Increased US government expenditure for reconstruction and foreign aid to address the sources of terrorism in the wake of the Sept 11 terrorist attacks on New York City and Washington DC may resuscitate the ailing global economy, an economic professor said today.

Universiti Malaya's Prof K S Jomo told malaysiakini that this, however, was a "best-case scenario" and he expected the global economy will get worse in the coming months.

"In the short term, the (economic) downturn globally is likely to be worse because of Sept 11. And my fear is that the US retaliation will precipitate an unending cycle of violence globally, the consequences of which can be quite disastrous," he said.

He said it would be better if the US recognises the futility of its blind support for Zionist military expansionism and push for a peace settlement favourable to the Palestinians in its attempt to seek a lasting solution.

Jomo said that many economic activities, such as air travel, insurance and transportation, will become more costly in the aftermath of the attacks.

"This is likely to exacerbate the economic downturn in the US and globally," he said.

According to Jomo, if the US decided to launch a Marshall Plan-style recovery, Malaysia would profit from it.

"Malaysia stands to benefit from increased military spending that will raise the demand for electronic products again, which will help the Malaysian economy," he added.

Stimulus package not working

Jomo said the recent Malaysian efforts to pump prime the economy did not seem to have worked.

"Except for the school-building idea to replace double-session schools, most of the major new construction and public works programmes such as the Bakun dam, new links to Singapore, new bridge to Penang, seem to involve more 'jobs for the boys' - that is, more crony capitalism," he said.

On Tuesday, Prime Minister Dr Mahathir Mohamad announced a RM4.3 billion stimulus package for the economy in the wake of the terror attacks on the US.

This is on top of an earlier stimulus package of RM3 billion announced in March.

Of the total RM4.3 billion package, Mahathir said about RM2.5 billion would cover select rural and urban development projects, construction, education and training, and welfare activities.

The targets for the balance of about RM1.8 billion ringgit will be announced in the 2002 Budget on Oct 19.

On the political front, Jomo said the erosion of support for the government will continue even with the opposition failing to get its act together.

According to him, the government will seek to maintain its grip on power by exploiting the issue of 'Islamic terrorism'.

"The regime is likely to carry on its recent campaign - clear in Sarawak right now - of trying to equate PAS with terrorism until it becomes a self-fulfilling prophecy," he added.

Attacks work in Mahathir's favour

Another economist who requested anonymity, said the Sept 11 massacre might work out for Mahathir as there had been recent reports of Islamic fundamentals activities in the country.

He said Mahathir has been driving home the point that Malaysia will not tolerate the gun-toting variety of Islam, neither will religious deviationism be tolerated.

"With what has happened in the US, it should be patently clear to the US that the kind of fear that Mahathir pointed to was within the realm of the possible," he told malaysiakini .

"The US might come around to accepting that Mahathir might have a point about nipping these underground activities in the bud," he added.

He said the terrorist attacks on the US also made it easier for the prime minister, who is also finance minister, to concede that the country is not doing well economically in recent months.

"At any rate, when Mahathir made the statement that there was a need for fiscal measures, he was being as bluntly realistic as he could."