THE East Coast Rail Link – and the ghost of its sordid past – is facing a fresh round of criticism.

The ongoing 1Malaysia Development Bhd trial has revealed that ECRL and other infrastructure projects were hatched to cover debts incurred by the state investor in its ignominious scandal. This brought no surprise, merely confirming what the people already knew.

There are many factors in the decision to go ahead with ECRL – contractual matters, penalty for cancellation, 30% of the project’s original cost already paid, cost to demolish structures already built, and other economic, diplomatic and political reasons. Cause for a review has to be more than the 1MDB trial testimony and a lack of funds for the project.

Concerns about ECRL’s unviability, such as a huge capacity unmet by passenger and cargo loads, its humongous cost that the government can ill afford, and the project serving mainly China’s interest, are all valid. The worry that spending on such infrastructure is a zero-sum economic decision as the funds allocated now might deprive us of needful expenditure in the future is also well grounded.

However, there are compelling reasons for ECRL to proceed, and it is not just because its price has been renegotiated down from RM65.5 billion to RM44 billion. There is a termination cost of RM21.78 billion in the event the project is scrapped. RM20 billion, or 30% of the project’s cost, had already been paid when Pakatan Harapan took over Putrajaya last year. These were the main reasons the PH government sought a renegotiation, to continue ECRL instead of terminating it.

Also under the renegotiated deal, local participation is increased from 30% to 40%, worth RM17.6 billion. With an economic multiplier of 1.6 for investment in infrastructure projects in developing countries, according to International Monetary Fund economists, ECRL is expected to bring in another RM28.16 billion (RM17.6 billion multiplied by 1.6).

A 50:50 joint venture between China Communications Construction Company Ltd and Malaysia Rail Link Sdn Bhd to operate and maintain services upon ECRL’s completion mitigates the uncertainties regarding the project’s viability. Another merit is the opportunity to bring development to Negri Sembilan, Pahang, Terengganu and Kelantan. New townships and pockets of economic activities at focal points along the ECRL route will stimulate investment, generate employment, raise the value of assets and boost incomes. Kuantan has the potential to transform into a major port for the entry of goods from China, providing competition to Port Klang and Singapore as a transshipment hub.

To reap the full benefits of ECRL, the maximum economic multiplier effect must be achieved. That RM17.6 billion has the potential to stimulate another RM28.16 billion in gross national product. For this to happen, the participating local companies have to be qualified, and most importantly, help invigorate the economy with the income earned.

Economically, it matters little who is given contracts. But if cronyism and the practice of awarding contracts not based on merit continue to prevail, the return on investment will be lost to greed, incompetency and leakages, and we will be trapped by an ever-rising national debt. In short, doomed.

There is no denying that the world economy is in contraction mode. Central banks are fighting hard to ward off recession. The US Federal Reserve has reduced its interest rate for a second time in three months to 2%, hoping to spur investment and growth, and also raise inflation. Central banks have been out of novel ideas on how to stimulate growth since 2008, when both fiscal and monetary measures failed to do so.

Four rounds of quantitative easing (money creation) in a decade that saw US$12.3 trillion created by all central banks – according to a 2016 CNBC report – were unable to encourage growth. It will be no better, or even worse, this time. A reduction in the global interest rate, and a possible new round of quantitative easing, could trigger panic and loss of confidence in a monetary system where equity markets and property prices have been artificially inflated. A major geopolitical conflict, trade and currency wars, or a run on any major bank could trigger a contagion effect for a global recession. These are indications that our economic planners have to take heed of.

In the event of such a recession, ECRL can potentially cushion a hard landing, provided that spending is prudent and the income earned is channelled back into the country. The proviso is that the renegotiated terms must be clear and fair to both Malaysia and China. – September 26, 2019.

* Captain Dr Wong Ang Peng is a researcher with an interest in economics, politics, and health issues. He has a burning desire to do anything within his means to promote national harmony. Captain Wong is also a member of the National Patriots Association.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.