Pakatan Rakyat’s policy statement on New Economic Model (Part 2)

PART II: ASSESSMENT OF CURRENT ECONOMIC POSITION AND CLIMATE
Right Diagnosis Vindicated Pakatan Rakyat

Pakatan Rakyat feels vindicated that the diagnosis on our economic position presented by NEAC in the report corroborates directly with Pakatan Rakyat’s views.

On 25th February 2010, Leader of Opposition YB Dato’ Seri Anwar Ibrahim had cautioned the Prime Minister in prematurely declaring that the “worst is over” for the economy and that Malalysia could put the impact of the global economic recession behind us.

In reality Malaysia’s performance is lagging relative to other economies in the region. YB Dato Seri Anwar Ibrahim highlighted the worrying decade long trend of stagnant private investment which was a direct result of an over reliance on pump priming measures. This analysis was elaborated at length in the NEAC Report published approximately a month later.

Consequently, in his speech to Dewan Rakyat on 16th March 2010, YB Dato’ Seri Anwar Ibrahim again outlined five critical economic areas which require urgent remedy if the country were to escape from the middle-income trap. These are:

1. Over reliance on petro-dollars and widening public-private investment gaps;

2. Capital flight;

3. Severe drop in new capital investments and value added growth of manufacturing sector;

4. Lagging human development that is unable to support liberalised economy; and

5. Unmatched savings and investment rates symptomatic of problem of access to credit.

Each of these problems were highlighted extensively in the NEAC report.

It is ecouraging that the NEAC, as an influential body that was created by the government, has explained in great detail the extent of the problems our economy faces. These are issues that Pakatan Rakyat has been highlighting since the March 2008 election and which the opposition identified even prior to 2008 and as early as 2005. Determining the correct diagnosis is vital in order to ensure that we develop the right prescription for our problems.

Yet herein lies the fault. All these problems were known for many years and yet there was hardly any effort to mitigate and/or resolve them by the Federal Government. This leads many to believe that either the government does not take these issues seriously or there is a serious problem in the policy making and implementation process of the government.

Barisan Nasional’s Poor Track Record

Pakatan Rakyat is deeply concerned by Barisan Nasional’s poor track record in achieving previous targets it has established in earlier economic policies. The non-correlation between economic planning and targets with actual implementation and results is alarming.

Malaysia indulges with grand economic planning at fairly regular intervals. Currently, there are at least three grand economic plans being implemented, not including the newly launched NEM.

First, we have the 3rd Outline Perspective Plan (OPP3) or Rangka Rancangan Jangka Panjang Ketiga (RRJP3) which covers the period of 2000 to 2010. Within RRJP3, we also have National Vision Policy or Dasar Wawasan Negara.

In additon the government has also announced the 8th Malaysian Plan and 9th Malaysian Plan as the first and second phase of the RRJP3 respectively. Within this key economic planning framework, we have at least a dozen national policies on automotive, biotechnology and other sectors.

Pakatan Rakyat is not against economic planning. We firmly believe that sound economic planning leads to sustainable growth, higher incomes and more jobs for Malaysians. These are keys to positioning our economy in niche areas ahead of regional competitors.

However, economic planning must not be done solely for the sake of planning. In any organisation; let alone a nation – the leadership must be held accountable for the achievement of key targets and direction set out in the planning process.

Therefore, the first thing that anyone should do to analyse the NEM is to revisit Barisan Nasional’s track record in meeting the economic targets it has set for itself in the past.

A good example is the targets set in the 8th Malaysian Plan (8MP) and 9th Malaysian Plan (9MP) covering the period of 2000 to 2005 and 2006 to 2010 respectively (as the data are readily available by now).

The 8MP set nine strategic goals as follows:

1. Pursuing sound macroeconomic management, and ensuring prudent fiscal and monetary policies as well as enhancing efforts to develop a knowledge-based economy;

2. Strengthening and streamlining distributional strategies and programmes to ensure balanced participation among and within ethnic and income groups as well as regions;

3. Enhancing productivity growth through improvement in workers’ knowledge, skills and expertise as well as upgrading of R&D and science and technology (S&T);

4. Increasing competitiveness and economic resilience through accelerating the shift of the key economic sectors towards more efficient production processes and high value-added activities;

5. Expanding the usage of ICT within and across sectors to accelerate the growth process;

6. Strengthening the human resource base to ensure the availability of manpower with higher levels of knowledge, technical and thinking skills;

7. Adopting an integrated and holistic approach in addressing environmental and resource issues to attain sustainable development;

8. Enhancing further the quality of life through improving accessibility to social services as well as developing the aesthetic aspects of life; and

9. Intensifying efforts to nurture and inculcate positive values and attributes among Malaysians through the education system, social and religious organizations and the media.

