Budget 2009- Does vanity rather than prudence govern Malaysia's economic policy?

In spite of some positive indicators in the first quarter of 2008, where Malaysia's GDP grew at a commendable 6.7% with the second quarter raking in an extremely healthy trade surplus of RM40 billion, the 2009 Budget had failed to offer anything out of the ordinary to address the major structural weaknesses of the Malaysian economy. Critically, the government had no revenue driven measures to tackle the rising budget deficit and achieve the stated objective of economic growth with low inflation.

Whilst fundamentally, the economy remains strong thanks to the high prices of our natural resources like rubber, palm oil and petroleum and the contribution from the tourism sector which had over 20 million visitors last year, we are facing a situation where two major components of domestic demand - private consumption and investment are weak. And it it obvious, that the BN government under siege from the political uncertainties, would step in, according to traditional Keynesian economics and increase its spending so that the economy remain resilient . If the government cuts back on its spending, that will only exacerbate the problem of insufficient demand in the economy and generate even more cut-backs and job losses.

However, the larger economic question is that will the government face a further fiscal crunch? By operating on a rising budget deficit, public debt will increase where the government by spending more than it earns is actually borrowing now for the future generations to pay. As it has been for the past thirteen years, debt servicing would continue to take up a chunk of budgeted total expenditure.

Although proven and tested to be a politically unpopular measure, the government can reduce the deficit by gradually removing the subsidies in oil and food. Related to this concept of creating a more self reliant economy which would be unperturbed by external market forces is to be self sufficient in food. The government must ensure that a supreme effort be made to increase the production of basic food stuff in order to curb our national inflation rate. Another key area the government should look at is the whole concept of privatization, which transformed our giant statutory and public utility agencies for the likes of Telekom, Tenaga into colossal private monopolies. With every company in Malaysia finding its cost of production increasing, this increase in cost will surely be passed on to the consumer in this case, the rakyat. The net result will create a tremendous inflationary pressure on the economy. For a person with a fixed income, it is terribly nerve wracking that his income can now buy even less goods than before and needless to mention pay for higher utility bills.

But how does the average Joe Public be convinced that 2009 Budget is really design to address important socio economic inequity, so apparent now, more than ever . So much of wealth has been destroyed over the last year such as house ,car, and share values and jobs are now lot less secure than a year ago with salaries being cut in many sectors,

As the rakyat are more cautious in their spending, inflation will be the main economic indicator for the Joe Public to watch. This will determine their family's welfare and state of mind. The government should heed this concern by introducing policies and enforcing against price rises.

Lastly,transparency and accountability is the key for the BN or PR led government to appear proactive in dealing with the economic confidence crisis in Malaysia. For the clouds of political pessimism to blow away, it is imperative to ensure that our economic policy will not be hijacked by the business elites and political insiders who still have their wealth tied to privately negotiated tenders and bail outs.