Pre-budget commentary (1) by DAP National Political Education Director and MP for Kluang Liew Chin Tong on 21st October 2017
The suffix “-nomics” is a popular media term to denote a certain type of economic idea or just a form of ridicule against political rhetoric. “Najibnomics” is an attempt to show off Najib’s set of clearly articulated economic ideas to drive the nation forward. But is it even real?
On 27th October 2017, Prime Minister Najib Razak in his role as Finance Minister will present his ninth budget to the Parliament. I will release several “pre-budget commentaries” in the lead up to the budget to explain issues close to my heart which I consider important for the nation.
Najib took over from Abdullah Badawi as Finance Minister as a result of a tense negotiation on 17th September 2008. The 2009 budget was presented by Abdullah on 29th August 2008. Najib then succeeded Abdullah as Prime Minister on 3rd April 2009.
The only time Najib was close to articulating a framework was during the launch of the now defunct “New Economic Model” on 31st March 2010, a year into his Prime Ministership.
In a recent interview with Malaysiakini, Professor Jomo K.S. had this to say about the New Economic Model,
“Let us be clear about this. The New Economic Model, or NEM, is really a wish-list of economic reforms desired from an essentially neo-liberal perspective. That does not mean it is all good or all bad. It contains some desirable reforms, long overdue due to the accumulation of excessive, sometimes contradictory regulations and policies. Although the NEM made many promises and raised expectations, most observers would now agree that it has rung quite hollow in terms of implementation despite its promising rhetoric. As we all know, the NEM was dropped soon after it was announced for political reasons, and has never been the new policy framework it was expected to be.”
I share Jomo’s sentiment that NEM was more or less a wish-list from the neo-liberal perspective. But at the least there was a plan.
New Economic Model, RIP
Three key takeaways from NEM are worth noting.
First, Malaysia could no longer depend on just capital investments, be it foreign or local, or having more foreign unskilled labour. What is required is productivity through innovation.
Second, social inclusiveness was one of the three key pillars in the NEM. The other two being “high income and sustainability”. “Inclusiveness” is World Bank’s shorthand for “inequality”. Even in 2010, it has been identified that inequality is one of the major concerns that the Malaysian economy has to confront.
Third, NEM argues that more economic decision-making powers should be devolved to state and local governments, and not concentrated in the hands of the central government. Worse still, economic decisions are increasingly concentrated in the hands of Najib himself, bypassing the Cabinet entirely.
The key recommendations of NEM are listed as follow:
“Approach to economic development: the old versus NEM”
|Old Approach||NEM Approach|
|1||Growth primarily through capital accumulation. Focus on investment in production and physical infrastructure in combination with low skilled labour for low value added exports.||Growth though productivity. Focus on innovative processes and cutting-edge technology, supported by healthy level of private investment and talent, for high value added goods and services.|
|2||Dominant state participation in the economy. Large direct public investment (including through GLCs) in selected economic sectors.||Private sector-led growth. Promote competition across and within sectors to revive private investment and market dynamism.|
|3||Centralized strategic planning. Guidance and approval from the federal authorities for economic decisions.||Localised autonomy in decision-making. Empower state and local authorities to develop and support growth initiatives, and encourage competition between localities.|
|4||Balanced regional growth. Disperse economic activities across states to spread benefits from development.||Cluster- and corridor-based economic activities. Concentration of economic activities for economies of scale and better provision of supporting services.|
|5||Favour specific industries and firms. Grant preferential treatment in the form of incentives and financing to selected entities.||Favour technologically capable industries and firms. Grant incentives to support innovation and risk-taking to enable entrepreneurs to develop higher value added products and services.|
|6||Export dependence on G-3 (US Europe and Japan) markets. Part of production chain to supply consumer goods and components to traditional markets.||Asian and Middle East orientation. Develop and integrate actively into regional production and financial networks to leverage on flows of investment, trade and ideas.|
|7||Restrictions on foreign skilled workers. Fear that foreign talent would displace local workers.||Retain and attract skilled professionals. Embrace talent, both local and foreign, needed to spur an innovative, high value added economy.|
Not that I agree with NEM entirely, but, again, there was a framework and a plan.Less than three months after the launch of NEM, Najib presented the 10th Malaysia Plan, prepared by Economic Planning Unit of the Prime Minister’s Department, in June 2010.
