Coronavirus: Charting the way forward for Malaysia

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Deserted streets during coronavirus lockdown - Photograph: wjboyz/Flickr

From the conventional point of view, this year will be a complete disaster – but there is a way out, Jeyakumar Devaraj explains.

Human society is going through an extraordinary period. The Covid-19 pandemic has brought the global economy to its knees.

It has upended our normal consumerist way of life. Economists expect a severe recession this year and the next. Some economists say it could be as bad as the Great Depression of the late 1920s–1930s. Meanwhile, the Covid-19 death rates are mounting rapidly in many parts of the world, and the richest country in the world continues to underestimate and mishandle this health crisis.

Malaysia has fared relatively well until now – 5,389 cases as of 18 April 2020 with 89 deaths – a case fatality rate of 1.65%. We are very fortunate that our government took the epidemic seriously and adopted a policy of total suppression of Covid-19 instead of toying with the idea of permitting a controlled spread of the epidemic through the population, in the hope that would lead to “herd immunity”.

[There may be other factors at play here. The statistics seem to indicate that the countries that routinely gave BCG to all their newborn babies have a lower case fatality rate for Covid-19. It might be that BCG somehow primes the immune system to react more efficiently to the Covid-19 infection. There is so much we do not know about this virus!]

The countries that entertained the idea of permitting the spread of Covid-19 infections at a slower rate (the mitigation approach) have had their hospitals swamped by thousands of desperately ill patients and their intensive care thresholds breached. The case fatality rates in Spain, Italy and Britain are over 10%, and many frontline healthcare workers in these countries have lost their lives because personnel protective equipment wasn’t available in sufficient quantities.

The number of new cases in Malaysia is trending downwards over the past week, and there is a possibility that the movement control order will be relaxed soon.

But we really are in uncharted territory. No one is sure how best to proceed. We need to discuss calmly and rationally what our main guiding principles should be as we emerge from the movement control order and reactivate our economy. This is not the time for politicking or partisanship. Too much is at stake! We need to develop a broad consensus at the societal level on how we should go forward as a nation.  

Some harbour the belief that things will go back to normal in the next two to three months. That’s just wishful thinking. Malaysia is well integrated to the world economy, and disruption of economic activity in the US, Europe and China will hit us here. We will have to weather an economic recession – there is no avoiding that. The volume of our exports will come down. Our gross domestic product (GDP) will shrink by several percentage points.

The question is how can we weather these changes with minimum damage to our economy, to our society and to peace and stability in our country? This is what we need to focus our discussions on. The Socialist Party of Malaysia (PSM) would like to contribute to this important discussion by putting forward six main ideas that we think should define our national strategy. 

1. Contain Covid-19 epidemic

We have managed to bend the curve (of new cases of Covid-19) downwards, but the risk of a flare up is ever present. As we have argued in the article “This is not the time to lower our guard“, we need to reach out to and win the trust and cooperation of the migrant worker and refugee population in our country so that they do not become the conduit through which a second wave of the epidemic re-emerges.

Senior Minister Ismail Sabri’s authoritarian stance is not helping us in the battle to win over the migrant population to our side. [“Those without documents will be arrested and sent to immigration depots for further action,” he said.]

Someone needs to advise the honourable minister that threatening undocumented workers with detention and deportation is not the best way to persuade them to come forward for testing! We need their cooperation to keep Covid-19 from spreading through our country.

PSM has suggested a moratorium on immigration offences for the next one year. Only when the undocumented foreign workers realise that the authorities will not arrest, detain, flog and/or deport them will they come forward for testing and agree to stay in quarantine centres. Acting harshly against them will just drive them “underground”, where they will serve as a reservoir that transmits Covid-19 through our population.

Restarting the nation’s economy is an important objective. We need food and other goods and services. We need the foreign exchange to import essential medicines and equipment.

