Proactive measures preferred to handouts, say economists

PETALING JAYA: It is proactive measures and not subsidies that will stimulate the economy as the recovery of the economy is already waning, say economists.

Although the markets will act in a knee-jerk fashion initially to the proclamation of a state of emergency, if the government is proactive, the markets will rebound, they added.

At the announcement of the proclamation of a nationwide state of emergency yesterday, the main index at Bursa Malaysia slipped at first but clawed back after Prime Minister Tan Sri Muhyiddin Yassin assured the public that the action was not tantamount to a military coup and that the civilian government was still in place.

The actions of the government must convince investors there are strong long-term measures in place, said former Bank Negara deputy governor and economist Tan Sri Dr Lin See Yan.

“Businesses and consumers alike are worried about the present, but we are more worried about the future.

“For now, we only know that the government has put into place measures to mitigate the pandemic, but it needs to further re-establish the confidence of business owners so that these proactive measures can further stimulate the economy.

“Subsidies and cash handouts are not the answer here.

“The economic recovery had already slowed down even before the proclamation of the state of emergency. It is now pertinent for the government to introduce some measures such as big grants and incentives for businesses to pick up and expand.

“As long as there are no substantial measures and no long-term measures to further assist the economic recovery, the rate of recovery will worsen, ” added Lin.

Prof Dr Yeah Kim Leng, an economist with Sunway University, said that while some may welcome the respite of not having to face a general election during the fight against the pandemic, Malaysia’s investment attractiveness is nevertheless affected by such a proclamation.

He, however, argued that quick and smart proactive measures by the government may be able to stop an erosion of investor confidence.

“It is important the Emergency declaration is made clear that it is focused on containing the pandemic, and will neither interfere with the normal functioning of the economy nor administrative functions.

“We can expect knee-jerk adverse reactions from markets and businesses although some quarters may welcome the respite from having an early election.

“Nevertheless, public concerns and investor wariness will be heightened on the government’s subsequent actions and policy decisions that ensue during this period, including the exit strategy.

“Foreign investors who are already in the country may not be spooked by the Emergency declaration but the main concern is the erosion caused to Malaysia’s investment attractiveness.

“It is likely that the Emergency rule along with the MCO will trigger a ‘wait and see’, ” said Yeah.

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