The government has to step in to generate jobs by taking up public sector projects, but that will require a big shift in thinking, writes Jeyakumar Devaraj.
The world is being buffeted by a serious three-faceted crisis.
1. Coronavirus pandemic
The first aspect and the precipitating cause of this crisis is the coronavirus pandemic that sweeping all over the world.
The pandemic is causing a massive overload on the medical services, even in the richest countries in the world. The death rates in Italy, one of the most badly affected nations, has already exceeded 10% of total diagnosed cases in that country – far above the 1% seen in countries such as South Korea, which acted early to contain the epidemic.
Malaysia is handling this health crisis much better than many other countries, and hopefully we will be able to arrest the upward trajectory in the number of new cases within the next week and avoid stressing our medical services to breaking point.
2. Struggling households
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The second aspect of the crisis is that many Malaysians in the bottom 40% and middle 40% of households, especially daily-rated workers and small business people have already run out of their meagre savings after 10 days of the movement control order. Many are already having difficulty providing food for their families.
3. SMEs under threat
The third aspect of the problem is that our small and medium-sized enterprises (SMEs) which employ about 65% of our workforce are under threat.
The lockdown means that the vast majority of these SMEs have had no income since 18 March. However, their fixed costs remain – wages, rental, loan repayments, income tax commitments and payments due to suppliers.
There is a real danger that some SMEs will fold up even though they were viable in normal times. That would mean that jobs would be in short supply after the lockdown is lifted as a significant proportion of the SMEs would not be able to resume their activity. The post-lockdown downturn of the economy would therefore be deeper and more prolonged.
Given this bleak scenario, several measures have to be implemented quickly to address each aspect of the crisis:
The capacity of our healthcare system to respond to the coronavirus epidemic has to be bolstered.
Measures to ensure that the poorer 50% of our population have access to food and other basic necessities have to be rolled out.
Another set of measures to ensure that as many as possible of our SMEs are kept viable so that they can provide employment to the rakyat when we are able to restart the economy.
Stimulus package
Against this backdrop, the ‘Caring Economic Stimulus Package” (Pakej Rangsangan Prihatin) is on the right track.
It has allocated another RM1.5bn to the Ministry of Health to better tackle the coronavirus epidemic. This amount represents 5% of the size of the annual health budget and will help the ministry in its fight against coronavirus.
The Socialist Part of Malaysia (PSM) hopes that a portion of this fund will be used to rapidly expand testing capacity as there are too many symptomatic cases who are now being sent back as they do not meet the “criteria for testing” because they do not have any documented exposure to a known cluster of Covid-19 cases or a history of travel to certain (specified) countries.
Failing to diagnose cases early would be costly as it would lead to more secondary cases rising from these individuals who are asked to go home and self-isolate instead of being speedily diagnosed and put under strict quarantine.
The stimulus package also signals a fairly big cash transfer programme.
Four million families will receive a cash transfers of RM1,600 over the next two months and another 1.1 million families will receive RM1,000 over the same time period.
This covers 5.1 million families – about 70% of Malaysian families and will provide much-needed relief for their cashflow problems.
For those for those that have lost their income due to the movement control order, this would only be about 60% of their minimum wage, but we believe these handouts are is to ensure that these households have food on their table.
PSM appreciates this measure as it will ensure that the bottom 70% of families will be able to avail themselves of necessities for the next two months. Hopefully, after that, most of them will be back to work and be able to fend for themselves.
The BR1M/Bantuan Sara Hidup (Cost of Living Assistance) databases will be very useful in implementing this cash transfer initiative. But the authorities should note that certain poor groups such as single mothers below 40 were excluded from the BSH programme.
The first tranche of the payout should be rolled out without delay – in the first week of April itself, as many families are already without food in their homes now.
Measures to help SMEs
This stimulus package has, in addition, a slew of measures to help SMEs survive the lockdown. These measures are most timely as we need to keep these businesses alive so they can play an important role in our economy in addition to providing employment for 65% of our working population.
