(Penang, Saturday): The worst fears about the Malaysian economic crisis has now been proved right and all the talk in January about economic recovery in six months by the Prime Minister, Datuk Seri Dr. Mahathir Mohamad and even more shocking, about economic recovery in three months by the MCA President and Transport Minister, Datuk Seri Dr. Ling Liong Sik, have proved to be mere pipe-dream.
On 11th May, I had issued a statement asking the government to state its stand on the Asian Development Bank’s recent forecast that the Asian economic crisis was likely to be much deeper and drawn-out than generally expected as its latest annual report had warned that "while the brunt of adjustment is likely to be felt in 1998 -- some economies will actually contract -- it may be several years before normal growth patterns reappear".
The Institute of International Finance (IIF), a global association of financial institutions with over 280 members based in Zurich, Switzerland, had come out with even more sobering forecasts. Contrasting with claims by the International Monetary Fund that the worst of the Asian crisis might be over, IIF research director Gregory Fager had suggested that a chain reaction of adverse economic events was only just beginning to unfold in the region.
The IIF (whose forecasts have often been more bearish but proved more realistic than those of official bodies) warned of a real GDP contraction of 2 per cent for Malaysia this year.
There was silence from the government to my query.
Two weeks later, I referred to the avalanche of bad news and adverse reports about the Malaysian economy such as the forecast of United Kingdom research house, Independent Strategy, that Malaysia’s economy this year would contract by 1.4 per cent in contrast to the government’s latest forecast of 2 to 3 per cent growth this year and the forecasts of private economists that Malaysia's Q1 growth will come in at between minus one per cent and plus 2 per cent.
These pessimistic forecasts about Malaysia’s economic performance were in sharp contrast to the rosy picture presented by the Government. Now it is established that the true position was even worse than these pessimistic forecasts.
Bank Negara today announced that 1st quarter 1998 GDP is -1.8%, the first decline in 13 years. Dr Zeti Akhtar Aziz of Bank Negara said she is not optimistic about significant growth in the 2nd quarter. Two successive quarters of negative GDP growth would indicate a very strong possibility of the start of a recession.
Bank Negara also said that non-performing loans (NPLs) rose to 10.6% in April from 6.7% in December 1997. In absolute terms, NPLs increased from RM28.3 billion in December 1997 to RM44.3 billion in April.
With these bad news, I fear for the Kuala Lumpur Stock Exchange when it opens Monday and I hope that it would not register a new low in the 11-month economic crisis in the coming week, which was 477.57 point for the KLSE Composite Index on 12th January, 1998.
There should be an emergency meeting of Parliament to debate the latest batch of bad economic news, in particular the -1.8 per cent economic growth in the first quarter 1998.
The time has also come for the highly-touted National Economic Action Council (NEAC) to justify its existence. When the Prime Minister, Datuk Seri Dr. Mahathir Mohamad first announced the setting up of NEAC, it was presented as a high-powered emergency saviour for Malaysia which will tide the country through the worst economic crisis in the nation’s history.
However, instead of being the "saviour" of the Malaysian economy, the Malaysian economy has threatened to go into a recession. Even worse, the NEAC had never prepared Malaysians to face the horrendous prospect of a GDP contraction of -1.8 per cent in the first quarter of 1998.
Three days ago, the Economic Adviser to the Government and NEAC executive director, Tun Daim Zainuddin said the NEAC was finalising its National Economic Recovery Plan (NERP) which will outline measures and strategies to boost the economy, which would be made public once the government has given its approval.
This is most shocking. In early January, the Prime Minister, Datuk Seri Dr. Mahathir Mohamad, told the whole nation that there would be economic recovery from six months to a year.
Malaysians presumed that Mahathir had such confidence because the NEAC must have some magic formula under the leadership of Daim Zainuddin to effect an economic turnaround and recovery.
The NEAC should justify its formation and existence - why it had failed to effect economic recovery or even to finalise a national recovery action plan to restore confidence, or even to prepare Malaysians for the prospect of an GDP contraction of 1.8 per cent in the first quarter 1998.