Green shoots must not derail reform

  • Business
  • Thursday, 27 Aug 2009

THE whole world is suffering through a long and hard economic winter. But it looks like green shoots of recovery might be pushing up slowly amidst belief that the downturn has finally bottomed out.

In April, the Organisation for Economic Cooperation and Development stated that its overall measure of advanced member countries pointed to “recovery” instead of the “strong slowdown” they had been suffering since last August.

Recently, Japan too sprang a welcome surprise on the upside when it announced it had finally emerged from a prolonged recession. Elsewhere, financial professionals who usually have their fingers on the pulse of business are becoming more optimistic about global recovery.

According to the ACCA Global Economic Confidence Conditions Survey for the second quarter of 2009, economic recovery should be possible within the next 18 months.

Of the 546 finance professionals surveyed in 77 countries, 64% believe the global economy has bottomed out – twice the number of those in the first quarter survey. More than a third of respondents expect a recovery within the next 12 months.

Morale in key regions such as Asia-Pacific is much higher, with small and medium enterprises and large financial firms in particular increasingly buoyant about the future.

In fact, respondents in the Asia-Pacific are generally the most optimistic and consider that the worst is behind them, with expectations of a speedier recovery.

A key finding of the survey was that optimism continues to depend substantially on the actions of national governments, although the reliance has dissipated somewhat as economic conditions rehabilitate.

Likewise for Malaysia, prompt Government action has been essential to staving off the worst of the downturn.

As in other regimes, a massive fiscal stimulus package and monetary easing have been essential to give businesses and consumers a lifeline and to defend the economy from further stress.

To date, the Government has put in RM67bil in two stimulus packages but the economy is still expected to contract between 4% and 5% this year.

On the upside, the Malaysian economy is expected to bounce back from negative growth of 6.2% in the first quarter of this year to positive growth in the fourth quarter of 2009 and subsequently in 2010.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said the two packages would add between 1% and 1.5% of gross domestic product (GDP) growth.

Also on the upside, global malaise has forced economies to reconsider their economic models and business-friendly policies as competition becomes stiffer for scarcer investment funds.

Malaysia is no exception to this rule; according to balance-of-payments data published by the Statistics Department, foreign direct investment inflows fell to RM2.8bil in the first quarter of 2008, which was almost RM1bil less than in the previous comparative year.

To stem and even reverse such declines, the Government and regulators have been reworking the prevailing economic model into one that emphasises innovation and creativity to add value and to increase incomes.

The Government has an ambitious target to sustain economic growth of 7.5% per year, which is only possible if the economy is geared towards a higher growth trajectory.

Key to the new economic model is liberalisation reforms such as the liberalisation of capital and financial markets as well as relaxation of regulations in 27 sub-sectors in the services industry to facilitate business, and attract and retain foreign investment in areas that are higher up the value and income chain.

Although these measures have little to do with economic crisis management, they have been hailed by economists as very important measures that will come to fruition and have a positive impact maybe in two to three years.

Although the Prime Minister’s newly-assembled council is still hard at work on the new economic model, which has yet to be presented publicly, Malaysia is evidently making efforts to recast itself as an economy that is firmly in the mainstream, perhaps even in the vanguard of business and trade.

This is where the early signs of recovery might lull us into thinking that the previous status quo was adequate.

If Malaysia is able to dig itself out of its downturn and return to positive growth by using old-fashioned stimulus packages delivered through the existing economic model, critics of change might argue that the previous restricted and protectionist business model worked just fine.

However, given that advanced economies like South Korea and Japan and up-and-coming China are reinventing themselves to climb further up the value chain, we cannot afford to cling to the past.

What I’m saying, in effect, is that we must not allow the fragile green shoots of recovery to derail our efforts to build a more liberalised and competitive Malaysia that can deliver growth and higher incomes across the board to all Malaysians. ■ The writer is deputy president of ACCA Malaysia Advisory Committee.

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