These measures include:
- a moratorium on bank loans for the next six months. This will have a huge beneficial impact on cash-strapped businesses and allow them some breathing space to survive the crisis
- a wage subsidy programme, where the government picks up RM600 per worker if the SME agrees not to terminate them. This would have greatest impact on lower-paid workers as RM600 is 50% of the minimum wage, but would not be as helpful for employees on a higher pay
- exemption of rent for business premises in government and government-linked company premises
- electricity bill discounts – especially for smaller enterprises
- RM4.5bn allocated for schemes to improve access to finance for SMEs We shouldn’t be too picky in the time of an economic emergency, but there is a significant moral hazard here. Well-placed individuals may be able to get loans with a 80% guarantee from the government but not really invest enough time and effort in the business that they took the loan for. A system of monitoring must be put in place to limit the occurrence of this sort of ploys. Business failures despite trying, should not be penalised – it happens, but efforts to defraud the system by not actually trying to make the business work should be red-flagged and the individuals involved blacklisted
- the possibility of postponing Employees Provident Fund contributions (still to be discussed with the EPF)
- exemption from Human Resources Development Fund payments (this is for the larger SMEs)
- postponement of tax payments
The expansion of domestic demand in all corners of the country arising from the cash handouts to 70& of families, single adults, college and university students, government servants and retirees, ride-hailing drivers, taxi drivers and others by about RM15bn will also help revive small enterprises in the service sector.
Hopefully, the institution of measures to lessen their cashflow problems and the boosting of the domestic market will be sufficient to save the majority of SMEs from financial ruin.
Pasar malams
The stimulus package did not talk about this specifically, but the issue of allowing micro businesses in night markets and other people’s bazaars to restart operations after the movement control order is over has to be tackled.
How can this be accomplished without compromising too much on social distancing measures, which will still have to be in force even after the movement control order is relaxed?
Many small businesses will not be able to get back to their feet if we do not allow them the space to operate. But then, we also cannot afford another upward spike that will require another movement control period.
Perhaps the measures that are being taken currently in wet markets to limit the number of people entering could be also implemented for the night markets and for Ramadan markets?
The provision of infra-red visors to local authority staff would help identify those with fever. These people should be required to go home, self-isolate and report to designated centres for proper screening.
Obviously this has to be thought through and guidelines prepared with serious consideration given to the input from healthcare professionals from the Ministry of Health. This issue should not be decided on populist sentiments for the cost to us as a society could be severe if we get this wrong.
Widening budget deficits?
So, on the whole, the measures outlined in the stimulus package are the right ones at this stage of the extraordinary situation we are now in.
The government’s actual outlay is about RM25bn. The PM said in his speech that this would be taken from operating expenditure and that the government would not be borrowing to meet these expenses. We will have to see how the government plans to do this.
But in the Budget approved by the Pakatan Harapan in December 2019, there was only about a RM5bn excess of estimated federal income over operating expenditure. With the steep decline in oil prices and the drop in corporate earnings and taxes, the federal government income will be hitt.
So it is difficult to see where the extra RM25bn will come from. Will some of the allocations to other ministries be reduced?
If reallocating funds among the ministries does not free up sufficient funds, perhaps the strategy of selling government securities to the central bank should be considered? Isn’t this what Roosevelt did in the 1930s?
Central banks have been buying bonds and securities from the private sector to “inject liquidity” into the financial system since the 2008 Financial Crisis. They term it quantitative easing.
So why not some quantitative easing for the federal government – our central bank buys some fresh government securities? Then the government will have the funds to institute the above measures.
These are extraordinary times and if the aim is to keep the economy afloat so that people can what they need, it doesn’t matter if agencies like Moody’s are somewhat miffed with this strategy for raising funds. The people’s wellbeing should come ahead of rating agencies’ prescriptions for budgetary prudence – as these agencies’ overriding interest is protecting the position of the richest investors in the system.
