Cushioning the impact of a downturn

 

Economic Council member and former Danaharta chief Datuk Azman Yahya shares his thoughts on government policies and options

THE government should put more money in people's pockets and spend on areas with high multiplier effects to cushion the impact of the global economic slowdown, a veteran of the post-1998 economic recovery efforts said.

A private sector member of the recently formed Economic Council, Datuk Mohamed Azman Yahya, said the measures could include voluntary reduction in contributions by employees to the Employees' Provident Fund (EPF).

Having the option to contribute less to the retirement fund would increase disposable income, which in turn may improve domestic spending.

On its part, the government ought to review its procurement strategy to minimise wastage and leakages.

He said the government could also adopt a more liberal policy on ownership and on the less effective affirmative policy in areas where the resulting inefficiencies outstrip the policy benefits.

Azman, who is formerly a banker, headed the successful national debt-busting agency Danaharta during the turnaround period after the 1998 economic crisis.

He told Business Times that the Malaysian economy is not expected to go into a recession, or at least not as sharp as the one in 1998.

"The general consensus is that there will be a slowdown in economic growth rather than a negative growth," he said.

"However I do not expect a V-shaped but more of a U-shaped recovery which means the period of slowdown can last more than a year," he added.

Corporate Malaysia is better prepared now than it was in 1998, Azman said, adding that financial institutions are well-capitalised and corporate borrowings are relatively low and structurally more suited through a healthy combination of long-term private debt securities and traditional borrowings.

He said the levels of corporate governance and risk management are substantially better and the valuations of companies relative to their earnings are a lot more reasonable.

Likewise, the government is reasonably well prepared, with healthy external reserves and balance of payments while the financial system remains highly liquid, allowing the government to adopt an accomodating monetary policy.

However, given the 11 straight years of budget deficits, the government may have limited ability to pursue more aggressive fiscal policies to absorb the expected lower private sector investment and consumption.

"Nevertheless the government has, during the better times earlier, taken measures to correct economic imbalance and structural issues (like subsidies), and so in a sense we are reasonably well prepared to face the expected downturn," Azman said.