(Petaling Jaya, Tuesday): The Prime Minister, Datuk Seri Dr. Mahathir Mohamad said in Cairo yesterday that the government has to reduce its expenditure as tax collection, which is the government’s main source of revenue, is expected to drop drastically this year.
He said that last year the 15 biggest companies in Malaysia announced profits totalling RM9 billion, but a study for this year showed they can only make a total of RM1.5 billion, a five-fold drop.
He said it has not been fully determined how far the current economic downturn would affect Malaysia.
Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim, clarified his Sunday statement that we will not be able to register a surplus budget this year, unlike last year’s RM6 billion surplus, due to the current economic woes.
He said the government will ensure that this year’s deficit is small and manageable by coninuing its "tight and well-managed fiscal policies to contain lavish spending".
In his original 1998 budget presented to Parliament on Oct. 17 last
year, Anwar budgetted for a surplus of RM8.951 billion for 1998.
This is from Anwar’s 1998 Budget speech
"I propose that RM64.124 billion be allocated for 1998. This amount represents an increase of 1.9 per cent over the 1997 allocation. Out of this total, RM45.633 billion is for operating expenditure and RM18.491 billion for development expenditure.
"With revenue estimated to be at RM68.058 billion, the Federal Government Accounts will show a surplus of RM3.934 billion. If we take into account the loan repayments and transfers, the overall surplus will be RM8.951 billion or 3.2 per cent of GNP."
In his second 1998 Budget in early December, Anwar announced a 18 per cent cutback in Federal Government spending for this year, which would mean a cutback of at least RM11.6 billion from the 1998 budget of RM64.1 billion to RM52.5 billion.
If there is no drop in revenue, the RM11.6 billion cutback in Federal Government expenditures would be added to the RM8.951 billion surplus budgetted for this year.
However, if there is going to be a "small" budget deficit for this year despite the RM11.6 billion cutback, this would mean that revenue for this year would fall not only by RM11.6 billion arising from the cutback but also by the budgetted RM8.951 billion surplus - i.e. by at least over RM20 billion.
It would appear that both the Prime Minister and Deputy Prime Minister are now painting a more realistic picture of the economic crisis in Malaysia. In the middle of last month, when Anwar was in New York, he met and tried to assure American bankers, fund managers and insurers that "the worst is over for Malaysia’s economy and that the country is recovering".
This line was taken up by Deputy Finance Minister, Datuk Dr. Affifuddin Omar when he represented Malaysia at the annual general meeting of the Asian Development Bank in Geneva at the end of last month, declaring that the Malaysian economy had weathered the worst of the Asian financial crisis.
Both Anwar and Affifuddin however had not been able to convince American bankers, fund managers and insurers and there are in fact fears as to whether there is going to be a replay of the Asian financial turmoils and how prepared is Malaysia to meet such an eventuality.
The Government should take serious heed of the advice by the former Deputy Prime Minister, Tan Sri Musa Hitam in his public lecture entitled "Facing the New Millennium: Challenges and Opportunties" in Johore Bahru on Sunday stressing the need for the country as a whole "to accept the realities of the economic crisis, however bitter, and get on with the job of recovery with fresh input of ideas."
Among the realities, he said, was the fact that "our economy is really in a bad shape and could get worse" and that it could threaten national sovereignty and unity, political stablity and racial harmony if the country fails to recover soon.
Musa also called for greater credibility, accountability and transparency to build confidence among the business community which was for open and fair competitition.
He also spoke of the need for Malaysia to prepare herself for reforms and the abolishment of protectionist measures in banking, finance and trade areas.
It is most unfortunate that similar calls for wide-ranging political, economic and financial reforms by concerned Malaysians both inside and outside Parliament in the past eleven months of the economic crisis had fallen on deaf ears.
Some recent pronouncements by top government leaders have only reinforced concerns as to whether they are prepared to accept the "realities of the economic crisis, however bitter, and to get on with the job of recovery with fresh input of ideas".
Two recent instances suffice: Firstly, Mahathir’s recent interview with CNBC where he denied charges that Malaysia's economy had been weakened by widespread cronyism and nepotism and reiterated that Malaysia’s economic woes was completely the work of Western currency speculators and hedge fund operators and that therefore, there was no need for any internal changes or reforms.
The second instance is Mahathir’s speech in Cairo over the weekend where he said that Malaysia would rather lose her independence, live in poverty and rebuild our economy than to seek the help of the International Monetary Fund.
It is clear that eleven months into the worst economic crisis facing the country, the government has still a long way to go to accomplish its first task of confidence restoration, without which there could be no economic turnaround and recovery.
Anwar should present a half-yearly 1998 Budget report in Parliament for debate to prepare Malaysians for the hard and difficult times ahead, to make Malaysians fully aware that the economy is going to get worse before it could get better, and in particular, for the government to explain why the National Economic Action Council (NEAC) has failed to come out with a economic recovery strategy although it had been announced with such fanfare and high hopes six months ago.