other facilities". Intel has four other plants in the Malaysia and even if few jobs are actually lost, the impending closures have rattled many.
In November, Malaysia's exports fell by 5% compared with the same month in 2007 as global demand fell and commodity prices plunged. Malaysia's exports mainly comprise electrical and electronic products (40%), crude oil and petroleum-based products (11%), and palm oil and palm-oil based products (10%). The most worrying drop was in the exports of electrical and electronic products, which fell 16% over the same period.
Although the national trade surplus increased by 10.6%, lagging indicators suggest turbulent times ahead. Total imports slumped 9% in November, with much of the plunge due to an 8% fall in intermediate goods that make up 72% of total imports. This was in line with a similar fall of 8% in the industrial production Index.
The number of workers engaged in the manufacturing sector in November also fell by 5% from a year earlier. Unemployment was officially quoted at 3.1% in the third quarter of 2008, but it is likely to inch upwards in 2009 as more export-oriented firms shed workers. Malaysia's main export markets, Singapore, the United States and Japan, are all suffering from the global slowdown. In tow, the Malaysian Institute of Economic Research indices for business and consumer confidence have both revealed a deepening pessimism.
Some economic analysts now predict Malaysia's GDP growth will fall to 1% this year; others believe such estimates are overly optimistic and that the country is headed for recession. Bank Negara, the country's central bank, still has leeway to ease monetary policy and cut interest rates. It has recently slashed its benchmark overnight policy rate by 75 basis points to 2.5%. But with confidence waning, analysts say, that is unlikely to spur substantially consumer spending.
Many hope that the second stimulus package now under consideration will be able to arrest the slide. But with the risk of possible leakage, it remains to be seen if it will be better designed to stimulate grass roots activities than the first. Worryingly, BN political leaders appear more preoccupied with shoring up their waning support ahead of UMNO's general assembly and party elections in March than dealing with the drifting economy.
Added to the mix was a recent public opinion poll that showed that Prime Minister Abdullah, blamed by many inside the party for the BN's electoral setback, is still more popular than his deputy – and slated successor – Najib. With Anwar and his opposition PA lying in the wings, expect Malaysia's political intrigue and economic drift to intensify in the months ahead.
[Anil Netto is a Penang-based writer.]
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