The National Security Council has colour-coded the districts in Malaysia as green, yellow, amber or red depending on the number of Covid-19 cases in the previous month. We have to develop a protocol which calibrates the level of economic activity permitted in a district based on its colour code. But, for the time being, we need to maintain tight restrictions on social, sports and religious events while trying to get the economy back on track.

Districts which have active cases will need to have more physical distancing and more restrictions of economic activities. Red-coded districts should only permit businesses dealing with food distribution and healthcare. This protocol has to be constantly reviewed and fine-tuned, so we can open up the economy without allowing a disastrous second wave of the epidemic to take root.

2. Ensure basic needs of entire population are met


Things will not revert to normal when the movement control order is lifted. Many Malaysians will lose jobs.

The aviation sector, the tourism sector and hotels will be badly hit and will need to be put on life-support. We will need these sectors again in a year or two once we have finally defeated the Covid-19 menace with an effective and safe vaccine, so we do not want the companies in these sectors to disintegrate completely. But we should not entertain unrealistic expectations that these sectors will be able to “bounce back” in the next few months.

Manufacturing firms whose export markets are affected by the pandemic will have to downsize and lay off workers. Unemployment will therefore surge significantly – perhaps up to 20% of the workforce or three million people.

Given this reality, we need to, as a society, ensure that basic goods and services – food and healthcare in particular – reach all families including those affected by job losses. This has to be a top priority and the population should know that all of us are committed to getting through this challenge together. Only then can we get the broad cooperation that we will need in the coming months to tighten and loosen Covid-19 control measures as the situation warrants.

Food riots have occurred in other countries in the past, and they can’t be ruled out anywhere. Food riots erupt when people are pushed to a corner and are desperate, and the authorities seem unconcerned about their predicament. Apart from the looting and the unnecessary confrontation between hungry people and law enforcement authorities, the damage done to social solidarity represents a huge setback to society. It is something that every government should try to avoid.  

To ensure we meet the basic needs of all families are met, we have to ensure we produce enough food commodities for the entire population. We also have to ensure that all families (including those affected by retrenchment) have the means to buy the basic goods they need. This means we have to roll out an unemployment benefit scheme that will ensure that every family has the money to get food, shelter and healthcare.

The Employment Insurance Scheme, enacted in 2017, is not comprehensive enough because it only covers the six million workers contributing to Socso (the Social Security Organisation), and it is for a six-month post-retrenchment period only. In any case, this scheme cannot be expected, in the two years it’s existed, to have accumulated the funds required to handle unemployment at the scale we are expecting in the next few months.

We need a more sturdy scheme that will be able to support those unemployed until the economy recovers sufficiently for them to be re-employed – and that might take a year or more. As a rough estimate, income support of RM1,000 per month for three million unemployed individuals would require RM3bn per month, initially but hopefully progressively taper down as the economy picks up steam. (We shall discuss sources of funds for this and the other initiatives that we are proposing).

The government should consult unions, worker groups and academicians to work out the details of this unemployment scheme. Ideally it should be enough to meet the basic needs of the family but not become a disincentive for people to re-enter the job market as the economy recovers.   

3. Enhance food security

Malaysia is doing quite poorly in terms of food security.

Malaysia produces 1.9 million tonnes or rice per year, or about 70% of our annual consumption. We do not produce any wheat locally; we imported 1.7 million metric tonnes of wheat in 2017 (for the production of bread, chapati, roti canai, etc).

In 2017 Malaysia also imported around 3.7 million tonnes of grain corn valued at about RM3bn for the production of feedstock for poultry and other livestock. Our self-sufficiency level is 22% for beef, 14% for mutton, 67% for fish and 100% for poultry, eggs and pork.

We imported RM8.5bn worth of vegetables and fruit in 2018.

Malaysia’s food import bill in 2017 was RM51.3bn or about 28% of total expenditure on food in Malaysia for that year.