There are also specific targets in 8MP with regards to economic growth and poverty eradication.

Page 7 of 8MP states that “during the Eighth Plan period, growth will be targeted at 7.5 percent per annum”.

For poverty reduction, Barisan Nasional boldly claimed that “during the Plan period, the thrust of poverty eradication will be directed towards reducing the incidence of absolute poverty to 0.5 per cent by 2005”.

Did we achieve the targets?

Malaysian economic growth measured in terms of gross domestic product (based on 1987 constant prices) for the period of 2001 to 2005 is as follows:

	2001	2002	2002	2003	2004 (e)	2005 (p)	Simple Average 2001 – 2005
GDP (RM b)	210.6	211.2	220.4	232.5	249.3	262.3	235.1
Growth (%)	–	0.3	4.3	5.5	7.2	5.2	4.5

The statistics should be alarming to all Malaysians. In spite of the massive pump priming between the period of 2003 to 2007 (of which significant portion of the amount was spent in 2003 to 2005), Barisan Nasional failed to achieve its most important target of the 8MP.

Not only did the average growth for the period fall remarkably short of the 7.5% target (simple average of 4.5%), Barisan Nasional also failed to achieve the 7.5% target in any single year of the entire period.

For 9MP, since the overall GDP growth target of 6.0% on average was only achieved (or exceeded) in 2007, Malaysia is bound to fail to meet that target set throughout the 2006 – 2010 period.

In the case of NEM, Barisan Nasional sets a growth target of 6.5% for the period of 2011 to 2020 to achieve the aim of doubling private investment and achieving a national income per capita of USD17,700 by 2020.

At the same time, NEAC has issued a projection of growth of 6.2% for the period of 2011 to 2015. As this is the more likely growth the country will experience, this means Malaysian economy needs to grow by an average of 6.9% for the period of 2016 to 2020.

This is a rather ambitious undertaking considering the trend of growth rates for the last 10 years as well as the continued possibility of global economic and financial shocks that may affect our economy; especially given BN’s poor track record of achieving the growth target in 8MP.

It is not so much the unrealistic economic growth target that worries Pakatan Rakyat. It is the haphazard manner in which economic planning is done; as if the public can be misled continuously by tossing around attractive growth targets that are never achieved.

For poverty eradication, Barisan Nasional unashamedly claimed its success for lowering the overall poverty rate to 3.6% in 2007; totally oblivious to its own target in 8MP to reduce absolute poverty rate to 0.5% by 2005.

This also means that if overall poverty rate still stands at 3.6% in 2007, it remains unclear whether Malaysia can lower the overall poverty rate further to meet the 9MP target of 2.8% by 2010.

In fact, the overall poverty rate had actually climbed by 0.6 percentage point in between 2002 (5.1%) and 2004 (5.7%) – right in the middle of 8MP implementation that had set an absolute poverty target of 0.5%.

The fact that not only the absolute poverty eradication target was missed but overall poverty was increasing throughout the period of the 8MP speaks volume of the failure of Barisan Nasional’s economic planning. Neither were its targets realistic nor did it even come close to achieving some scant progress towards them.

To put things into another perspective, the benchmark income levels used to determine absolute and hardcore poverty are absurdly low. Yet in spite of this, Barisan Nasional has failed to reduce poverty rate.

It is not surprising that the main themes in NEM are recycled and rehashed from previous economic plans stretching from as far back as pre-2000.

The key initiatives of leveraging on research and technology (R&D) to move up the value chain, moving from assembling to innovation for key sectors like electrical and electronics, bringing in knowledge-based economy – have all been mentioned before.

Barisan Nasional has also failed over the last decade to make much head way with these initiatives as well. The fact that they can be re-introduced every few years as if they are new and innovative ideas is a clear indication of how little progress has actually been made in the last decade.

Thus Pakatan Rakyat’s scepticism over these repackaged themes adopted by the NEM with a new set of lofty targets is not without basis. Our concerns are largely shared by the public and business and investor community.