Some unaddressed issues
The stimulus package, as comprehensive as it is, does not address certain important issues though. There are sectors that cannot be revived with debt restructuring and the provision of easier credit, eg the airline industry or hotels, restaurants and shopping centres that cater for international tourists.
International air travel will have to be restricted for the next 18 months, until the pandemic is well and truly controlled. So the employees in these industries have to be absorbed into other sectors of our economy.
We just need a small number of workers to safeguard and maintain the assets of the sectors dealing with international tourism as these sectors can again open for business in the future.
The investors in these sectors might need assistance in paying retrenchment benefits for the staff they have to lay off. Would long-term loans with repayments starting two years later be required for them?
Unemployment will be a major problem in Malaysia and for many other countries. Much of our manufacturing is for the global chains. Many of these chains will slash orders as their markets are hit by the lockdown in their countries. So we will witness the retrenchment of these workers.
We will need to generate employment opportunities for several hundred thousand Malaysians. And we cannot rely on the export market or on the private sector to step in and generate jobs. The global system does not enable such a strategy.
The government has to step in to generate jobs by taking up public sector projects, but that will require a big shift in thinking:
- We need to expand food production for domestic consumption
- We need better management of municipal waste – recycling, producing biomethane and constructing sanitary landfills all over the country
- We need tens of thousands of low-cost terrace houses to rent to the bottom 20% of the people. We need to clean up, repair and spruce up our low-cost flats
- We need to set up some factories to produce electric-powered buses for our urban centres. We need to set up solar farms in every district in the country
- We need reforestation of logged forests and rehabilitation of our rivers
Yes, there are many useful things we can get our unemployed citizens to work on. The government has to provide training to workers so they can take up jobs in developing renewable energy, reforestation, urban renewal and the like.
But we cannot depend on the profit motive to inspire companies to initiate all this. This is a time of market failure! Just as we cannot expect the private hospitals to do a good job of handling the coronavirus pandemic, we also cannot expect the private sector to step in and handle the economic fall-out from the pandemic.
PSM thinks that the government should step in to fill the void. The federal government will need to work with local authorities to set up local or regional-based agencies to do various sorts of public work.
The PSM position is that we should avoid huge bureaucracies for these sorts of work. Smaller agencies with local participation and transparency in their running should be the way to go. The involvement of the local population and state and district governments should be the norm. Big opaque bureaucracies breed corruption and inefficiency.
Funds for the fiscal stimulus
There are huge issues which the stimulus package does not venture to address. Funding is obviously a big issue – where is all the money for these public works going to come from?
Well, we mentioned quantitative easing for the public sector. That should be discussed and the downside has to be explored and planned for. One of them is a balance of payments problem and pressure on the ringgit.
Producing consumer goods within Malaysia so that all the extra wages paid out for all these public works does not cause runaway inflation is a must.
These are important issues but they are not insurmountable. There are ways to handle these.
PSM hopes that the government will engage in a discussion on some of these issues in the near future, as unemployment will be a major issue that we need to handle.
We are in uncharted territory now. We face a huge risk of a deep and prolonged recession. Reducing interest rates and quantitative easing will no longer work as there has been a collapse in aggregate demand. We need other strategies.
The federal government’s handling of the coronavirus epidemic in the country and the initiatives taken in this supplementary budget to handle the economic effects of the pandemic are reassuringly measured.
We need to work together to chart a course during this stormy period. This is not the time for Malaysians to be partisan.
The federal government too should be prepared to listen to ideas from the public and to engage with civil society groups that wish to give provide input on how the current crisis should be managed.
AGENDA RAKYAT - Lima perkara utama
- Tegakkan maruah serta kualiti kehidupan rakyat
- Galakkan pembangunan saksama, lestari serta tangani krisis alam sekitar
- Raikan kerencaman dan keterangkuman
- Selamatkan demokrasi dan angkatkan keluhuran undang-undang
- Lawan rasuah dan kronisme
