NAJIB THE BLUNDERER IN CHIEF AND NOR MOHAMED’S ECONOMIC LOGIC HE:CAME, HE SAW, HE IMPLODED.

The worst economy since the Great Depression and you might think at least one of the candidates would come up with a few big ideas for how to get us out of it.

But you’d be wrong. Neither candidate wants to take any chances by offering any large, serious proposals. Both are banking instead on negative campaigns that convince voters the other guy would be worse.

Malaysia is one of the most vulnerable Asian economies should a “perfect storm” of a disorderly debt default in Europe, a slowdown in China and the US, and rising tensions in the Middle East materialise, Roubini Global Economics (RGE) has said in a recent report.

The strategic research firm, best known for its founder “Dr Doom” Nouriel Roubini (left) who predicted the collapse of the US housing market and the 2008 global financial crisis, said that Malaysia had the highest exposure to a pullout of capital as its eurozone and US bank claims amount to more than 25 per cent of GDP.

RGE added that Malaysia was the second most exposed in terms of a demand slowdown in the US, the eurozone and China, making it the most exposed Asian economy overall.

The report also said that the country was among the lowest ranked in terms of monetary and fiscal capacity to respond to a crisis, coming in ahead of only Thailand, Japan and Indonesia.

“Malaysia, Taiwan, South Korea and Vietnam appear to be the most exposed to a perfect storm through their trade and financial linkages, while South Korea, Australia, Vietnam and the Philippines appear to have the most policy space to offset such an external shock,” said RGE.

“Taking these two factors together, Malaysia, Taiwan, Japan and Thailand are the most vulnerable of the 10 economies considered in this analysis, while Australia, India, South Korea and the Philippines are the least.”

RGE said that while Malaysian government revenues have increased, the hole in its finances could grow due to “populist” spending and an expected cut in Petronas’ dividends.

“In the run-up to elections, the government is likely to offer more cash handouts in the 2013 Budget, leaving fewer resources for productive investment,” said the report.

“We see the debt-to-GDP ratio reaching 54.6 per cent next year, leaving little room to manoeuvre in the event of an external shock.” RGE noted that in its most recent effort to boost its popularity ahead of an upcoming general election, the Malaysian government announced a supplementary budget of RM13.8 billion in June, some 80 per cent of which is allocated towards maintaining oil subsidies and raising civil servant wages.

It added that it expects Bank Negara to cut interest rates to 2.5 per cent by the end of 2013 to deal with slowing growth in Europe and China.

Economists and analysts had earlier said that Malaysia’s federal government debt, which nearly doubled since 2007 to RM421 billion, pose a fiscal risk to the country if not managed carefully as it impairs the country’s resilience to the increasing frequency of economic shocks.

They said that while government debt — currently at about 54 per cent of gross domestic product (GDP), and the second highest in Asia — has not significantly impacted the country and its credit standing so far, the volatile nature of global markets may cause sentiment to turn with little warning.

Figures from the Federal Treasury’s Economic Reports show that the federal government’s domestic debt almost doubled in the space of less than five years — from RM247 billion in 2007 to an estimated RM421 billion in 2011 — far outpacing its revenues which only grew 31 per cent or from RM140 billion to RM183 billion during the same period.

Government-backed loans rose rapidly as well between 1985 and 2010 — from RM11 billion to RM96 billion — representing a growth of 8.7 per cent per annum.

Investors in recent weeks have reportedly shown a preference for US and Singapore assets rather than Malaysia’s in times of uncertainty despite the 10-year MGS (Malaysian Government Securities) offering a yield of about 3.4 per cent compared to less than 1.5 per cent for both 10-year Singapore government bond and 10-year US Treasury bonds.

Roubini had in May reportedly predicted that four elements — economic slowdown in the US, the debt crisis in Europe, a slowdown in China and emerging markets, and military conflict in Iran — would combine to create a storm for the global economy in 2013.

Nor Mohamed Yakcop said, getting rid of taxes for cars would reduce national revenue by RM7 billion which could affect infrastructural development, especially in Sabah and Sarawak, and in the interior of the peninsula. The nation will experience economic instability and many will go bankrupt if the price and excise duty of vehicles are reduced.

I hope Nor Mohamed Yakcop is reading the right economics manuscript. As an economic advisor to the government, Nor should acknowledge the burden of private vehicle price and excise duty on consumers.

Years of supporting the national car policy has been futile so far. Apart from creating unnecessary burden to the people and crippling the public transport system through deliberate neglect, there’s little benefit to the local automotive industry.

Proton was given the opportunity to become a respectable regional player but it is finding itself increasing difficult to even survive locally.

We have to ask the government when it intends to review the national car policy or scrap it entirely? Like the NEP, should the government continue to subsidize and protect the local producer? It is long overdue that the national car producer should be asked to stand on its own feet. Being competitive and innovative is the only way for Proton to survive and thrive, not through continuous protection.

It is time for the government to stop being penny wise but pound foolish. Half of our petrol subsidy goes to private vehicles.readmore   http://themalaybusinesstribune.blogspot.com/2012/07/najib-blunderer-in-chief-and-nor.html