(Kuala Lumpur, Thursday): On Thursday, 23rd July 1998, Special Functions Minister, Tun Daim Zainuddin, announced the the National Economic Recovery Plan (NERP) prepared by the National Economic Action Council (NEAC) as one which would "steer the country out of the current financial crisis and put it on the road to economic revival"
The next day, Friday, 24th July 1998, I said that the NERP had failed its first test in being unable to stimulate market confidence despite Daim’s upbeat release of the plan as seen in the the Kuala Lumpur Stock Exchange (KLSE) Composite Index ( CI) registering the lowest level throughout the year-long economic crisis at the end of trading the previous day.
At the close of trading on 24th July 1998, the KLSE Composite Index fell 1.54 per cent or 6.51 points as compared to the previous day, ending at 4.15.40 points. The lowest the KLSE CI had fallen during the year-long economic crisis was 421.31 points on July 13, even worse than the depth plumbed by KLSE CI on January 12, when it fell to 477.57 on January 12 - at around the time when the Prime Minister, Datuk Seri Dr. Mahathir Mohamad was talking about economic recovery between six to twelve months while the MCA President and Transport Minister, Datuk Seri Dr. Ling Liong Sik spoke of an economic recovery in three months, i.e. by April this year!
I had on that day posed the question whether the NEAC NERP could prevent the KLSE CI crashing through another psychological barrier to go below the 400-point level, considering the statements made by Daim last year when it was at the 800-point region that the KLSE CI was undervalued and advising Malaysians to go into the shares market to pick up bargains?
I had not expected my question to be answered in the following fifth
trading day of the Kuala Lumpur stock market, when on July 29,
the KLSE CI ended at the unbelievable level of 385.97 points, the lowest
in nine-and-a-half years.
The NERP is clearly facing a crisis of confidence when in all the 11 trading days since its publication, it had failed not only to have any stimulating effect on the markets whatsoever, but have seen the KLSE CI plunging from one depth to another, as yesterday ending at the even lower level of 380.29, and today’s disastrous fall to 374.82 at the end of trading (lowest reached during intraday trading being 373.38 points) - the lowest in a decade!
I do not think any plan for national economic recovery from a deep and prolonged economic crisis anywhere in the world has been received with such unfavourable market reactions, not only in the stock market but also in the money market, as the Malaysian ringgit continued to struggle in the band between 4.120 and 4.1650 against the US dollar during the end of trading in these 11 days..
In the past 11 days since the publication of NERP, the KLSE CI had lost 47.09 points from last Wednesday's 421.91 to 374.82 points today, a major setback of the NERP to win the battle of confidence-restoration.
From the high of 1271 level in 25 February 1997, the KLSE composite index plunged to 374.82 points today, with a loss of about 896.18 points or a walloping fall of 70.5 per cent! At its high in 1997, the market capitalisation (comprising the main board and the second board) was RM917 billion but sank to RM250.97 billion by 29th July 1998 - a devastating loss of 72.6 per cent. The latest figures would be even worse.
When releasing the NERP, Daim said the most urgent and critical need was to restore investor confidence in Malaysia’s macro-economic stability.
Such confidence cannot be restored by the release of a plan, entitled
"Agenda for Action" with the six-prong strategy of:
This is because all these six prongs had been the very same economic strategy of the government in the past year, and had been specifically declared and repeated by the Finance Minister, Datuk Seri Anwar Ibrahim, whether in his 1998 Budget presentation to Parliament on Oct. 17, or in his three Ministerial statements on new economic packages during the Parliamentary meetings of early December, March and recently on 13th July 1998.
How can their repetition by Daim restore market confidence when their repeated declaration by Anwar Ibrahim had failed to achieve that effect?
Daim rightly said that the most urgent and critical need was to restore confidence, which the government had dismally failed in the past 13 months.
Unfortunately, Daim and the NEAC have undermined confidence-restoration efforts by the contempt they have shown to Parliament and even the Finance Minister in the way the NEAC NERP was released outside Parliament.
