keynesian versus najibian economy - we are doomed

Toxicologist turned economist has spoken. Here is a piece by Dr. Dzulkefli Ahmad, the Director of PAS Research Centre! Truly magnificent! My ranting earlier this morning is exactly this! Being a bloody engineer and a layman economist, I may have put my reading quite differently but along the same line.

Yes, we are in a real deep shit going by the way the economy is being handled by our economist (my ass!) finance minister!

I refrained from posting other people’s writings thus far but I have to make this an exception. Thank you Kuala Selangor for a brilliant piece here!

Excerpt from Malaysiakini:

Missing numbers in 'stimulus package' puzzling
Dzulkifly Ahmad Nov 5, 08 3:20pm
Analysis
MCPX
In what was Deputy Prime Minister Najib Abdul Razak's maiden speech as a Finance Minister, he has cast more doubts about his alleged or perceived ‘financial prowess' of being better than prime minister when it comes to managing the economy.

Hopes quickly evaporated midway through his delivery of his ‘stimulus package' to bolster the economy. It has nothing to do with his refusal to allow the Opposition Leader and MPs to interject during his delivery - an unprecedented move strangely condoned by the Speaker.

Firstly, quite unsolicited, he decided to take a pot-shot at the Pakatan Rakyat's budget - perhaps more accurately the Opposition Leader Anwar Ibrahim - by accusing that the Pakatan budget was "contractionary" as opposed to their "expansionary" one.

He cunningly reminded everyone, that the nation will be in greater trouble - like during the 97-98 financial crisis - if we were to pursue Pakatan's budget.

Najib is either clearly ignorant, which of course spells doom for this nation's future or simply misleading the House, which is worse, as his limited credibility will be further dented.

A budget is either ‘expansionary' if there is a deficit or ‘contractionary' if there is a surplus.
While the BN's 2009 budget poses a projected deficit of RM28.45 billions, the Pakatan's budget deficit stands at RM22.10 billions.

Both are deficit budgets, ergo expansionary budgets, period. A lesson in Economics 101 for our new finance minister.

The Pakatan package

On Oct 23 Pakatan presented a budget strategy in response to addressing financial uncertainties and restoring confidence in our economy.

While clearly expansionary and anti-cyclical - in order to weather the ‘slowing down of growth with concurrent inflationary pressure on goods and services with the consequent massive unemployment' (ie stagflation) - our budget addresses where and how the deficit is to be funded and sustained.

Going by the current global prices of crude oil (CO) and crude palm oil (CPO), even a conservative estimate will show the present BN budget's revenue projection having a RM18 billion shortfall.

CIMB's Research House estimated that for every US$10/barrel reduction in price (Tapis crude oil), we'll lose RM4 billion a year. For every RM100/tonne of CPO, we will be robbed of RM1.7 billion.

An estimated loss or reduction of revenue to the tune of RM18-25billions is to be anticipated.
Our approach was not just expansionary, it was prudent so that we maximise the ‘multiplier effects' in critical sectors critical sectors of quality housing, healthcare and education.

A ‘quality deficit' was intended, not speculative endeavours like injecting RM5 billion from Employees' Provident Fund (EPF) to shore up ‘undervalued companies' or delving into mega-projects - like underground cables, double-tracking railways or dubious military helicopter procurement.

Najib was glad to announce the RM7 billion saved from reduced fuel subsidies, yet side-stepping the spending spree with his ‘expansionary stimulus'.

Opposed to our projections or even CIMB's, Najib stated that the revenue drop would be only RM176.22 billion to RM168.73 billion - which is only a RM8 billion revenue loss.

Presumably the revenue reduction takes into account CO and CPO. Which does not add up.

Missing RM7 billion

Even with our conservative RM18 billion deduced by the RM7 billion saved in fuel subsidy reduction, a yawning RM11 billion is the revenue deficit.

He did not admit this out-right, but there was an indirect concession when he stated they were expecting a bigger deficit of 4.8 percent.

But behold, the finance minister foolhardily informs of another RM7 billion, which he claims is from the fuel subsidy. Mind-blowing.

The numbers do not jive, whichever way you look at them. This additional RM7 billion must either be from borrowing, leveraging or gearing - all dirty words from the US financial crisis.
It would have been better for Najib to admit that the money is to be borrowed from a source like EPF or that the government is raising bonds.

Yes, we may have a healthy national reserve of 37 percent of our GDP.
Yes, we may have low non-performing loans for the time being.
Yes, we may have a low foreign debt currently at RM187 billion with RM70 billion private debt. As of April 2008, this maybe 20 percent of the foreign reserve.

Pakatan may have to grudgingly admit that our national fundamentals are strong, even if they are not naturally trickling down to the rakyat - thanks to inflation and poor distributive justice.
But bear in mind that we have had 10 years of deficit budgets.

Irrespective of whose fiscal stimulus package is put it as a anti-cyclical measure - be it BN or Pakatan's - it has to be prudent and carried out productively.
Our bullishness may now be totally misplaced as party time has long expired for our finance minister.

The Eurocopters deal and a slew of mega-projects should have been voluntarily withdrawn a long time ago.

I doubt if you have any hindsight. Your recurring blindspot is extremely distressing and very worrying to say the least.

DR DZULKIFLY AHMAD is director PAS Research Centre and member of parliament for Kuala Selangor.