Don’t Think, We are Sinking

For God’s sake, I am an action-oriented guy. Talking is just not my strength, but I am living in a country that talking is seen as virtue. If the NBER sees that December 2007 is the dating-start of US recession, then we are already in the 14th month of dark-ages, and I have seen enough of downward revision of Malaysia’s GDP in recent weeks, from once of what I believe as super-bullish at the very first place to a super-bearish now.

Malaysia’s 4Q GDP numbers, indeed are right enough to lead us to believe that there are material risks that we will soon show a negative number and if we continue to do GATT (general agreement to talk and talk), the deeply negative 1Q and 2Q of 2009 soon to be a foregone conclusion.

I have seen some tentative signs in some countries in Asia are showing signs of improvement for a simple fact that they are reacting fast enough, even though a smooth transition from export-led to domestic-led growth is far from guaranteed.

March 10 will be the day that will decide how well we can navigate through this storm. The best and the fastest way is to give money direct to everyone, including me. Going via another intermediary like construction sector will have a delay impact on the recovery and we know jolly-well kind of leakages are real possibility, if one to judge by the severity of our government in driving the newly minted anti-corruption agency.

Cutting interest rates is an option, but the onus of supporting the economy have shifted from monetary to fiscal policy more in reaction to events. My biggest concern is that further cut in interest rate without a right fiscal engine is that it will bring to a partial collapse of market confidence on strength of our financial system. Banking institutions could face real challenge in maintaining public confidence, if they continue to see rising pressure on NPLs, provisioning and ultimately the bottom-line. I think Bank Negara has done far more than fair on their part and if we are not careful, the next question to ask, even if March 10 event is taking place, is whether fiscal policy is sufficiently equipped to get us out of the current predicament.

Sound like an economist, of which, I would not refuse the credit, the fiscal stimulus, at the current scale, is extremely weak and it is not more than a drop in the ocean…

I can see that this country is having better fiscal lever to a great extent than the advanced economies, but I am still cautious with the way we administer this fiscal medicine, perhaps in bigger doses and more promptly. Otherwise, I cannot rule out the possibility of growing socio-political pressure in this country, as we are going through an important psychological aspects that are hard to predict in the aftermath of March 2008 elections.

Let me forewarn everyone here that I do not discount the need of another fiscal medication in the later part of the year, if labour market conditions deteriorate further, depending on the speed of implementation versus their medium to long-term effects on economic growth.