Now's the time for big measures

Country is still in good shape but storm clouds are gathering

KUALA LUMPUR, Oct 13 — Given last week's tumultuous events, many Malaysians might be forgiven for thinking that the end of the world is nigh.

The Kuala Lumpur stock exchange has reverted to 2005 lows while the ringgit dropped back to almost 3.55 to the greenback from its high of 3.13 earlier in the year.

But Malaysians are in good company. Every other Asian stock exchange is haemorrhaging and almost all currencies have plunged against the greenback.

The good news is that authorities in the Western world seem to have finally realised the need for co-coordinated action. The piecemeal stuff hardly works and it is good that Group of Seven developed countries have pledged to work together.

Let's hope that investors listen because the really bad news will come when people no longer trust governments and things become every man for himself. Then, everyone will sink together.

Having said that, Malaysia is still in reasonably good shape. Having gone through the biting Asian financial crisis, the banks are adequately well capitalised and most companies have deleveraged, having learnt the
lessons of debt in troubled times.

Indeed, the country has racked up huge current account surpluses since 1998, indicating that it is still in a healthy net savings position. In fact, being over-regulated has its blessings and ignorance could seriously be bliss.

Malaysian investment banks never really went into derivatives because the central bank never condoned it and the Employees Provident Fund, the country's largest private pension plan, could not really invest abroad because the government, wisely on hindsight, put a cap on the amount that it could.

There will be slowdowns, there will be deferred investments but there will also be opportunity from these events.

Recently Dialog, an oil and gas services company that is short of skilled labour, got an intriguing offer from a huge Japanese oil company that had just had a massive refinery project in the Middle East postponed.

The firm circulated its 600-strong list of talent that it had hired for the project among Malaysian oil and gas companies, including Dialog, asking that they hire as many people from the list as it liked on half-pay while it would top up the rest.

Clearly, the Japanese firm did not want to lose its staff because it knew that it would be back in the Middle East once the storm clouds lifted.

The problem for Malaysia will be falling global oil and commodity prices that could hurt the government's revenue. The national oil company now contributes almost 40 per cent of the Treasury's revenue stream and the budget deficit is already standing at 4.8 per cent of gross domestic product.

But falling oil prices cuts both ways as it will also reduce the amount of money that the government needs to subsidise on pump prices. Indeed, the subsidies were what led to the rise in the deficit in the first place.

Even so, it appears likely that the deficit will rise if the government fully intends to implement all the projects that it promised it would. The solution is obvious. Like the deferred Middle Eastern refinery, many of these projects should be delayed.

Why have five economic "corridors", for example? Kuala Lumpur should just stick to the one that has the best chance of success — the Iskandar Development Region in Southern Johor.

It also may be a good time to consider liberalising the New Economic Policy, several of whose elements foreign investors find distasteful.

In 1986, when Malaysia was slipping into a serious recession, then Prime Minister Tun Dr Mahathir Mohamad declared the policy to be "in abeyance" where foreign investment in manufacturing was concerned. It led to a sustained 10-year boom.

Now is the time to take even more sweeping measures. — Business Times Singapore