The proper place for Daim to present the NEAC NERP report was in Parliament, especially as Parliament was debating the 1998 Supplementary Supply Bill on the same day as its publication, which should be the most important debate in Parliament on the national economic crisis in the past 13 months, even more important than the parliamentary debate on the 1998 budget in October-December 1997 as the Malaysian economy had worsened with no light at the end of the tunnel.
Can the government give a satisfactory explanation as to why the NERP was not tabled in Parliament for approval and adoption, when successivd Five-Year Plans and Outline Perspective Plans had been presented in Parliament for debate and approval?
Even now,MPs have not received a copy of the NERP when the report was released about two weeks ago, not only to study it but to fully understand the context in which several major government bills have been introduced in the recent Parliamentary meeting directly arising from the recommendations of the NERP, whether the 1998 supplementary budget, the Pengurusan Danaharta Nasional Bhd Bill to establish the Asset Management Corporation (AMC) or the the Development Funds Amendment Bill 1998.
Is this the way to go about the "most urgent and critical need to restore
investor confidence in Malaysia’s macro-economic stability"?
Daim should realise that the NEAC must not bypass or belittle Parliament by treating MPs, whether Barisan Nasional or Opposition with contempt as this is counter-productive to the second prong of the NERP strategy to restore market confidence.
I am very surprised that apart from DAP MPs, no Barisan Nasional MP has protested that the NERP had not been tabled in Parliament and that after two weeks, MPs have not been given copies of the NERP - another illustration that having the Dewan Rakyat packed with five-sixth of Barisan Nasional MPs is not necessarily a good thing for the country.
From the parliamentary debate on the 1998 Supplementary Supply Bill,
it is clear that not only ordinary Malaysians and MPs generally know very
little about the NEAC, even Ministers and Deputy Ministers are quite in
the dark about the operations of the NEAC.
During the debate on 23rd July, I had lamented the lack of accountability and transparency in the NEAC’s establishment and operations.
As an example, I said that although the NEAC had been established for more than six months, nobody knows the full membership of the NEAC Executive Council.
When I asked whether any Minister or Deputy Minister in the House could stand up to enlighten Parliament as to the full constitution of the NEAC Executive Council, there was silence, until the Deputy Human Resources Minister, Datuk Abdul Kadir bin Haji Sheikh Fadzir stood up to say that the composition of the NEAC Executive Council was generally known by the people as it had been repeatedly announced in the mass media.
I challenged this statement and asked Abdul Kadir to name the members of the NEAC Executive Council. He was unable to do so, claiming that he had forgotten about it, and that they comprised professional people.
I corrected him, pointing out that the professional people he referred to are serving on the NEAC working committees and not the NEAC Executive Council.
In the event, history was made in Parliament yesterday when the Opposition had to inform the government front-bench about the composition of the NEAC Executive Council.
I told Abdul Kadir as well as the Ministers, Deputy Ministers, Parliamentary Secretaries and the Barisan Nasional MPs that the NEAC Executive Council comprised of five members, namely Prime Minister and the Deputy Prime Minister as Chairman and Deputy Chairman respectively and Tun Daim Zainuddin as the executive director. There are two other members appointed by the Prime Minister. I told Parliament that the Chairman of the Institute of Strategic and International Studies (ISIS), Tan Sri Noordin Sopie is the fourth member of the NEAC Executive Council but nobody knows who is the fifth member!
Four days later on the following Monday, the Parliamentary Secretary to the Ministry of Finance, Datuk Dr. Shafie Mohd. Salleh disclosed the mysterious fifth NEAC Executive Council member during his winding up on the Bill - namely Encik Oh Siew Nam, a Bank Negara director.
I am still mystified why there is such secrecy in the identity of the fifth member of the NEAC Executive Council, requiring constant probing in Parliament to force an answer.
May be this is related to the politics of the appoint, as I understand that the MCA President and Transport Minister, Datuk Seri Dr. Ling Liong Sik had wanted to the fifth member of the NEAC Executive Council, but other Cabinet Ministers who are also leaders of component parties of the Barisan Nasional, particularly the Gerakan President and Primary Industries Minister, Datuk Seri Dr. Lim Keng Yaik and the Works Minister and MIC President, Datuk Seri Samy Vellu, would feel very offended if Liong Sik is included but they are left out.
