Ready for a dose of reality?

Malaysian, have you tighthen your seat belt?

KUALA LUMPUR, Feb 5 — Warning from the government to the public: the economy is going to go through a much rougher ride this year than anticipated. This message is a stark departure from the more optimistic tone employed by the Prime Minister and his ministers since the administration unveiled its RM7 billion stimulus package in November.

For the last three months, the Abdullah administration has been confident that its pump priming will insulate the country from the worst effects of the global economic crisis, and that the growth for 2009 will be 3.5 per cent.

Even when economic indicators of Malaysia's major trading partners plunged in December and stalwarts of the local economy — electronics and commodities — performed worse than expected, Datuk Seri Abdullah Ahmad Badawi, Datuk Seri Najib Razak, Tan Sri Nor Mohamed Yakcop and others stuck to the message, worried that dire language could spook Malaysians into zipping their wallets and burying themselves under a cloak of pessimism.

Not anymore, it appears. At a closed-door briefing for senior editors of the mainstream media, Najib, who is the Finance Minister, painted a gloomy outlook for the economy. He did not use the R-word but most editors left the Putrajaya briefing believing that the government would do well to keep the economy in positive territory. In the days ahead, the media may begin releasing the bad news in small doses.

For his part, Najib did not sound or look despondent. He promised an effective second stimulus package and noted that the fundamentals of the Malaysian economy — its banking system, foreign reserves and liquidity in the market — were still strong.

Najib did not go into specifics of the second stimulus package but The Malaysian Insider understands that the government is looking at spending up to RM10 billion. This will include tax and tariff cuts as well as a raft of measures to reduce the cost of doing business.

The focus of the second stimulus package is to encourage employers to keep Malaysians on their payroll during these challenging times. There also could be specific measures to have a wider definition of small and medium-sized industries as well as a more liberal interpretation of non-performing loans from the current three-month threshold to six months. Sadly, there is unlikely to be any major structural changes to the economy in the short and medium term.

The Malaysian Insider has learnt that initially there was an initiative to abolish the Foreign Investment Committee and re-look some features of the New Economic Policy. But these moves have been put on the backburner, given the difficult political environment facing the Barisan Nasional government.

CIMB group chief executive Datuk Nazir Razak yesterday suggested that the government go beyond orthodox fiscal stimulus and monetary measures and review policies which impede investments. He is not alone in believing that Malaysia needs more than another bout of pump-priming.

Fitch's director of Asia Sovereign Ratings Franklin Poon said: “In general, the country has been slow to implement structural fiscal reforms.''

A government official said: "Our focus is now on the second stimulus package. We have to roll it out soon. We are looking at restructuring aspects of the economy but the earliest we will ready to talk about it is in the middle of 2009.''

The country's high-powered Economic Council is slated to be briefed on the second stimulus package on Monday. Between now and then, it is likely that government ministers will start peppering their speeches with a more realistic assessment of how the Malaysian economy will perform this year.

Expect them to use the R-word more frequently. Not Recession but Revision. The growth estimates could be revised downwards to between 0.5 per cent and 1 per cent while the budget deficit of the Gross Domestic Product may be revised upwards from 4.8 per cent to 6 per cent.