Despair up as crisis ripples through economy

The bigger picture for some economists and analysts is that Malaysia's economic despair could further stoke disenchantment with the ruling Barisan Nasional government, which suffered its worst election setback in March last year.

The Straits Times

Even as new Prime Minister Datuk Seri Najib Razak announces the formation of his new Cabinet, he must also worry about the weakened state of the economy, which has been hit by the global crisis. The Straits Times looks at the issues, including its fallout on the two major economic sectors: manufacturing and commodities.

Sipping black coffee at a noodle stall along Penang's famous clan jetties, Ooi Hock Tik laments how jobs are becoming scarce on the island, which has long been Malaysia's most established hub for multinational manufacturing companies.

“Even before the crisis struck, jobs for our children were going to foreign workers ready to accept cheap wages. Now, the islanders and foreigners are fighting for the same jobs,” says the 58-year-old former tugboat operator. He has lived on this collection of villages built on stilts within the city limits for the past five decades.

Penang, like the rest of Malaysia, has been hit hard by the global recession.

Job losses are common and retail operators — including joss-stick sellers and fresh-noodle makers — dotting the maze of narrow streets in the island's capital of Georgetown complain of sharp drops in business.

The economic despair is not going away any time soon and stretches beyond Penang to the rural towns of Peninsular Malaysia.

Mohd Noh Baki, who owns a 4ha oil palm plantation on the fringes of the increasingly quiet Kuala Lumpur International Airport, says plunging commodity prices have forced smallholders like himself to supplement their incomes by planting other crops like yam and sweet potatoes.

“It is too difficult for us village folk to bear,” says the 64-year-old farmer.

Najib has unveiled a RM60 billion stimulus package to inject vigour into an economy that many private economists say will slip into a recession this year.

A large chunk of the stimulus package is in the form of subsidies and government guarantees, and just over RM20 billion will flow directly into the economy.

“The contraction that Malaysia will face this year won't be as severe as Singapore's as a result of the stimulus package,” says Manu Bhaskaran, the senior partner of global consultancy firm Centennial Group, who has tracked regional economies for more than two decades.

But like many other private analysts, Bhaskaran says that Najib's first policy initiative is bereft of any clues about how the country's planners intend to tackle the serious structural issues that plague its export-dependent economy.

Even before the crisis, private economists have argued that Malaysia was fast losing its competitive edge in the battle to attract foreign portfolio capital and direct investments, both key components of its economic development.

Once a key rival of Singapore's, Malaysia has over the past decade dropped several notches on the list of the region's top destinations for foreign capital.

One reason is the rise of other investment centres, such as Indonesia, Thailand and Vietnam, which offer investors cheaper labour and a bigger domestic market.

Economists also say that the government has failed to remodel the economy.

“You can't move up the value chain by clinging on to a weak currency and cheap imported labour. It is not sustainable in the long term,” says Bhaskaran.

But for workers such as technician Lee Li Lin, who had her pay cut recently, the long term is the furthest thing on her mind right now.

Her employer, a large electronics manufacturer in Penang, implemented a four-day work week last December. The cost-cutting move slashed Lee's pay by RM200 each month to RM1,500.

More than half of the money goes towards car loan repayments and her home mortgage. Together with the RM2,000 that her repairman husband takes home, she says their situation is “still okay”. But she fears she may lose her job.

“It's last-in, first-out at the company — and I've been there less than a year,” says the mother of a four-year-old girl who has just started pre-school classes.

“We try to cut back on our expenses and buy only what we need,” she says. “But the most important thing is that my salary doesn't go down any more.”

But some bosses say pay cuts and layoffs appear inevitable.

Rameli Musa, who owns auto-component manufacturing concern Ingress, which has factories in Malaysia, Indonesia and Thailand, says that difficulty in raising new financing makes it tough for companies like his to keep their employees.

“Banks are reluctant to lend and that is hurting our plans to put in place new equipment to handle orders,” he says.

Still, there are a few bright spots.

Zouk KL, one of the hottest nightspots in town, reopened after more than three months of renovation late last year and has seen the number of weekend clubbers double from 3,000 to 6,000.

“I believe that people always need something to look forward to. They need some relief even during these bad times,” Zouk KL's executive director Cher Ng said, while not discounting the possibility that the numbers may dip in future.

The bigger picture for some economists and analysts is that Malaysia's economic despair could further stoke disenchantment with the ruling Barisan Nasional government, which suffered its worst election setback in March last year.

Malaysians were relatively unscathed by the recession in the mid-1980s because their economy recovered swiftly on the back of a sharp rebound in foreign investment.

When the Asian financial crisis swept the region in the late 1990s, the people were again spared major economic hardship because of the government's decision to impose capital controls.

Many believe Malaysians may not be so lucky this time.

Says a chief executive of a large state-controlled commercial bank: “This crisis is going to be more severe and the tools available to the government are limited.”