Government cuts down spending

Government to cut down cost
1. As one of the measures to reduce the effect of the increase the price of oil Government will reduce spending.
2. Since salaries and operation cost cannot be reduced, development cost would have to be curtailed.
3. When Government projects are stopped a whole lot of people will lose their income. This include the contractors, the sub-contractors, the suppliers, the transport companies and of course the workers. But even the nasi lemak sellers would lose their income and the workers would have no money to eat at the stalls.
4. Actually this was what happened when the Government decided not to go ahead with the so-called mega projects. With this idea about reducing Government spending the people who had suffered would suffer even more.
posted by Dr. Mahathir Mohamad at 11:20 PM on Jun 13, 2008


Onlooker said... Yang Amat Berbahagia Tun Dr. Mahathir,
It is not necessarily that the economy will be shrinking when the government tries to cut spending. With the spending cut, the government may be able to tax less or give tax holidays or tax exemption since it does not need to spend so much money now compared to the days before spending cut. A lower tax rate or tax-free incentive may attract more investors, both local or abroad, to invest in Malaysia and hence bring forth much more economic activities and create much more job opportunities. With the spending cut, Bank Negara may be able to build up a higher international reserve in order to back up a stronger Ringgit. A stronger Ringgit will help to curb the imported inflation so that we do not have to pay so much money to buy imported goods like rice from Thailand or chillies from India.

The Malaysian economy is shrinking now not only because of drastic changes in economic policy but there are also political reasons and the reasons of excessive speculation in commodity forward contracts which has drained out the liquidity of the financial market. The shrink is also caused largely by the political instability originated from the UMNO party election and MCA party election.

Tun, please try to give a fair and just viewpoint when commenting on changes in economic policy. We place a high value on your independent opinion.
June 14, 2008 3:16 AM


PEFIFAMI said... I disagree with comments from "onlooker" that reducing government spending is good and will help recover the economy.

Onlooker also seems to have the narrow perception that strong currency is good for the country.

Any good economist will tell you that too much savings is it by the government or the people are not all good. If everybody saves and no body spends how is the economy going to move? Different scenarios needs different measures.

In times of desperation and uncertainty the people will try to minimise spending except for the bare necessities. They will try to save as much as possible for the uncertainties.

Dr M is a true economist when he says in these times Government must spend to move the wheels of the economy, so that people get employed and have money in their pockets to spend. Their spending in turn will boost the businesses which in turn will employ people. It goes round and round. Otherwise the turning wheel of economy will come to a complete stop!

But the key word is wise spending by the goverment. During Dr M's time the government spend on Mega Projects which brings benefit for the mass, like infrastructure which provides employments and at the same time attracts healthy growth in businesses and attracts foreign investments.

However our government now, spends money with short term planning, designed to benefit mainly a small group which are cronies to the governments.
Projects are announced and implemented at the spur of moments without much planning. Corridors after corridors are announced like frying hot goreng pisang.

One typical example is the building of the 2nd Penang Bridge. Penang is an island. Anyone going to Penang can tell you it is a mad house there with traffic jams everywhere.
How does building another bridge to Penang help? It will only create more chaos by bringing more cars into the island. The money spend on the bridge could be put to better use like improving the road system, build mono rails and etc.
In fact the focus should be on the mainland where transportation and accessibility is cheaper and room for expansion is great.

As for the stronger currency, perhaps "onlooker" overlooked or ignorant that our exporters who create jobs for people will not benefit when their proceeds gets smaller and smaller.

At the end of the day, the secret lies in the leader. It is about clever management of the economy.

With Dr M at the helm you have a financial wizard, an economist and entrepreneur and much more all rolled in. He doesn’t allow "herd mentality"...

In the present government, we have leaders pulled by the nose from every direction.
The main idea is to win the popularity contest to remain in power..doesn’t matter if just for short term. As long as enough to reap as much as possible and fill up their own pockets.
June 14, 2008 7:25 PM


Onlooker said... To Pefifami,
It seems that many Malaysians are still complacent and never want to learn from the lesson of 1997-1998 Currency Crisis. If we do not cut the government spending, how are we going to build up our International Reserve? If we do not have strong backup in the International Reserve, how are we going to push up our currency value against other common international currencies? If our Ringgit is weak against the US Dollar, we are bound to pay a higher price for importation of rice from Thailand, chillies from India and Boer goats from Australia. In what sense will a weaker Ringgit benefit the ordinary Malaysians?

Talking about losing international competitiveness in the industrialised products and the cash crops when Ringgit appreciates, I think the best solution is to cut down hiring the foreign workers and resort to robotics and automation in order to improve the technology usage level at our factories and plantation estates. Only the technology at helm will help us to improve our workers' productivity, not the increase in the number of foreign workers in our payroll. The hiring of foreign workers in massive scale is a traditional source of big outflow of foreign exchange for Malaysia and therefore this problem should be tackled in time tacitly before the situation deteriorates further. We definitely do not like to see a deficit in our international balance of payment that could possibly happen in the future.

A strengthening Ringgit has the advantage of attracting the conservative long-term fund managers to come invest in Malaysia since a strong Ringgit helps the value-keeping of assets on hand. The value-keeping feature of a currency is of particular importance at the moment in the midst of high inflationary pressure at the international level due to excessive speculative activities in commodity forward contracts.

Although I discourage the government spending, I did not specifically oppose to the private spending. I think the private sector could and should be encouraged to play a much more active role in the Malaysian economy than the public sector at this critical juncture. A lot of plantation counters in Bursa Malaysia fare well now and report lucrative profit. I sincerely believe that our business environment can be further improved by simply cutting down the bad habit of bureaucracy in the government offices. A pro-business environment will indeed help to spur the economy when the investors are much more willing to pump in their money for investment spending. The investment spending from the private sector will undoubtedly benefit the Malaysians as a whole when we start to see the working of acceleration effect of the money being pumped into our economy by the private investors.

Pefifami, I can confidently tell that you don't represent Dr Mahathir since I know that Dr Mahathir will not take the risk to shut himself up from all roads towards a perceived nation of high personal savings and good thrifty habit. When people save, they will usually save their money in the bank. A proper operation of a good banking system will usually allow the savings money to flow back into our economy, unless a leakage is caused by irresponsible squandering of money and siphoning out the money to foreign country. So long as we have trustworthy managers working in Bank Negara, we should have confidence that a good banking system shall function well within the vicinity of the Malaysian economy.

If you don't know how to invest, you can help the economy by putting in your money in a bank savings account. Your money saved in the bank will indirectly help to spur the economic growth. This is because there are always some risk-takers who will borrow the money from the bank in order to finance their investment in some viable projects in the economy.

The economics is really a superb arts: If you hold an optimistic view about the economy, it is quite likely that the economy will turn better and better. If you hold a pessimistic view about your future, it is almost 100% sure that you are going to enter a dead-end in your personal finances. Therefore, please do cheer up guy! Don't let your self-fulfilling prophecy impede the most important first step of the forward moving in your own life!
June 14, 2008 11:52 PM