The policy framework employed incrafting the Budget 2001 is likely to contribute to a looming crisis that may well be more devastating than the crisis of 1997, according to an opposition leader.

DAP chairman Lim Kit Siang said in his analysis on the Budget that was tabled by Finance Minister Daim Zainuddin last Friday that some proposals were not justifiable and haveinstead "mortgaged" the country's future.

"Daim's budget proposals taken as a whole have been dubbed the 'Peoples' Budget'. However, some critics have labelled the budget as a 'Contractor's Budget', yet others have described it as a 'spend and spend' budget."

Lim said that 9.6 percent growth in revenue projected for next year is in part linked to the gross domestic product (GDP) growth during the past year.

"The tax rebates offered to low income earners have only a marginal impact as the revenue foregone is small. So too is the case with various corporate tax rebates," said Lim.

Lim also stated that a significant reduction in the petroleum subsidy will contribute to slowing operating expenditure.

"Some parts of the savings have been rechannelled to social spending and for politically-correct expenditures."

Lim also questioned the allocation of RM25 billion to a whole range of projects - from double tracks to new airports. He said that even the allocations for the health, education and social sectors contain a large element of construction activity.

"These programmes represent a bonanza for BN-linked contractors and construction companies. It is pertinent to observe that many of these infrastructure projects will be awarded without open and competitive bidding, in ways that are not transparent," Lim said, adding that the point at issue here is whether the nation needs additional infrastructure.

"These are often not economically justifiable on the basis of cost-benefit analysis. In a sense, the nation's future is being mortgaged," said Lim.

'Undisclosed contingent liabilities'

The development budget will also make large transfers to various entities that are largely in the business of bailouts.

Lim said that the overall operations of the government are much larger that those accounted for by the budget.

"In addition to the operating and development budgets, there are any number of off-budget agencies such as Khazanah Holding, Employees Provident Fund (EPF), Danaharta and Tabung Haji, that are expending substantial resources."

It was also pointed out that the government has over the years extended guarantees to various operators of privatised projects.

"There are undisclosed contingent liabilities of the government best illustrated by the light rail transit systems, Indah Water and tolled roads. No provision appears to have been made in the budget. The overall deficit is thus likely to be much higher than indicated by the budget."

Lim stated that there was no indication of how the deficit will be accounted for and that in the budget speech, no mention was made on the financing off the various debts.

"The assumptions employed in arriving at the macro-economic framework are less than plausible. Even more disturbing is the fact that little has been done to make policy corrections without which the economy is likely to drift into a new crisis.

"Daim is 'gambling' that the private sector will resume the role of being the engine of growth, backed up by sizeable inflows of foreign direct investment (FDI). The prospects of that happening are clouded and must continue to remain speculative, given the state of the private corporate sector and the government's stance on FDI.

"Restrictions on foreign ownership have also played a role in Malaysia's failure to benefit from the mergers and acquisitions that have become increasingly important as a source of regional foreign direct investment since the Asian financial crisis," he added.

Lim states that the incentives offered to foreign investors were meagre and of limited consequence.

"The foreign investors seek a policy regime which is predictable and credible.The tinkering with the various exit taxes is insufficient. The ringgit peg remains a sore issue. The absence of protection for minority shareholders makes the prospect of taking stakes in the likes of MAS, Telekom and TimeDotcom, an unattractive proposition. What they seek is clarity and consistency in policy.

"The continued emphasis on mega-projects, and public and private investments in numerous white elephants, sends strong signals that the official policy is muddled."

Corporate restructuring

Lim said that Daim had failed to address corporate restructuring, which is the most pressing problem concerning the private sector.

According to him, the Asian Development Bank did observe that many Malaysian firms are indebted and are unable to service their debt obligations. In the government's support to firms which it considers strategically important, an early resolution to corporate sector indebtedness is prevented.

"The private sector remains in disarray with heavily debt-ridden balance sheets," he said.

"It is also somewhat disingenuous to claim that sound policies were responsible for growth. Malaysia, as an open economy, is dependent on external market conditions. In this instance, strong demand in the US for electronic products (which have a low value added for Malaysia) was the driving force. Coupled with the excess capacity in 1997 that existed due to this, it was the utilisation of the capacity that enabled accelerated export growth."

Lim said that while Daim cited the modest rise in the Consumer Price Index, he failed to point out that the Producer Price Index rose no less than 4.4 percent. Thus, the underlying inflation rate was considerably higher than acknowledged.

He criticised the finance minister for pinning hopes on the growth in European Union and Japan to generate a growth of 7.0 percent for Malaysia, but failing to take into account the sharp fall during the third quarter of US economy, a weak Euro, uncertainties about the Japanese economy and the tensions in the Middle East.

Piecemeal measures

Lim also took Daim to task for failing to address the fundamental issue of rebuilding confidence.

"There was no reference to the need to check the cancer of corruption. Nor did he acknowledge the current non-transparency in decision making which was seriously impeding a revival of confidence and credibility.

"Also missing was the acknowledgment that the destruction of integrity in the judicial system is taking a heavy toll in the overall business confidence."

On the issue of a caring society which was often mentioned by Daim, Lim said, "The measures announced are piecemeal. The government has yet to seriously address the need for a comprehensive needs-based, rather than a race-based, safety net programme.

"Daim stated concern for the underprivileged and then made a mockery when he did not mention any programmes for the most marginalised group in Malaysian society - the Indian plantation workers.

"He did not even mention in passing the existence of over one million Malaysians who subsist on US$1 a day, the internationally accepted definition of absolute poverty. No mention, let alone programmes for a monthly minimum wage," Lim said.