In 2018, expenditure on food per capita in Malaysia was $1,410.7 (RM5,643) (themalaysianreserve.com). That would come up to about RM181bn (RM5,643 x 32 million population).

Food imports in 2018

  • Cereals RM7.1 bn
  • Coffee, cocoa, tea and spices RM7bn
  • Feedstock RM5.9bn
  • Vegetables RM4.6bn
  • Fish and crustaceans RM4.1bn
  • Fruits RM3.9bn
  • Meat RM3.9bn
  • Sugar RM3.8bn
  • Dairy products RM3.8bn 

(The Malaysian Reserve, 19 November 2019)

The country is quite vulnerable to shortages of basic foods as we are over dependent on food imports, and our supply lines are exposed to price surges of the food items that we source from abroad. It would be foolish on our part to not take immediate steps to address this vulnerability. This is a huge issue that we cannot discuss thoroughly here, but we would suggest that the following ideas be considered:

  • large plantation companies should be required to re-allocate 10% of their land for production of grain – rice or corn. (Currently, of the 8.3 million hectares of agricultural land in Malaysia, 6 million ha is under oil palm and 1 million ha under rubber. Only 700,000ha is used for rice cultivation.) We need to tackle this imbalance in agricultural land use. PSM is against the idea of cutting down more forests to expand agriculture. We should attempt to re-allocate the land already committed to agriculture
  • Many vegetable farmers live precariously on government land. Every year many of them are served eviction notices by the Land Office or by companies that have obtained the land they are on. We must stop the eviction of vegetable farmers immediately. They should be given leases of 20 or 30 years so they can invest in the infrastructure that can increase their yield, on condition they cannot use the land leased to them for other non-agricultural purposes
  • We have several hundred cattle farmers who are currently being pressured by Sime Darby to cease using Sime Darby estates as the grazing areas for their cattle. The government needs to intervene to work out a compromise that allows these cattle farmers to continue their activities. Many cattle farmers at the peripheries of our towns are facing hardship in finding land to graze their cattle. This issue needs to be looked into.
  • orchard owners complain of gluts during the fruit seasons. The Federal Agricultural Marketing Authority (Fama) should enter into forward contracts with these fruit farmers and commit to buy a certain volume of fruit from them at specified prices. So at least a portion of the harvest will have a buyer, and the farmers are not left with a lot of rotting fruits on their trees. Fama has to find ways to can or freeze the fruits or make jam or bottled drinks out of them. But not market them as fruit in the local market right away.

The National Security Council should set up a taskforce to consult farmer groups, academics and other stakeholders so that a comprehensive plan to rapidly enhance food security for the nation can be agreed upon and speedily implemented.

4. Preserve the nation’s productive capacity

Many of the firms in the manufacturing sector will continue facing cashflow problems in the next few months. The need to observe physical distancing within the factory and perhaps repeated district-level movement control orders might affect production.

On the demand side, traditional markets might under-perform for the time being, so sales may be impaired. However, wages, loans and rentals have to be paid, irrespective of whether firms are able to achieve sales targets. Even downsizing has high initial costs in the form of retrenchment benefits.

Quite a number of firms will go bust because of these cashflow problems. This would be a loss to the nation. If these firms are given the support to survive these difficult times, most will be able to function profitably when their markets recover.

The nation needs these firms as they produce goods and provide employment for the people as well as much-needed foreign exchange. Just as we all lose if a segment of our population goes hungry because of this economic slowdown, we will also all lose if we allow our manufacturing firms to implode because of cashflow problems.

The government has already come out with a series of programmes to help these firms – the moratorium on debt, the deferment of Employees Provident Fund and tax payments, and the provision of easy credit and wage support for workers in small and medium-sized enterprises (SMEs).

The adequacy of the assistance has to be assessed from time to time, and perhaps further measures have to be implemented if many firms are still burdened by cashflow problems. Note that the steps taken to ensure every family has the money to buy basic items will help our business sector by partially reviving consumer demand and providing a market for the goods and services that our SMEs provide.

