opinion

His somewhat unorthodox approach in handling the 2002 budget tabled before Parliament last Friday was perhaps symptomatic of Prime Minister Dr Mahathir Mohamad's training as a medical doctor.

It was precise and incisive. If comments by most economists in recent days are anything to go by, it is perhaps un-economist, non-traditional in approach. Former finance minister Tengku Razaleigh Hamzah even wondered loudly among close friends that he found the approach rather bizarre, to say the least.

But then, Mahathir has been known to be unorthodox or non-conformist even in matters of finance. Take, for example, when Malaysia, along with several others in this region, faced the mid-1997 economic crisis which pushed the ringgit so low vis-a-vis the US dollar until he had to prescribe his own 'medicine', i.e. capital controls, effectively making the ringgit non-legal tender outside of Malaysia.

Many economists then feared it was a recipe for disaster for the Malaysian economy.

It wasn't. In fact, it did Malaysians a world of good. First, it stemmed the outflow of unnecessary capital, even though this hurt a lot of Malaysian businessmen, especially those with investments abroad and overseas loans to service; it checked the insatiable Malaysian habit of going for expensive imports; and it helped to boost foreign exchange earnings in ringgit terms, in turn enabling companies and individuals to fill up their local bank accounts.

Stability has come from pegging the ringgit at 3.8 to the US dollar, and this makes it easier for importers to work out their costs and make their business plans at home.

Civil service pay rise

Again, Mahathir can prove to be right in his handling of the 2002 budget which, admittedly on the face of it, appears to indicate as nothing more than a combination of piece-meal measures with the hope that they will all work.

What, for example, is the economic rationale in putting more money in the pockets of about one million government employees who form a little more than 10 percent of the country's total workforce by offering them a 10 percent pay hike plus half-month bonus? And in times when, as some imply, some good sense should instead have prevailed to keep salary rises in check, at least for the time being, until the economic situation is more predictable?

But what is not known, however, is that even though a government employee enjoys other benefits like subsidised interest rates for housing and car loans, the monthly pay-cheque is nearly always the only source of income.

The proposed pay hike will certainly help cover other commitments like the monthly instalment payment schemes for household goods like furniture, refrigerator, etc. Therefore, suppliers will benefit, too, from the pay rise in the public sector.

ICT for all

The budget's financial allocation for the promotion of information and communication technology (ICT) is clearly intended to take Malaysia where it ought to be in this 21st century.

With the evolution of e-government and e-commerce at all levels, the rest of society has little choice but to conform and follow suit. As it is, according to one story often told in seminars and conferences, the boss of a company hardly hesitates to spend on land, put up a building, furnish it by bringing in nice furniture, and employ the staff. But when it comes to equipping the set-up with PCs for on-line networking, more often than not he would exclaim: "Why so expensive?"

The 10 sen increase in petrol and diesel has, as expected, met with strong criticisms from many quarters. Consumer bodies say the timing is bad. So why has the government gone ahead with it? One plausible reason is that this country cannot go on subsiding foreigners - like the Thais who smuggle Malaysian petrol and diesel across the border and Singaporeans who prefer to top up their tanks on the Malaysian side because it is cheaper. Singapore petrol kiosk operators and authorities should be happy now.

In most parts of peninsular Malaysia, where public transport system is generally fairly developed, there are alternative modes of transport. But then, owning a car, although expensive, affords a lot of conveniences.

Malaysia's public transport system is not going to do well, however, if people still hold the strong preference to own and drive their cars to work, to take their families to the city for shopping, or to visit friends. Worse still if a single household has several cars.

Perhaps the new logic is that if owning a car becomes more expensive, then people may think twice, especially if economic prospects are not positive for many people.

The question is: will public transport operators be able to meet commuters' expectations? A study of the use of KTM Komuter trains and LRT (Star/Putra) services would seem to indicate that these operators cannot be expected to make money unless there is a bigger volume of passengers. Perhaps higher fuel prices will prod more people to travel by train.

Rural development

The increase in allocations for rural development, in particular medical and healthcare and housing, as well as for water, electricity and schools, including religious schools, among others, makes a lot of sense. This is because about 50 percent of the country's population still resides in rural areas in very poor conditions, despite the fact that Malaysia has been independent for nearly five decades.

