Saturday, June 18, 2005


Minister in the Prime Minister’s Department DATUK MUSTAPA MOHAMAD
explains the economic situation.

IN THE first half of this year, a number of economic indicators had been released by the Government, which included our first quarter GDP, trade figures and industrial production index (IPI) for April. Many of these figures were collected by, among others, the Department of Statistics (DOS), the Finance Ministry and Bank Negara.

There are some who see these figures as just numbers; they don’t trust them. They are questioning the credibility of the department – and by extension, the Government. I would like to assure them that the Government does not simply dish out figures and numbers. We don’t create data and statistics out of thin air.

Our Government would certainly not want to jeopardise its credibility or run the risk of local and foreign investors losing confidence in the country because we publish wrong or “doctored” figures. We do not insult the intelligence of others. It is not our business, nor is it in our interest, to lie with figures. These figures – be they trade, reserves or inflation – are real and accurate.

As a Minister and an MP, I meet people from all walks of life. Questions I often hear are: “Is our economy really doing well?” “If indeed our economy is growing, where is the growth?” “How come you say we achieve 5%-6% growth but I don’t feel any impact from it?”

Even though the first quarter GDP for 2005 shows a 5.7% growth, some sections of our society say they do not feel it. I would like to take this opportunity to explain the real economic situation our country is in, and address some of the main issues raised by businessmen, politicians and the rakyat at large.

First, the issue of economic growth. Yes, our country used to enjoy phenomenal growth. For a whole decade prior to the financial crisis (1997-98), Malaysia recorded average annual growth of 9%-10%. Throughout that period, growth was evident: people had more cash, consumption was high, restaurants were full, there were new projects everywhere. Those were the good ol’ days. It is true that since the crisis of 1997-98, things are different.

Growth numbers in the last few years are nowhere compared to the pre-crisis years. The economic environment is more challenging today than 10-15 years ago. The situation is not the same now.

But our economy is still growing. Palm oil and rubber smallholders, for example, are happy with the current price levels for these two commodities. Today, the prices for these two commodities are almost double those recorded two or three years ago.

Likewise, exporters and manufacturers are also doing well. Those in semi-conductors are also doing fine. Government servants continue to enjoy their salaries and increments. The Government has not retrenched any of its employees.

Of course, some are not doing too well. Three sectors with the loudest complaints are the contractors, graduates and stock market investors.

During the good times, the building industry used to register growth of up to 14% per annum between 1990 and 1997. But that was then. We had to build new infrastructure: KLIA, Twin Towers, the highways and the ports. Today, we don’t need another international airport or another Twin Towers.

At present, the industry is contracting. The Government is trying to help contractors, but we must understand that it has its limitations, too. The Government has to consolidate its budget. Our deficit last year was 4.3% of GDP. We are committed to controlling the deficit. If we continue to pump-prime the economy, our debt burden will increase and our credit rating will be affected.

The Government is aware of the situation and has responded. The Prime Minister recently announced that 29 projects from the 9th Malaysia Plan, amounting to RM2.4bil, will now be brought forward. These projects will be divided into smaller packages to benefit more contractors.

This is in addition to the some RM28.3bil left for 2005 under the current 8th Plan. A further RM2.5bil will be spent to upgrade police stations and quarters under the build-lease-transfer concept. Together with RM2.4bil brought forward, this will boost the local construction sector.

As for jobless tertiary students, they constitute about 20% of the total unemployed in Malaysia. The reality of the matter is that we produce about 150,000 graduates each year. It is impossible for the Government or the private sector to absorb all although every effort is being made to ensure that they will be gainfully employed.

They need to change their mindset. They should consider self-employment and entrepreneurship. As it is, the Government has recently allocated RM100mil to finance a programme to increase their marketability.

Likewise, investors in the stock market. The investing public wants to see the share market go up all the time. Recently, there are allegations that there is manipulation in the stock market. This is being addressed by the relevant authorities, which will have to come down hard on the manipulators so that there will not be a repeat.

On the whole, the Malaysian economy has developed a strong degree of resilience. The fact that our economy grew by a higher than expected 5.7% in the first three months of 2005 has put our country back on track to be one of Asia’s best performers this year.

Our economic fundamentals are strong. Exports are high, so are rubber and palm oil prices. We have a strong banking sector, low interest rate, moderate inflation and low unemployment at 3.5%.

Per capita GDP has increased by 5% a year between 2000 and 2004. Private investment has recovered strongly while private consumption grew by 10.5% in 2004. And we are seeing robust growth in exports.

Significantly, we continue to enjoy a big trade surplus for the first four months of this year, with April being the 90th consecutive month of trade surplus since November 1997.

Despite the low interest rates, higher oil prices have made inflation creep up a little at 2.4% in the first quarter of 2005 and 2.7% in April. Now with the reduction of diesel fuel subsidies, inflation can be expected to inch up a little more. But what is important is that our inflation rate is one of the lowest in the world.

In conclusion, I would like to assure everyone that our economy is still strong, resilient and healthy. I can assure you that the numbers are correct.

The Star, Tuesday 14 Jun 2005

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