The NERP suffered its most serious setback when the government had to shelve plans for an international roadshow aimed at raising US$2 billion (RM8.4 billion) from bonds. The separate overseas trips by the Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim and the Special Functions Minister, Tun Daim Zainuddin, were postponed following a sovereign ratings cut by credit-rating agencies Moody's and Standard & Poor's at the same time as the release of the NERP.
Although Daim admitted that the most urgent and critical need was to restore confidence, government had dismally failed in this task in the past one year.
This is also clearly acknowledged by the NERP, stating in its opening
The NERP had hit the nail on the head, but it is a national tragedy of epic proportions that the government should have made such a discovery 13 months after the worst economic crisis in the nation’s history, when DAP Members of Parliament, analysts and economists had been making this very point in the past one year!
Surely, we do not need a NEAC only to realise that "The central issue was the problem of confidence rather than macroeconomic fundamentals", that "the persistence of the currency crisis has been prolonged by the weakening of confidence" and that "restoring market confidence is an important step to stabilise and strengthen the ringgit"!
The NERP said some of the fundamental issues that have affected market confidence include the perception that there is a lack of corporate transparency and inconsistent announcements that have given rise to uncertainty and confusion.
The manner and implications of the release of the NERP is the latest and most serious example of such inconsistency and even contradiction at the highest levels of economic and financial decision-making, reinforcing the public perception that there are two Finance Ministers in the country.
Among the "confidence-building measures" recommended by the NERP under
the heading "Improve transparency and the regulatory environment" are:
Can the NEAC’s call to "continue with the campaign against corruption" carry any credibility when the Prime Minister, Datuk Seri Dr. Mahathir Mohamad openly denied that there is any problem of KKN - corruption, cryonism and nepotism - in Malaysia, accusing political leaders both within the Barisan Nasional and in the opposition for being "agents of foreign powers" in raising their concerns about KKN, and when Tun Daim Zainuddin has still to give a clear-cut answer to my demand that he must divest himself of all business interests and involvements before he could take up his Ministerial appointment as he would otherwise be engaged in a serious conflict of interest?
I am surprised that the NERP had not referred to the latest World Economic Forum (WEF) annual global competitiveness rankings for this year, where out of 53 countries Malaysia was placed 17th down eight rungs.
When in previous years, Malaysia was given high rankings, as placed in the ninth place last year, government leaders would always refer to the WEF global competitiveness rankings inside and outside Parliament to show how well Malaysia is regarded internationally. But when Malaysia fell eight rungs in this year’s WEF global competiveness rankings, there is only silence from the government.
For the record, in its rankings released in early June, Singapore has once again been ranked the world’s most competitive economy by the WEF despite the impact of Asia’s financial crisis.
Indonesia was placed 31st, down 16 places, Thailand was 17th, down three places, while South Korea was ranked 19th and Taiwan came in sixth - both up two rungs. China was placed 28th, up a notch.
In proposing greater public and corporate governance and enhancement of transparency and accountability, as "more frequent release of economic data to allow analyses and to increase transparency", NERP pointed out that in the United Kingdom, the minutes of the Bank of England board meetings are released to the public, while the US Treasury releases economic data at a regular and timely manner.
I fully support this proposal by the NEAC in the NERP but is the NEAC really being serious that there should be "more frequent release of economic data" and greater accountability and transparency, for if so, the first thing that should be done is to repeal the Official Secrets Act and replace it with an Freedom of Information Act!
Inside and outside Parliament in the past week, I had been querying as to why the government is so slow in releasing data on the second quarterly performance of the Malaysian economy.
Other countries have already reported on the second quarterly performance of their economies from April to June. Singapore for instance, on 28th July 1998, announced that its economy grew just 3.8 per cent in the first six months and seems headed for a recession in the current second half.
Singapore's growth momentum has slowed significantly, with all sectors -- apart from construction -- affected by the downturn.
During the first quarter, the Malaysian economy contracted by 1.8 per cent and Malaysians are eager to know the gravity of the GDP contraction in the second quarter of the year.
Why hasn’t the Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim released the Second Quarterly data in order to restore confidence, as the NERP had warned that the Malaysian GDP could contract more than the projected -1% to -2% if there is "continuing lack of confidence".
