Size Does Not Always Matter

Published: 2009/03/07

This preoccupation with size (of the stimulus package) is worrying because, at the end of the day, it should not be about how small or big it is, but how we use it.

THE government's second stimulus package, or mini-budget, tabled for first reading in Parliament yesterday, has drawn mixed response from various quarters.Some economists, members of the public and soothsayers were disappointed that the amount, RM10 billion, fell short of their expectations.

Many had forecast a range of RM15 billion to RM20 billion.One recent research note even suggested that the stimulus package could be as large as RM30 billion, spread out over two to three years.

They argued that Malaysia's stimulus package, now a combined RM17 billion if November's RM7 billion is included, was smaller compared with that in other countries. The amount represents about 2.6 per cent of Malaysia's gross domestic product. In Singapore, it is 8 per cent; the US, 6 per cent; and China, 16 per cent.

These economists could still be right, though, as Deputy Finance Minister Datuk Kong Cho Ha has said that "there could be more" when Deputy Prime Minister and Finance Minister Datuk Seri Najib Razak tables the Bill for a second reading on Tuesday.

But "more" does not necessarily mean more money. It could include tax cuts and incentives, waivers and other benefits that help reduce costs for both businesses and individuals, or encourage them to spend more and support the economy.

Let's assume that, come Tuesday, the second stimulus package is really RM10 billion, full stop. Is that really a bad number? How much is truly enough?The funny thing about some economists and analysts is that they can support an idea one day and easily turn around and argue the opposite case a few days later, or vice versa, without batting an eyelid.

For example, the same people who say the government's stimulus package is not enough will, when the amount is increased, turn around and highlight the risk of such huge spending to the country's deficit, which could then trigger a downgrade of Malaysia's credit rating.

When our ratings drop, it will affect investor confidence and make it more expensive to borrow money, both for the government and the private sector. Without adequate funds to support growth and expansion, the economists will argue, the government should step in and give a helping held with ... (wait for it) ... another stimulus package!

We can see where this is going, can't we?Like it or not, governments and investors everywhere depend on the opinions of these experts.

Some give a fair and balanced view, taking into consideration local factors unique to the markets they cover, providing proper context. Others tend to stick with only the numbers.This preoccupation with size (of the stimulus package) is worrying because, at the end of the day, it should not be about how small or big it is, but how we use it.

Any amount, if properly managed and directed towards the right sectors, will have the desired spillover effects and benefit those who really need it. Sometimes, it does not even need to involve pumping in money.

But to get this message across to critics, supporters and observers alike will require greater transparency. People need to know what is being done, how much is being spent, who gets what, and whether or not it is working.