The Truth Revealed

Thursday, January 15, 2009

Ku Li warns that global economic crisis will have a severe impact on Malaysia

Ku Li slams stimulus plan, says confidence required

KUALA LUMPUR, Jan 15 - He never minced his words about the decaying political system in Umno and so it was only natural to expect Tengku Razaleigh Hamzah to offer an unvarnished view of the government's handling of the economy and the long-term prospects of the Malaysian dream.

Malaysia's former finance minister did not disappoint. He ticked off the government for failing to face up to the harsh truth that the global economic crisis will have a severe impact on Malaysia; described vividly how one of the most successful economies was now caught in the middle income trap, not innovative enough to join the premier league and yet not cheap enough to hold off the likes of Vietnam and India.

Ku Li, as the Kelantanese prince is popularly known, said that the key to restoring belief in the Malaysia economy was confidence.

"We need to restore confidence in our basic institutions, our leadership, the integrity of the Federation, the rule of law and our national Constitution... We need to restore confidence in Malaysia. Real confidence is hope based on an apprehension of the truth.

It is social capital and trust in society and its future. It is inspired by leaders willing to take us through an unflinching evaluation of where we are today to a vision of what we are capable of tomorrow.

"The country can no longer afford a political class out of touch with reality that trades on yesterday's political insecurities and a government that has forgotten its purpose. We need a renewal of leadership as a first step to restoring true confidence, '' he said at a luncheon talk at the strategic outlook seminar organised by Asian Strategic Leadership Institute.

He took to task government leaders for not telling Malaysians that while the country was relatively shielded from the first wave of financial failures there is no escape from the sharp demand slump in the global economy.

The country's growth this year could be well under the official estimates of 3.5 per cent, he feared, pointing to the sharp drop in industrial activity and the plunge in exports.

"There has been a dramatic swing in the balance of payments to a RM31 billion deficit in the third quarter, from a surplus of RM26 billion in the second. Anyone looking at the size of the downturn and at its swiftness can only wonder if we will be sailing through.

"Our leaders only undermine the government's credibility when they paint an alternative reality for us. I understand we don't want to frighten markets and voters unnecessarily, but we do not live in an information bubble. Leaders who deny the seriousness of the crisis only raise the suspicion that they have no ideas for coping with it. They undermine the government's credibility when that very credibility, that confidence, is a key issue, '' said the Umno politician whose offer to contest the top position in the party was met with a limp response from the ground.

The view in the party is that his time in politics has come and gone but even his most trenchant critics acknowledge that he still possesses one of the sharpest minds around.

Even if Malaysia achieved 3.5 per cent growth, it would not create enough jobs to employ the large number of young Malaysians who enter the workforce every year, he pointed out.

"Given our demographic profile and the fact that we are an oil exporter, our baseline do-nothing growth figure is not 0 per cent but closer to 4 per cent. We do have a problem. Now we need to acknowledge that we are not in good shape to deal with it. After early decades of rapid progress, it looks like that economic growth has flattened, our public delivery system calcified and our economic leadership run out of ideas,'' he said.

Malaysia, he noted, is squeezed between being "the low cost manufacturer we once excelled as, and the knowledge-intensive economy we are failing to become.''

"We are in the infamous "middle Income trap". No longer cheap enough to compete with low cost producers and not advanced enough to compete with more innovative ones, we find ourselves squeezed in between with no economic story, '' he said, noting that Malaysia's share of GDP contributed by services was 46.4 per cent in 2007, compared with 46.2 per cent in 1987 while real wages here during the same period grew 2.6 per cent.

What does it take to make the leap from middle to high income?

Ku Li noted that looking at the examples of Korea, Taiwan, Hong Kong and Singapore they had one feature in common: they were able to learn from previous crises.

"The criterion of success for making the developmental leap, the key differentiator between the leaders and the also-rans, is not immunity from economic crises (after all, if you have a Stone Age economy, you are completely immune) but the organizational capability of governments to learn and re-organize around new national economic strategies through these crises.

Each major crisis is either an important opportunity to transform the economy or a major setback to our ambitions.

"The question is whether our policymaking and policy implementing apparatus is set up, motivated and led to learn from this crisis. It is a question of the capability of government and governance, '' he said.

The world recession is a critical opportunity for Malaysia to re-gear and re-tool the Malaysian economy.

"We don't need another stimulus "package" of spending here and there. What we need, and what the crisis gives us a chance to implement, is a set of bold projects with an economic story behind them to help Malaysia make the developmental leap we have been missing.

We have a once in a lifetime economic challenge. We must meet this challenge with a historic sense of purpose, '' he said. ---The Malaysian Insider
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