PUTRAJAYA has to spend more to get Malaysia out of the Covid-19 induced economic crisis, said economist Prof Jomo Kwame Sundaram.

“Take for example the question of revenue. Tax revenues were going down, down, down for decades,” he said on the Consider This show on Astro Awani.

“Now suddenly we realise we have hardly anything in the kitty and we need to spend to get out of this crisis.”

Jomo said one should not expect normality to return with the end of the lockdown.

 It’s not a matter of, let us say the lockdown is over and you turn on the switch and everything goes back to normal.

“You can’t just do that. People don’t have incomes they are not able to spend. If they don’t spend, people cannot produce for them to buy,” said the research adviser at Khazanah Research Institute.

He said the government has to “keep things ticking” while economic activity is disrupted during the lockdown to maintain liquidity for the people, particularly the most distressed.

He said rich countries are spending their way out of the twin health and economic crises.

“They don’t borrow abroad, they borrow internally. Japan is a classic example but this is also happening in Europe and elsewhere and they do not even need to borrow from abroad,” said the former United Nations assistant secretary-general for economic development.

“They are not importing anything. They are basically trying to generate activity,” he added.

Developing nations such as Malaysia, however, are not spending more.

“Part of the reason is very understandable. Politically many people are suspicious of many of these countries.

“They are suspicious of the governments – whether the governments will spend the money correctly,  whether the government will spend money to help those in the greatest distress, or basically reward their cronies.”

He said these countries also do not realise that they can actually borrow domestically instead of from abroad.

“Even when economic policymakers are willing to do that, there is a lack of political support when they do not enjoy legitimacy and this is the fear.”

“When the government is seen as biased to a particular region, to a particular community or to any particular constituency at the expense of other constituencies, it does not enjoy legitimacy and therefore people will always see whatever they do, even when they do the right thing, with some suspicion,” he said

He said this is why it is important for the government to have legitimacy.

Lockdown a ‘blunt instrument’

He said lockdowns are a “blunt instrument” response to the Covid crisis, adding that many countries did not opt for a nationwide lockdown as a containment measure.

“I want to re-emphasise: Japan, Korea, Taiwan Province, China, Vietnam, Laos, Kerala (India) – one of them had nationwide lockdowns.

“China had lockdowns because the situation got out of control in the first couple of months.

“They had lockdowns in Wuhan city and the three provinces around Wuhan city because there were a lot of commuters who work in Wuhan which has long been an industrial hub of China.”

“But other than that they didn’t have a lockdown. They took a lot of precautionary measures, they did a lot of testing and so on and so forth,” he said.

 He said this was also partly why China and Vietnam continued to register economic growth last year. – June 26, 2021.
 

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