Nice roads leading from cities and towns to the countryside alone are apparently not enough. Nor are factories located in outlying areas doing much in terms of the provision of better social amenities.

Unless something is done in the rural areas to provide more and better amenities, it could in the long run, lead to a revolution against the establishment. Hence, the increased expenditure for improving farmers' livelihood and supporting those who have been traditionally dependent on growing rice, palm oil and rubber makes considerable sense.

People will not run away from the countryside if there is something to hold them back, something that can guarantee them a reasonably good and happy life. If a large number of people can be tied down to the cultivation of the land, then there is hope for increasing farm productivity for domestic consumption and for export.

Agricultural community

Again, the 2002 budget tries to address this issue, which has to be given time. This country is not short of land for cultivation.

What it is short of is this: clear, concise and workable ideas to transform the rural population into a strong and powerful agricultural production community. This is now getting more attention and the agriculture ministry, given the dynamism of its minister Effendi Norwawi, should be able to do more for the development of rural agriculture so that it can match Thailand's and even Taiwan's in the future.

Economists often have the misconception that the country's only engine of growth is manufacturing, especially the electronics and electrical manufacturing sector.

This is partly true. But the slowness with which Malaysians have responded to new opportunities in the face of a global economic slowdown which has affected Malaysian exports, almost without any exception, is a disappointment.

If in a crisis situation Malaysians are still slow to react, to see and take advantage of the opportunities ahead, then they would have missed the boat in trying to rejuvenate themselves and inject more life into the economy.

Crop diversification

The switch, not to new industries but those industries that have not been given as much attention as they should, has been disappointingly slow, to say the least. Large tracts of land, especially in Sabah and Sarawak, can be transformed into good production centres, and this requires the support of the government and the active participation and expertise of the private sector.

The present economic situation has already shown what can happen if a country relies on one or two major crops, like oil palm and rubber, to generate its agricultural industry. There is a need for greater crop diversification involving various geographical areas within the country.

The message of the budget's emphasis on training and education is clear: without it a modern economy cannot grow and flourish. Even the agriculture sector can be technology-driven. The modern concept of farming requires fewer hands. So training and education is something that will enhance Malaysian skills and expertise in engaging in industries across the board, and hopefully this will negate the need to import a large foreign workforce that is often regarded as necessary support to drive commercial agricultural development and industrialisation.

The higher allocation for tourism is clearly indicative of the priority set for the development of this service sector. Malaysia has a wide range of tourism products and services that appeal to all types of tourists from far and near - nature and adventure tourism, shopping, beach havens, etc.

Malaysia has all these and more. But what it lacks is setting higher standards in terms of product and service delivery, and again, training and education must feature prominently in this. As it is, the industry is left very much on its own to set standards and grow.

Tourism for home market

In the US and Europe, tourism depends mostly on the home market to sustain and grow. Foreign markets are a bonus. The idea is, if you build a new road from the city to a beach resort, create new products in the neighbourhood and other related services, it must be with the view to benefit the locals first and that which is good for locals must also be good for foreign tourists.

The problem here is we build to please foreigners. It should be the other way round - we should create to serve Malaysians first and meet their needs, and foreigners can also benefit from the same.

The corporate sector is quite understandably disappointed that there has been no corporate tax cut. They should not be, especially when most companies are not expected to do well or to make money, thus they will not need to pay income tax at all.

A reduction of one or two percent of corporate tax could be further defeated by creative accounting. The tax deductions on expenses for businesses engaging in e-commerce, especially marketing and selling through websites, are timely.

No doubt the authorities have been concerned about the slow take-off of Malaysian e-commerce despite their best efforts to create awareness of the benefits and support through various state-funded schemes.

The whole idea behind the budget is, while helping workers to be in a better position in bracing themselves for the uncertain times ahead, the various fiscal measures and tax incentives are intended to drive greater domestic growth through greater manufacturing and other activities, to encourage export initiatives of Malaysian products and services through more cost-effective measures, and generally to ensure a constant cash flow within the country in the short and middle terms, and to keep as many people as possible in employment.

Therefore, seen against the background of the various measures announced by Mahathir, it is not unrealistic to expect Malaysia's economy to grow, although five percent may be on the high side. More realistically, a one to two percent growth is still possible.

TONY THIEN is a malaysiakini correspondent based in Kuching, Sarawak.