Time for a moratorium on the NEP perhaps? Malaysiakini

Time for a moratorium on the NEP perhaps?
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By Anwar Ibrahim
Categories: Analisis, Anwar, Isu Semasa and Sidenotes From The Malaysian Insider

By Dr Hsu Dar Ren

DEC 1 - Some time back, I wrote an article “From greenback to our economy” where I predicted that the US dollar would appreciate against the Malaysian ringgit. In a little more than two months, It has climbed from around 3.20 to 3.60 now.

Our foreign reserves have gone done a few billions, and now stands at about RM109 billion, still very healthy and able to sustain nine months of imports. But the fact that we need to sell a few billion dollars to prop up our ringgit is really a cause for concern.

Budget 2009 tabled in August this year has a total budget allocation of RM208 billion. The operating expenditure is RM154 billion, leaving only about RM54 billion for development.

The Budget runs a deficit of 4.8%. That was in August when oil and commodity prices were high. Now that the oil price as well as prices of commodities have come down so much, our revenue would decrease substantially, and there would really be little money to spend for development, when we need to spend to stimulate the economy.

Although I have suggested, in one of my earlier blog articles, that operating expenses be cut by RM20 billion in order to have funds for spending as a stimulus package and cushion the loss of revenue from a possible tax cuts, it may not be feasible in the short term, when everyone in the government is so used to their way of doing things.

The priority now should be three-fold: create more jobs, stimulate the economy so as to put money in people’s pockets as well as to provide a safety net for poor people and retrenched workers.

How can we hope to do this when our revenue is coming down due to falling commodity and oil prices, when cutting operating expenses may not be feasible, when borrowing more money may not be workable as we are already running a fairly high deficit, when wastage and corruption are still so rampant and cannot be corrected overnight?

There has been a lot of debate of late whether this crisis is about governments triumphing over the markets or the markets triumphing over governments?

I believe that in Malaysia, if the government is unable to provide a stimulus package without going into deeper debt, then the logical thing is to give incentives to the private sector and hope that it can provide the engine to stimulate the economy.

There are still many cash-rich Malaysian companies and individuals. If these people can invest and be the engine of growth, we can create more jobs as well as stimulate growth to counter the global economic recession.

For the private sector to invest, there must be a few pre-requisites:

1) Cheaper access to funds. Bank interests and interest spread must be lowered.

2) There must be less regulatory interference in order for the companies to invest and grow. In this respect, we may have to do away with the NEP. If that is not immediately acceptable, then perhaps we should have a moratorium to suspend the NEP for a few years to see how our economy can benefit.

If this trial can prove that NEP is in fact a hindrance to the growth of the people, including our Malay brothers, then we can, at the end of the moratorium period, do away with the NEP completely and replace it with a needs-based economy.

3) Tax cut and incentives for investments in certain priority sectors, such as education, healthcare as well as transportation, biotechnology, nanotechnology and so on.

I ask our Malay brothers to accept my suggestion for a moratorium rationally. It is better for everyone to have an expanding cake than to have a cake that is rapidly shrinking. In the latter case, having a fixed proportion of the cake may be meaningless if the cake shrinks to half its former size.

On the part of the non-Malays, they should try to have a real economic partnership with the Malays, genuinely imparting skills and business know-how, and not just form an Ali Baba relationship to beat the loopholes in the NEP.

We need to think out of the box and adopt fast action to counter this economic tsunami. Already we have felt the first wave; subsequent waves will be more devastating and if nothing is done now, we are going to face a really bleak future.