Another useful strategy at this stage would be for the government to take over factories that intend to wind up operations and repurpose them to provide essential goods. For example, a textiles firm in Ipoh has given notice that it will wind up. If the government could take over this factory, it could use it to produce personnel protective equipment for Malaysia and other Asean countries. That would be most helpful, and it would help us build goodwill with our neighbours. 

5. Consider heterodox economic policies

Heterodox economics is the analysis and study of economic principles considered outside of mainstream or orthodox schools of economic thought. … These schools of thought often combine the macroeconomic outlook found in Keynesian economics with approaches critical of neoclassical economics. (Investopedia)

All the above measures require government expenditure. The RM297bn budget approved in December 2019 envisioned a deficit of RM52bn or 3.2% of GDP. Clearly, the federal government will incur a much larger budget deficit to stabilise the situation and steer the country through the storm.

We therefore need to address government finances. And we will have to be creative in doing so. 

The following represents PSM’s take of the issue. But the issues are complex and interrelated, so we too are still learning and are prepared to engage in a debate on these proposals.

a) Allow a much larger budget deficit

In December 2020 Parliament approved a federal budget of RM297bn. This budget envisioned an income of RM245bn – just enough to cover operating expenditure, estimated then at RM244bn. This is in keeping with the Government Funding Act 19836, which specifies that operating expenditure should not exceed federal government revenue. Deficit spending should only be for development expenditure.

This act also specifies that federal debt cannot exceed 55% of GDP. Our current federal debt of RM750bn is dangerously close to this 55% limit.

Well, we will need to set aside these regulations for this period as the stimulus packages announced thus far have already committed an additional RM30bn of expenditure from the operational budget. In addition, we will need to implement an unemployment fund which will require about RM20bn over the next eight months. We will also need funds to help our business sector deal with their cashflow problems and survive this downturn.

At the same time, government revenue is unlikely to meet the estimates made in the 2020 budget as corporate tax collections (which are based on profits) will plunge, and the world price of petroleum has plummeted. These two items are usually the biggest contributors to federal government revenue. The Budget for this year had envisioned a deficit of RM52bn – or 3.2% of the GDP. The deficit that we are looking at will be three or four times higher!

b) Consider quantitative easing for the rakyat

Quantitative easing (QE) is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment. (Investopedia)

It was widely used to extricate the world economy from the 2008 financial crisis. It involves central banks making large-scale purchases of bonds. Bonds and government securities, which pay a specified rate of interest annually, are usually held by investment funds, pension funds and rich individuals.

The theory behind quantitative easing is that when central banks buy these bonds, a larger portion of the wealth of investors and the super-rich is in the form of money (in their bank accounts). The expectation is that this greater availability of funds would encourage businessmen to invest in new business activities and thus create employment.

Some heterodox economists suggest that instead of buying bonds from the private sector, the central bank should buy bonds (government securities) directly from the government and at a low interest rate – ie quantitative easing for the rakyat. This would give our government the funds to finance the various programmes required to tide us through this downturn.

Currently, Malaysia’s debt servicing figure (the interest we pay yearly on the RM750bn of government securities we have put on the market) is about RM33bn. This works out to an interest rate of about 4.4% and is a big drain on our operational budget. (As a comparison, the federal health budget in the 2020 Budget was RM30bn.)

The heterodox economists recommend that financing a part of the budget deficit by selling bonds to the central bank at a low (say 0.5%) rate of interest would provide the government the funds it needs for its stimulus packages without increasing the costs of debt servicing too much.

c) Use a consumption tax to combat inflation

Putting money into the hands of the rakyat (some call it “helicopter money”) through stimulus packages creates consumer demand that will spur businesses to produce the goods and services the people need. People get the basic goods they need and businesses get a market to sell to. And as SMEs expand, they will employ more people.

