So What If The Gdp Shrinks By 5 Pct In 2020

---

Many of the articles in the business section of the newspapers are full of foreboding – the Gross Domestic Product (GDP) is going to shrink by so much in the country
Most mentioned that the first-quarter growth was dismal in the country with Malaysian exports slumping, retrenchments in several major airlines, the extremely low occupancy rate of hotels, the slump in cars sales, the glut in the oil market, tankers waiting off Singapore harbour, a net outflow of funds from the KLSE, etc
Yes, it is clear to impartial observers that the world is heading towards a serious recession. It is not going to be “V” shaped, with a sharp recovery to previous levels by the third quarter of this year. The requirement for social distancing even after the relaxation of the movement control order (MCO), the tight restrictions on international travel and the disruption of consumer demand all over the world mean that most economies will have to splutter along for a while
Some sectors (aviation, tourism, hotels) will have to go into hibernation until the Covid- 19 pandemic can be brought under control – by an effective vaccine, or by effective treatment. (That may take 24 months!)But this does not mean we are all doomed. Not necessarily. Come on, surely a middle-income country like Malaysia can produce enough food to feed all its 32 million people on a long term basis. Even if the GDP shrinks five, 10 or even 15 percent, surely we can ensure that all the health needs of our people are met. Surely we can arrange matters such that no family is evicted because they cannot pay house rent. And we can certainly provide electricity, water, rubbish disposal and other basic services for the whole population
Why can’t we do all of the above even if our GDP shrinks a few percentage points? The basic infrastructure – the roads, the clinics and hospitals, the power generation capacity, the water treatment plants – are all already there. We just have to manage these assets and use them properly to ensure that no Malaysian family is deprived of their basic needs. It is eminently do-able. But it can’t be left to the market. Private businesses will not take the steps that are required – they are constituted on the profit motive, and they do not have access to funds on the scale that is required. Private businesses might be able to play a part in the rehabilitation of the national economy (and they should be allowed to), but they certainly cannot initiate or drive it. Our government has to provide leadership
One crucial step that we have to take in Malaysia is to ensure income support for the two to three million workers who are going to lose their jobs over the next few months
An unemployment benefit schemeThe production of basic goods – food, health care, utilities - in sufficient amounts is very important, but of itself, not enough. We also need to put in place a mechanism that ensures that all families can avail themselves of these basic requirements. In the current system, people earn an income which they then use to buy the things that they need from the market. But we are now looking at a situation where perhaps 20 - 30 percent of Malaysian workers are going to be retrenched, and perhaps half of the small businesses are going to fold up. There are 6.5 million workers contributing to EPF, and another 2 million or so workers who are in the informal sector. We also have 1 million micro-businesses.) We need an unemployment benefit scheme that ensures that all those without jobs will get a minimum income so that their families’ basic needs can be met
The two provisions that we now have in Malaysia to support retrenched workers are not sturdy enough. The first derives from regulation under the Employment Act. That prescribes a one-off payment (by the employer) that is dependent on the length of service. A worker with four years service will get a total compensation equivalent to two months of wages. That will not sustain him for long. Also, firms that go bankrupt will not even payout this meagre benefit. The second, the Employment Insurance Scheme (which is managed by Socso) will payout 80 percent of the basic wage for the first month after retrenchment, 50% for the second month, 40% for the third and fourth months and 30% for the fifth and sixth months whereupon it ceases. The EIS does not cover the 2 million workers in the informal sector. Nor does it cover the 1 million micro-businesses who open stalls at roadsides, the pasar malam and food courts. These two schemes do not provide sufficient protection given the level and length of unemployment we are probably going to see. That is why we need to urgently enact an unemployment benefit legislation
I would urge the people who are against the introduction of an unemployment benefit scheme to think it through carefully. First of all, the people who are going to become unemployed are not in that situation because they do not want to work or because they are lazy. The economic system has failed. It is not their choice nor is it their fault! Second, the provision of this unemployment benefit will help the economy recover. The increase in consumer demand will deepen the domestic market and enable more businesses to turn a profit and keep afloat. Third, if such a scheme is not implemented, families will go hungry. That’s morally reprehensible and will lead to resentment and anger - food riots and disruption of public order might ensue. People will not tolerate seeing their children go hungry. Fourth, handling the current crisis on the basis of compassion and solidarity will flesh out the concept of “Shared Prosperity” and will play a big role in creating a more cohesive, tolerant and unified nation. It will make us stronger going forward. An unemployment benefit scheme would be a smart investment for all of us
Where will the money come from?That is a fair question. Our federal government's debt is already RM750 billion, and we are now paying RM32 billion per year as interest on this debt. If we borrow more from the financial markets, our debt burden will become even more onerous. But there is another way for the government to raise the funds required. Several countries are already doing it - selling government securities to their own Central Banks. Indonesia, Australia and New Zealand have all used this modality to raise funds in the past month. They term it “monetisation of debt” – suppose it sounds better than “printing extra money for the government”! But it can work
Let’s say we set the unemployment benefit at RM1,000 per month. To support two million unemployed workers, the payout would be RM2 billion per month. That money will be spent by these families to buy basic foodstuff and groceries. This will encourage our farmers to produce more of these food commodities, create business for the factories involved in the processing of these commodities, create opportunities for the transport chain as well as the retail outlets. It will generate income for the entire supply chain and this will create job opportunities. By pumping in this RM2 billion, we would have prevented severe hardship in the families of the workers affected, prevented social upheavals and radicalisation of our youth, as well as begun regenerating our faltering economy
Downsides?There are some economists who argue that this injection of money will lead to an increase in imports, which may result in too much ringgit in the international markets. This will lead to downward pressure on the ringgit. If the ringgit deteriorates in value, the costs of importing essential items like certain foodstuffs (rice and wheat) and medicines, machine parts etc will go up. These economists do have a point, but it is unlikely that families on a budget of RM1,000 are going to spend that much on imported goods. Most of the RM2 billion will be spent on basic foods that are produced locally
New indices neededWe are in a “new normal”. The grow-at-all-cost consumerist economy has been brought to a shuddering stop by a virus. We have been forced to slow down markedly. The indices we used to assess the performance of the national economy – the rate of GDP growth, the volume of FDI, growth in exports and the stock exchange composite indices – are no longer relevant in the new normal that we are in now. We need to develop a new set of indices to assess the performance of an economy. I would suggest that the extent to which the basic needs of all members of society are met should be a major index that we use to assess our performance. Food security would be another important parameter. The enhancement of a sense of national solidarity and unity would be yet another. The effectiveness of measures taken to undo environmental damage should also be one of the parameters we use to gauge our success in this new normal
The coronavirus has forced us to do something that we would have never ourselves done on this scale. It has forced us to stop our mad rush and take a look at what we, as a society hold to be important. It has presented us with the opportunity to reconsider our priorities. It has given us the option of a reset button. Future generations looking back at 2020 will recognize it as a significant turning point in humanity’s trajectory. It also presents us with the possibilities of striking out in new directions, of building a more equitable and sustainable society. I really hope they won’t shake their heads and say “And those idiots blew it!”DR JEYAKUMAR DEVARAJ is chairperson of Parti Sosialis Malaysia (PSM). He is also the former Sungai Siput MP. - Mkini

---