THE comprehensive stimulus package to be announced by the government next month is likely to be the most significant economic policy announcement for the year, according to the National Economic Action Council (NEAC) executive director Datuk Mustapa Mohamed.
He would not say whether interest rates would be reduced as part of the package of measures to reposition the economy and stimulate growth, but assured that the measures would be fairly radical and far reaching, and cover almost every sector of the economy.
It is in my view, the most significant economic policy announcement for the year, Mustapa said at the sidelines of the American Malaysian Chamber of Commerce's (Amcham) Strategic Outlook for 2003 conference in Kuala Lumpur yesterday.
A keynote speaker at the conference, Mustapa said the government was aware that the business climate had changed considerably in the past few years, and that foreign direct investments on which Malaysia had been very reliant, would continue to flow to major investment hot spots such as China.
Professor K.S. Jomo of Universiti Malaya, who was a speaker at the conference, pointed out that the great overlap in the manufacture of many Chinese and South East Asian products could lead to an accelerated de-industrialisation of South East Asia.
In Malaysia's case, the overlap of manufactured goods with China is an estimated 40% to 50%. For Indonesia, it is as high as 80%.
The challenge from China is considerable and growing especially when it develops greater capabilities, warned Jomo, citing Malaysia's limited manufacturing capabilities in electrical and electronic products, lack of investments in education and training, and lack of competitive edge as some of the reasons for the likely de-industrialisation of the country.
He said Malaysia operated under tremendous constraints and that its policy choices were limited. Unless we pull up our socks and do a great deal, we will not be competitive in the medium term, he added.
Jomo suggested that Malaysia position itself more aggressively in tourism and education, some areas of manufacturing and services, as well develop niches in areas in which it can be internationally competitive so as to better deal with integration with China.
As part of its stimulus package, the government should adopt policies that make the pursuit of productivity and efficiency easier for companies, said Citigroup head of Asia Pacific Economics & Market Analysis, Donald Hanna. Education and policy flexibilities would also be crucial to Malaysia's future performance.
Given the country's fixed exchange rate regime, however, the country's policy flexibility remains rather limited.
A fixed exchange rate by definition, is not flexible, Hanna said, and while it was currently not a problem, it could become one in the foreseeable future.
He said since the ringgit was only pegged to the US dollar, the currency could still appreciate or depreciate against other currencies.
However, he noted that the government was unlikely to move in that direction in the near future given succession and policy concerns.
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