The supply chains for these businesses also benefits from the increase in demand, and the economy can start spiraling upwards. It can be a virtuous cycle where it’s a win-win-win situation for all. The government too “wins” as when businesses make profits, government tax income will grow. Also, as businesses grow and employ more people, the number on unemployment benefit will also fall.  

But it is not always that simple. The problem arises when there aren’t enough goods and services for recipients of “helicopter money” to buy. This might arise if there are bottlenecks in the supply chain that limit the production of the goods and services that people want.

Then we would have unmet consumer demand, and this will lead to inflation. Inflation reduces the buying power of the poorest groups, and a concerned government might try to correct this by increasing their subsidy payments. But that could lead to hyperinflation.

Some heterodox economists suggest that a consumer tax like the much maligned goods and services tax could be used in this situation to reduce the amount of money in the hands of consumers so that inflation does not get out of control.

To counter the fact that a consumption tax is regressive (in that it burdens the poorest most) these economists suggest that a RM300 monthly rebate to all families in the bottom 40% of households would make a GST set at 10% value-neutral for families earning RM3,000 per month. Families spending more than RM3,000 would pay a net tax while families spending less than that would actually get more in terms of GST rebates than the GST they pay.

Well, something worth thinking about. This problem of inflation can arise whatever the source of the funds for the stimulus package. It is not a phenomenon associated specifically with quantitative easning for the rakyat.

d) Ban short-selling of currency

The currencies of developing countries generally come under pressure in times of economic crises. This can be best understood if we ask ourselves why non-Malaysians would want to exchange their currency for the Malaysian ringgit. It would be because they want to buy a product that Malaysia is producing or because they want to invest in the Malaysian economy, the Malaysia stock exchange or Malaysian government securities.

At a time like this, our exports will drop as the pandemic has hit consumer demand the world over. Foreign investors might divest their holdings in our stock market. [Foreign selling of local equity on Bursa Malaysia accelerated to RM639m million last week, compared to RM326m disposed of in the preceding week, MIDF Research’s Adam M Rahim said (The Edge Markets, 20 April 2020).]

The investors might sell a portion of their shares and convert that money into US dollars or other foreign currencies as they look to park their funds in another country. These actions will create a glut of ringgit in the international financial markets and result in downward pressure on the ringgit. If we decided to practise quantitative easing, that too would decrease the volume of ringgit that foreigners would otherwise buy to acquire Malaysian government securities.

What some unscrupulous currency traders might do in a situation when there is a relative excess of the ringgit in international markets, resulting in a downward pressure on the ringgit, is to “short sell” the ringgit. Short selling means that a trader sells something he does not have in the expectation that when the time comes for him to make delivery, the ringgit would have depreciated to below the value it was at when he “sold” it  – so he can buy it at the lower price, then make the delivery and collect the difference.

[In 1987 Andy Krieger, a 32-year-old currency trader at Bankers Trust, took up a short position against the Kiwi worth hundreds of millions of dollars. In fact, his sell orders were said to exceed the entire money supply of New Zealand. The selling pressure combined with the lack of currency in circulation caused the Kiwi to drop sharply. It yo-yoed between a 3-5% loss while Krieger made millions for his employers. Krieger later left Bankers Trust to go work for George Soros.]

The volume of such short-selling if big enough could spark a run on the ringgit as other traders will also start selling the ringgit they hold, fearing the value of the ringgit will go down.

This despicable practice should be outlawed. Causing the depreciation of a country’s currency creates serious problems for the people. Malaysia imports about 28% of the food we consume. If our currency drops in value, the prices of foodstuff will go up.

We also need to import medicines, equipment for our hospitals, machines for our factories, fertilisers for our crops, animal feed, etc. A devaluation of our currency by 20% will make the life of our people more difficult, and as always, the people who will suffer the most will be the poorest amongst us.

Malaysia should work with other countries in Asean and the G77 group of countries to formally propose that short-selling of any currency above a certain volume is a form of genocide and should be outlawed. 

