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Source: www.asiaecon.org |

MALAYSIA'S STIMULUS PACKAGES


Malaysia, like its Asian neighbors, has seen rapid growth rates and successful export-oriented economic policies in recent years.  Local and foreign investments in high technology industries, medical technology and pharmaceuticals have helped increase the country's value-added production chain. In addition, oil and gas exports, combined with recent high world energy prices, have filled up government coffers. However, despite of these economic successes, Malaysia recently has been forced to take necessary actions to cushion effects of the global financial crisis.


Malaysia, like its Asian neighbors, has seen rapid growth rates and successful export-oriented economic policies in recent years.  Local and foreign investments in high technology industries, medical technology and pharmaceuticals have helped increase the country’s value-added production chain. In addition, oil and gas exports, combined with recent high world energy prices, have filled up government coffers. However, despite of these economic successes, Malaysia recently has been forced to take necessary actions to cushion effects of the global financial crisis.

Since the 1997 Asian Financial Crisis, Malaysia has enjoyed an average real GDP growth rate of 5.6 percent. As an export-oriented economy, the country’s major exports in 2007 were electronics, electrical machinery, chemical products, palm oil and crude oil. Its top five trading partners are the U.S., Singapore, Japan, China and Thailand. In addition to exports, Malaysia’s economy also has strong manufacturing, services and tourism industries.

In November 2008, the Malaysian government introduced a 7 billion ringgit (US$1.93 billion) stimulus package to enhance domestic growth and improve market confidence. An article in The Wall Street Journal, written by Deputy Prime Minister and Minister of Finance Najib Razak, states that the stimulus package is funded by savings on subsidies coming from falling global oil prices and will be supervised by Malaysia’s Project Monitoring Unit.

The stimulus package is valued to be about 1 percent of Malaysia’s GDP. It will provide funding for several infrastructure projects, including building of low and medium-cost houses, upgrading police stations, living quarters and army camps, maintaining public amenities such as roads, schools and hospitals and building and upgrading roads in rural areas. The government hopes that pumping money into these projects will have a multiplier effect on the rest of the economy.

This first stimulus package is not without its criticisms. Analysts  argue that it  is too little and too late,  and that stimulus packages should at least amount to 2 percent of GDP to have a significant effect on the economy. They also argue that its focus on the construction industry makes the multiplier effect more muted than the government had hoped. This is because the construction sector employs a large number of foreign workers who send back the money they earned to their home countries, constituting a leakage from the domestic economy. Indeed, a World Bank Migration and Remittances Report states that remittance outflows from Malaysia were 3.7 percent of the country’s GDP in 2006.

Even former Prime Minister Dr. Mahathir Mohamad recently said that the first stimulus package is “insufficient, not well-directed and ineffective” and that an additional 28 million ringgit can be (should be?) pumped into the economy to stimulate activity.

A second stimulus package is expected to be implemented either this month or in March. While there are no official figures as to how much the second package will be, Najib said that it will be much bigger and more profound than the first one. In a session organized by the National Chamber of Commerce and Industry of Malaysia (NCCIM), economist and Bank Negara Malaysia former deputy governor Tan Sri Lin See-Yan suggested a 35 billion ringgit package, which is about 5 percent of GDP. Najib also said that in addition to the fiscal stimulus, monetary policy measures will also be implemented. The Overnight Policy Rate was already lowered by 75 basis points to 2.5 percent last month and the Statutory Reserves Requirement was decreased by 150 basis points to 2 percent at the start of February. Moreover, a 2 billion ringgit assistance scheme for small and medium enterprises has been announced. The government hopes to increase liquidity and lending to prevent the economy from stalling.

The government is confident that it has used its experience in the 1997 Asian Financial Crisis wisely to make the country better equipped and well-prepared for the current crisis. 
“We have learned from the 1997-1998 crisis and have put in place various check and balances,” Najib said.

A World Bank report states that Malaysia will be able to survive the current global financial crisis due to its sound banking sector, high current account surplus, and with proper government measures, sustained increases in private domestic consumption .

Source: www.AsiaEcon.org

Source: www.asiaecon.org |


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