Monday, November 24, 2008

Economic Disarray

Just in a couple of months Malaysian economic outlook fluctuate erratically. In the middle of the year the Malaysian government panicked due to higher crude oil price, suddenly hike the fuel prices, petrol up more than 40%, while diesel only a few cents cheaper than petrol.

Pity that our current Prime Minister has no economic background nor his initiative to consult the professional economists. The DPM had not practised his knowledge in economy for a long-long time, since his last short stint when he was a deputy minister in MOF, he has been too long in Education and Defense Ministry. As a whole the cabinet made the worst decision in the history of Malaysia by endorsing the fuel hike on June 5, 2008.

It is the worst decision which compel the Consumer Price Index (CPI) or Inflation to shoot to the ceiling to 7.7% in June, 8.5% in July and August and 8.2% in September.

All transport costs shoots to the ceiling with 30% extra surcharges for buses and all food items increase higher and higher.

It was also a bad timing, as the region were facing food produce shortages, rice producing Indo-china were hit by flood, eartquake in China etc.

To appease the angry public, the government had to introduce cash rebates on road taxes and several other incentives were introduce for several category of users. In the first place the move can be avoided if the government had been very prudent and sensible in their decision process.

Now the price of petrol in Malaysia is almost back to where they once were before June because the crude oil price climbed down significantly since then and much lower than it was a year or so ago. The fifth reduction since August.

The main issue all other prices will never come down again. Shahrir had to convince or more probably made a pact with the giant Hypermarkets to reduce their prices. Good for consumers but on the other hand this move will kill the smaller retailers or "kedai runcit".

The recent price reduction for rice were mainly due to the restoration of supply not due to the government effort.

A couple of weeks ago they announced to cut employees contribution to EPF, the effort is not really to help employees during economic strain but mainly to ensure domestic consumption level remain high and by end of the year, the government will report a good GDP/economic statistic. This is another short term measure. The loser - by the time the employee reached their retirement age the savings will not be sufficient.

Another stupid move was to introduce 10% toll discount between 12midnight till 7 am for passenger cars, it seems the government is encouraging the public to drive during the wee hours. Ironically these are the most dangerous time for passenger cars; heavy vehcles and time to sleep.

Just like any other countries our government had to introduce RM7bil stimulus package to spur the economy. Where will the money come from and how the government is to channel them?

Why don't the government be more cool, prudent and sensible like Bank Negara with their monetary policy especially overnight policy rate?

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