Monday, September 15, 2008

The Politics of Economic Discontent

Have Malaysians screwed up their economy really badly? Could the current rumblings in politics as well as education be signs that the macroeconomy is grinding to a painful halt?

Malaysia had natural resources, and still has, some. This was proven not to be enough. The national income was raised by attracting FDIs to boost the manufacturing sector, which had difficulty coming to maturity. This had come and gone. The national income was also further raised by easy money in the stock market, through the inflows of foreign speculative funds. These had gone. The regime of easy money policy has fueled easy money in the property market, as well as a depreciation of the currency and an escalation of domestic prices. The central bank is unwilling to control inflation for fear of discouraging investment.

But direct investment has mostly been from foreigners. With China in ascendent, many have left. Could they also have been discouraged by the unprofessional practices after decades of the politics of easy money where the only proven method of growing the economy is more government spending?

With direct investments in the doldrums, unemployment opportunities declined. Is the problem of unemployed graduates due to the inability to understand Mathematics and Science in English? Or that there is now greater competition for jobs and the lower grade graduates are now being left high and dry?

On top of this, the decision to fund projects rather than subsidy has pushed up retail prices by 40-50%. The central bank is waiting for next year to show that the inflation rate will have slowed down. But retail prices will stay high. And this adds to the burden of the people at large. No wonder, all the people are up in arms - the haves and have-nots.

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