Economy showing signs of fatigue, warns ex-deputy BNM governor

Lin See-Yan says the country is facing high debts, a weak currency and dependency on cheap foreign labour.

PETALING JAYA: A former deputy Bank Negara Malaysia (BNM) governor has voiced concerns over the economy, listing high national debt, a weak currency and dependancy on cheap foreign labour as signs of economic fatigue.

Lin See-Yan told FMT that despite these conditions, the economy would continue to perform in the short run.

“That is not what I am worried about. I am worried about the medium and the long term.

“All the indicators I see are showing signs of fatigue. Growth is slowing down, and fundamentally, the economy needs restructuring.

“We cannot depend on consumption to drive the economy because more consumption will raise debts,” said Lin, who was deputy Bank Negara governor from 1980 to 1994.

He was speaking after the launch of his book titled “Turbulence in Trying Times. What Are We to Do?”. The book was launched by Perak ruler Sultan Nazrin Muizzuddin Shah at Sunway University today.

Lin, a Harvard graduate, said Malaysia’s debt was not critical, but high.

“If you keep on pushing consumption when income is growing at a rate below consumption, then debt will at some point in time overwhelm you. It will also slow down consumption.

“What we need is domestic investments. Raising the productivity of our labour.”

According to Lin, Malaysia needs economic reform in order to push growth.

He listed the manufacturing of high value products as one such reform.

Lin, who was with the Prime Minister’s Department from 2008 to 2010, said the government should also be encouraging jobs that would grow the value chain.

“Instead of stitching shoes, we should design shoes, use better materials, use more value-added products. Not just import Bangladeshis to help us pack gloves. That is crazy,” he said.

The British Chartered scientist said the government should put a stop to hiring cheap labour and focus more on education to aid in producing quality products.

Meanwhile, those who were not academically inclined should enrol in vocational courses and master a trade.

“Today, we depend on Indonesians for construction. We should teach our people to lay bricks, paint and varnish. In developed countries, those in trade earn more than professionals,” he said.

Lin, who was also chairman of Malaysian Insurance Berhad from 1988 to 1994, added that there was presently no point increasing wages as there was a lack of productivity in terms of creating value-added products, which would lead to inflation.

According to the finance ministry’s economic report for 2016/2017, federal government debt stood at RM655.7 billion at end-June 2016, an amount equal to 53.2% of the gross domestic product (GDP).

Weak ringgit does not reflect a good economy

Lin said he was also concerned about inflation due to the weakening ringgit.

Speaking to reporters, he said when he retired as deputy governor, the US dollar equaled RM2.50.

As of today, US$1 equals RM4.18.

According to Lin, a weak ringgit does not reflect a stronger economy.

“There are more minuses than pluses. Everything we buy, we pay more. Manufacturers have to pay more to buy imported stuff before exporting it.”

He added that the currency’s depreciation could in fact contribute to the weak economy.

“That is my view,” he said. “The political process is not encouraging, either.”

Lin’s 285-page book gives an account of world affairs as they unfolded since 2015, when low prices and weakening currencies caused havoc amid a dismal global economic outlook.

It provides insight on happenings in Asia, particularly in China, and looks at quality education, good leadership and dependable governance.