6. Green the nation and improve living conditions

With a forecasted unemployment rate of 20%, we will have a surplus of workers and talents for the next one year. If we could get organised, we could use this precious resource to repair the damage done to our environment.

We could make it a condition of our unemployment benefit scheme that recipients will have to contribute 10 days per month for public projects. We would then have to collectively decide what these public projects should be and use work teams comprising of the people on unemployment benefits to carry out these projects.

The following could be among the projects considered:   

  • Reforesting our logged forests
  • Building sanitary landfills in all our districts
  • Repairing facilities in our low-cost housing areas eg drains and playgrounds
  • Rehabilitating our rivers
  • Constructing 200 low-cost terrace houses in each parliamentary constituency
  • Adult education classes focusing on language literacy, simple vocational skills, accounting, etc   

The government will have to provide the materials and machinery for these projects. It should also provide the leadership to ensure these activities are run democratically and there is quality control of the various projects embarked upon. Innovative methods for sharing ideas and coordinating between teams working in different districts will need to be worked out.

If implemented well, these public projects will improve the quality of life for our citizens. The demand for materials will also spur aggregate demand and play a role in reactivating the national economy.    

Concluding remarks

The suggestions described briefly above are not a complete blueprint. We are putting them forward as a set of proposals that might be useful in handling the challenging situation that we and the rest of the world are in. We need to discuss these and other options so that we make the correct decisions.

The differences in the levels of pain and deaths suffered by different societies in handling the Covid-19 pandemic underlines the fact that correct policy decisions are crucial in navigating this storm. It underlines also the important role of government in coordinating the nation’s response and in gaining the trust and cooperation of the people of the country.

From the conventional point of view, this year will be a complete disaster! Our exports will slump, unemployment will reach record levels, and our GDP will shrink.

But if we can:

  • identify what’s truly important and focus on keeping people safe from Covid-19
  • ensure that everyone gets food and essential services
  • take steps to ensure the productive capacity of our society is not eroded
  • use the availability of manpower to clean up our environment through public projects

we will emerge rejuvenated and stronger as a nation.

We in the PSM think it is do-able, and the key to success is acting democratically on the basis of social solidarity.  

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Dr Jeyakumar Devaraj, a long-time Aliran member and contributor, served as Member of Parliament for Sungai Siput from 2008 to 2018. A respiratory physician who was awarded a gold medal for community service, he is also a secretariat member of the Coalition Against Health Care Privatisation and chairperson of the Socialist Party of Malaysia.
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Santana
Santana
26 Apr 2020 11.36pm

Too idealistic and impractical proposals from PSM

Gursharan Singh
Gursharan Singh
24 Apr 2020 11.08am

‘Malaysia is doing quite poorly in terms of food security’ as
FOOD/FRUITS/EDIBLE NEEDS HAVE BEEN NEGLECTED IN FAVOR OF CASH CROPS [PALM-INDUSTRIES WHICH BENEFIT THE URBANITES IN POWER.
Local vegies/fruits/durians/coconuts/etc were neglected due to cheap imports but
COVID 19 has brought the stark reality to be faced as exporting countries may be banning exports due to domestic needs.
Even UNIVERSITY PERTANIAN MALAYSIA MAY HAVE GIVEN LOW PRIORITY TO ‘PERTANIAN’ [agriculture] RESEARCH AND GONE TO OTHER WHITE COLLAR QUALIFICATIONS!!
NEED FOR MINDCHANGE OF LEADERSHIPS TO GIVE AGRICULTURE OF BASIC FOOD NEEDS ITS PLACE ON TOP OF THE PRIORITY LIST.
I have been voicing this for years via my training sessions on the danger of food neglect.

Subramaniam Pillay
Subramaniam Pillay
23 Apr 2020 6.20pm

A very comprehensive and balanced discussion of the way forward.