The economic prospects for 1998 in a scenario of projected -1% to -2% GDP contraction is already very grim and bleak. Would the data from the economy Second Quarter’s performance be supportive of the government’s projections of -1% to -2% GDP contraction or reinforce the more pessimistic forecasts of economists and analysts that Malaysia’s GDP contraction for this year could be as serious as -4% to -5%?
Or is it because Anwar has even lost the power to decide when and how to release the data and statistics of the Malaysian economy in the Second Quarter?
The present economic crisis has raised concerns on the vulnerability of Malaysia’s financial sector. The Government has taken several measures to strengthen and instil confidence in Malaysia’s financial sector such as Government guarantee of deposits, and mergers and consolidation in the financial sector.
Despite these measures, which includes the creation of the AMC, even the NERP has admitted that "there is general uncertainty over the soundness of the banking system".
The first question that comes to mind is where the government is going to find the money for the NERP’s RM60 billion proposals to kick-start the economy, including RM25 billion for Asset Management Corporation (AMC) and RM16 billion for the recapitalisation of banks.
Despite reminders in the NERP, the government does not seem to realise that confused signals and inconsistency on macro-economic policy is highly inimical to confidence-restoration. The NERP, for instance, proposed that the government should issue RM20 billion worth of long-term bonds to the Employees Provident Fund, Petronas and the Insurance Companies, but last Thursday, the Finance Minister said that the government is not expecting EPF to take up part of the proposed RM20 billion bonds to help speed up economic recovery
While I welcome Anwar’s statement, I would call on the Special Functions Minister, Tun Daim Zainuddin to publicly endorse this position, as this is not only contrary to the NERP recommendation - public perception is that it is Daim who carries greater weight in government economic and financial decision-making today.
Both Anwar and Daim should be sensitive to the worries and concerns of the nine million EPF contributors about the safety and security of the RM160 billion EPF funds, which increases monthly by RM1.2 billion.
At a time when the country is faced with a crisis of liquidity of funds, the cash-rich EPF with its vast funds will be an attractive target to those who are looking for sources of funding to bail out troubled companies with political connections.
The nine million EPF contributors are entitled to a clear answer whether they are required to subscribe to a substantial part of the RM20 billion government bonds to help speed up the economic recovery.
Recently, EPF granted a 16-year term loan facility of RM1.56 billion to the new Kuala Lumpur International Airport Bhd. (KLIAB) at 8.75 per cent interest per annum, which is well below the current money market rates. The questionable loans, including the billion ringgit loans to Perwaja Trengganu Sdn. Bhd. and even to Khazanah National Bhd., and its involvement in controversial mega-projects like the suspended Bakun hydroelectric dam project, raises serious questions about the propriety of present EPF investment policies, whether with in the shares market which amounted to RM25 billion last year or in loans which amounted to RM33 billion last year.
Recently, the Prime Minister, Datuk Seri Dr. Mahathir Mohamad gave a
long interview to the Far Eastern Economic Review, where he was was
asked about mega-projects, and the questions and answers are as follows:
A: It is good for the ego.
Q: Why is that important?
A: It is important because small people always like to appear tall. If you can’t get tall enough you put a box under you.
I am aghast with Mahathir’s answers to justify mega-projects and the nine million EPF contributors are entitled to demand that not a single sen of their monies in the EPFshould be used in any mega-project just to satisfy the ego of any one person, however important he might be, or in any form of bail-out through investments in equities.
The nine million EPF contributors are rightly concerned about the quality and safety of their savings in the EPF. It is public knowledge that EPF has acquired shares of a lot of companies, whether UEM, Renong, MRCB or Kentucky Fried Chicken (KFC). EPF contributors do not want to be told when they reach 55 years that EPF does not have the liquidity to give them their savings are instead given KFC coupons.
For this reason, I would call on the government and the EPF to seriously consider allowing the EPF members to withdraw up to 10 per cent of their savings in the EPF to help them to face the hardships in the present protracted economic crisis. Instead of using EPF monies to bail out troubled companies with political connections, EPF members must have first priority to be able to depend on their EPF savings to help them out of their financial and economic problems in the economic crisis.