NEM was prepared by a group of senior economists with relatively broad-based consultations with the wider society.The Malaysia Plan has become a bureaucratic routine. The two documents – NEM and the 10th Malaysia Plan – did not seem to “talk” to each other.
Najib has no conviction. He has no clear idea of which ideas to adopt. As soon as NEM was launched, it was shuttered prematurely – after protests by some right-wing Malay groups.
Minimum wage and BR1M
While NEM was ostensibly killed by right-wing groups, the actual killer was Idris Jala’s Performance Management Delivery Unit (Pemandu). Najib’s then supposed economic trouble shooter Idris Jala packaged some of NEM ideas into “Economic Transformation Programme” (ETP) which focused on the so-called high impact “Entry Point Projects (EPP)”.
Between 2009 and 2011, Najib was telling the investor community that he intended to “liberalise” the Malaysian market, with rules for some 27 sectors relaxed. Beyond that, he neither articulated any coherent economic ideas nor pushed for significant reforms apart from proposing minimum wage and the cash handout programme 1Malaysia People’s Aid (BR1M).The Opposition and the trade unions had long been calling for the implementation of minimum wage. Najib merely agreed to implement minimum wage in the hope to take the sails out of the Opposition’s wind.
BR1M was even more interesting. The then Pakatan Rakyat Policy Committee, of which I was a member, announced in July 2011 that it planned to focus the “bottom 60 percent” with a comprehensive set of economic reforms. Najib’s government answered Pakatan Rakyat’s plan with BR1M to pacify the bottom 60 percent.
Making rating agencies happy
Post May 2013 general election, the Prime Minister’s focus was on pacifying the rating agencies. The emerging markets suffered sudden currency slides in May and June 2013 in what was termed a “taper tantrum” as Federal Reserve indicated its intention to scale back monetary easing. Rating agencies panicked and started to look at the weaknesses of Asian economies.Najib’s knee-jerk reaction was to form a “Fiscal Policy Committee” which has a membership almost identical with the weekly “Majlis Ekonomi” (Economic Council) meeting which bypassed the proper full Cabinet deliberation on economic matters.
The Fiscal Policy Committee committed to keepng the deficit at 3 percent and eventually achieving a balanced budget in 2020. To this end, subsidies were cut, government services were slashed and GST was recommended in the 2014 Budget speech (presented in 2013, the first budget after the last General Election).
From then on, Najib’s economic policies were reduced to ensuring that the rating agencies were happy and the Government has sufficient revenue to pay for its excesses. Nothing about refashioning the economy or any long-term vision.It’s all about Najib’s survival2015 was probably Najib’s annus horribilis. Oil prices dropped dramatically since October 2014, and as a consequence, the ringgit plunged too.
From March 2015 onwards, details of 1MDB scandal emerged and subsequently, in July 2015, details about the “donation” into Najib’s personal account surfaced.Najib sacked Deputy Prime Minister Muhyiddin Yassin, Attorney General Gani Patail and Minister Shafie Apdal on 28th July 2015. In September 2015, in order to deal with the trust deficit, a Special Economic Committee (JKE), which included Nazir Razak, Najib’s respected banker brother, was formed to advise the Government on economic policies.
There is reason to believe that the JKE no longer meets. Even if it has met, Najib has no time for any views. By now, it is about his survival and nothing else.Since late 2015, the Government has decided on the propaganda line that the Malaysian economy is doing very well under Najib, and whoever claims otherwise is bordering on economic treason or sabotage.
Minister in charge of the Economic Planning Unit (EPU) Abdul Rahman Dahlan, who also doubles as Barisan Nasional Strategic Communications Director, typified this approach.The Government is no longer prepared to listen to the grouses of ordinary Malaysians who suffered the triple blows of GST implementation, the stiff depreciation of ringgit and government austerity (cuts to subsidies, health, welfare and education funding).
“There is no crisis!” So Najib and his associates believe. There are even court jesters who sing praises of the wonders of “Najibnomics”.But just like the Emperor with no clothes, at some point, probably at the ballot box, the voters will call his bluff. By then perhaps many of us will realise that Najib has had no serious economic policy for the past nine years as Finance Minister and more than eight years as Prime Minister.In the end it’s all about “Nothing-nomics”.