Wednesday, March 11, 2009

Highlights of RM 60 billion Plan

RM60bil for stimulus package - Tuesday March 10, 2009
Some very interesting plans under the RM 60 billion stimulus package:

In addition, as a joint effort between the Government and the private sector, the Government will assist in the auto-scrapping scheme for PROTON and PERODUA. Under the scheme, a discount of RM5,000 will be given to car owners, who trade in their cars, which are at least 10 years old, for the purchase of new PROTON or PERODUA cars. The Government will finance part of the discount borne by PROTON or PERODUA. This scheme is intended to stimulate car sales, as well as reduce carbon emission.

The aviation industry has expanded rapidly with total passenger traffic increasing by 5% to 47.4 million passengers in 2008. The number of passengers using low cost airlines has also increased to 18.5 million. Given the Low Cost Carrier Terminal (LCCT) in Sepang has limited capacity to handle more passengers, Malaysia Airports Holdings Berhad will build and operate a new LCCT at Kuala Lumpur International Airport (KLIA) at an estimated cost of RM2 billion, which is expected to be ready in 2011.

Projects to improve telecommunication infrastructure, including broadband libraries, Broadband Community Centres as well as the provision of basic telephony services in 89 districts in rural areas at a cost of RM2.4 billion by the Malaysian Communications and Multimedia Commission; and Construction of sky bridges and covered walkways between buildings, especially in the Golden Triangle, Kuala Lumpur at a cost of RM100 million.


I have to say people should not attack Najib Tun Razak if they are not happy with the budget. I believe the stimulus package was formulated by Economists in the Economic Planning Unit and consultations was done with several independent experts.

Perhaps Najib gave some "guidance", I don't know.

Anyway, I agree with Jeff Ooi on certain matters. He wrote a blog entry HERE.

I am unsure about this RM 25 bil in Guarantee Funds. What is this? I hope it doesn't mean that these are to guarantee the deposits in all financial institutions.

If it is, I do not see why we should have that unless of course Malaysia's financial institutions will hit the wall soon.

This is something worth clarifying with Najib.

Nevertheless, the next time you go to a CIMB Group (US$ 7 billion) branch, feel proud that it is now worth more than Citigroup (US$ 5.7 billion) - on 7th March 2009. Read more HERE.

I think Citi's value has increased due to a rally recently. Ceteris paribus, assuming rallies are distortive, one can claim CIMB is stronger than Citigroup.

The plans highlighted above are interesting. Proton suffered under Abdullah Badawi. Now, I hope Najib can revive Proton and continue the financial solidarity of our national carmaker.

GM sells millions of cars every year, yet they bleed and lose money. The 3 largest American automotives sent their CEOs in private jets to Washington to ask for multi billion dollar bailout.

Perhaps, some should read also about the headache in Ssangyong Group (Korea).

So, there is no point arguing that Proton is protected when others are protecting their car industry too.


hishamh said...

"I am unsure about this RM 25 bil in Guarantee Funds. What is this? I hope it doesn't mean that these are to guarantee the deposits in all financial institutions."

These will be loan guarantees, which can be used as collateral for borrowing by the private sector. Somewhat similar to what CGC is doing:

Essentially, this will help companies (particularly SMEs) gain access to loans.

In case you missed it, BNM has already issued a blanket guarantee on all deposits in the banking system until December 2010:

Wei Liang Goh said...

I didn't miss the blanket guarantee on all deposits.

However, if that RM 25 bil in Guarantee Funds is to guarantee loans and deposits, I do not see how this can be part of a stimulus package at the moment.

We might not even touch any of this RM 25 bil money if all goes well.

The stimulus package and injection into the economy should perhaps be read as RM 35 billion only.

hishamh said...

I'm inclined to include it, as it forms a contingent liability for the government which may need to be funded and obviously requires parliamentary approval. Secondly, it enables lending of loans that banks might not consider without the government guarantee, which indirectly gets money flowing in the economy.

I don't remember what CGC's default rates were (they're very low), but a 5% default rate would put the funding requirement at about RM1.25 billion or so, although this would be spread across a few years.

Good blog you have here BTW.

Wei Liang Goh said...

Hm. Now I see the point Hisham.

Good explanation there. Are you by any chance an Economist?

hishamh said...

I don't think I merit a capital E, but yes I am. BTW, Singapore apparently includes loan guarantees as part of their fiscal stimulus package, so I think we're in good company.

Have a look at my blog and tell me what you think.

Wei Liang Goh said...

Haha. You surely merit a capital E.

I am pursuing my postgraduate at this moment in Economics and have interests to serve in EPU next year after completing my studies.

Yes I know about Singapore's stimulus package.

In fact, I would say Malaysia's stimulus package mirrors that of Singapore up to a certain degree.

I actually checked your blog earlier on when you started commenting here.

Very interesting and pure economic thoughts.

hishamh said...

Any particular specialization you are doing at Masters level? The feeling I get in Malaysian academia and government is that we have a lot of good development economists, but not many econometrics specialists. Macro is well represented at MIER, ISIS and BNM, but not so well in universities.

Wei Liang Goh said...

Not particular specialization yet. However, I am more focused in macroeconomics.

Not too good in econometrics.

Hmm. I believe BNM has sufficient econometricians.

At times I feel, Malaysian universities are producing too many graduates in Economics.

There is a need to ensure quality, not quantity.

hishamh said...

If it's not too impertinent to give some advice - you need a good grounding in econometrics to be effective as a macroeconomist. There's too much reliance on theory in the Malaysian public discourse.

Take for instance the current global debate on fiscal multipliers. I wanted to try and model multipliers for Malaysia, but so far haven't found a single academic reference as they relate to Malaysia. How can you evaluate different policy choices without empirical evidence? How effective are tax cuts going to be relative to rebates, or direct stimulus? What is the impact of different funding strategies? All these questions rely on macro modelling for (imperfect) answers.

If you're thinking of a career in EPU, I think getting into econometrics might be a good differentiator.

Monash has a publicly available CGE demo model for anyone to play with here.

I agree with your remark on quality versus quantity, but then I think the level of education at undergraduate level is far below graduate level.

Wei Liang Goh said...

Thank you for the advice. I actually have Econometrics background in an Undergraduate course.

Currently I am pursuing further Econometrics studies in my Masters.

I share your views on academic references in Malaysia.

I do not know what the Professors of Economics in Malaysian universities are focusing on.

I find that we have a very low pool of academic paper. Perhaps they didn't publish the papers online, which they should.

I was googling for academic paper on stimulus packages and the effects of certain policies. Sadly, I couldn't find any.

Thanks for the Monash model. Quite interesting.

Genuine Tax Analyst said...

Mr Goh,

Just to give some info....
That stimulus package was formulated by Economists in the Ministry of Finance in particular, not in EPU. EPU focuses more on the long term of economic planning for the country (5 years ++). Any economic plans or yearly budgets will be done by Economists in MOF. We have quite a number of Economists (Economics PhD holders) in MOF and in EPU as well.