Malaysia: COVID-19 response must confront three sides of the crisis

April 6, 2020
Stay at home campaign during Movement Control Order lockdown, at the University of Malaysia. Photo (cropped): Universiti Malaysia Sarawak/Flickr

Malaysia is being battered by a serious three-faceted crisis. 

The first and precipitating cause of this crisis is the COVID-19 pandemic sweeping the world.

The pandemic has hugely overloaded medical services, even in the richest countries. The death rate in Italy, currently one of the most badly affected nations, has exceeded 10% of diagnosed cases — far above the 1% seen in countries, such as South Korea, that acted early to contain the epidemic.

Malaysia is handling the health crisis much better than many other countries. Hopefully, we will be able to arrest the upward trajectory in new cases within the next week and avoid pushing medical services to breaking point.

The second aspect of the crisis is that many lower- and middle-income Malaysian households have already run out of their meagre savings 10 days into the Movement Control Order (MCO) lockdown, which came into place on March 18. They are having difficulty providing food for their families.

The third aspect of the crisis is that small- and medium-sized enterprises (SMEs), which employ about 65% of the workforce, are under serious threat. 

The lockdown means the vast majority of SMEs have had no income since March 18. Yet, their fixed costs remain: wages, rent, loan payments, income tax commitments, payments to suppliers. 

There is a real danger that some SMEs will be forced to fold. This would mean jobs will be in short supply once the lockdown is lifted and that the post-lockdown economic downturn would be deeper and more prolonged.

Given this bleak scenario, several measures have to be implemented quickly to address each aspect of the crisis. 

The capacity of our healthcare system has to be bolstered. There need to be measures to ensure the poorest 50% have access to food and other basic necessities. 

Other measures have to ensure as many SMEs as possible remain viable, so they can provide employment when the economy restarts.

Economic stimulus

Given this, the government’s Caring Economic Stimulus Package (CESP) is on the right track. 

It has allocated another RM1.5 billion (A$573 million) to the Ministry of Health. This represents 5% of the annual health budget.

The Socialist Party of Malaysia (PSM) hopes that a portion of these funds will be used to rapidly expand testing capacity. There are too many cases of people with symptoms not being tested because they do not meet the “testing criteria” of documented exposure to a known cluster of COVID-19 cases or a history of travel to certain countries.

The failure to diagnose cases early is costly, as it leads to more secondary cases arising from individuals who are asked to self-isolate instead of being diagnosed and put under strict quarantine.

The CESP also includes a fairly large cash transfer program. About 4 million families will receive a cash transfer of RM1600 ($610) over the next 2 months, while another 1.1 million families will receive RM1,000 ($381) in the same time period. This covers about 70% of families and will ensure these households have food on the table. 

Measures for SMEs

The CESP also includes a slew of measures to help SMEs survive the lockdown. These measures are timely as these businesses must be kept alive.

They include:

• A moratorium on bank loan repayments for the next 6 months; 

• A wage subsidy program where the government pays RM600 ($230 or 50% of the minimum wage) of a worker’s wage if the SME agrees to not terminate their employment; 

• Rent exemptions for businesses operating in government and government-linked company premises;

• Discounted electricity bills, especially for smaller enterprises; 

• RM4.5 billion ($1.7 billion) for programs to improve access to finance for SMEs;

• Possible postponement of compulsory savings and retirement contribution payments into the Employees' Provident Fund;  

• Exemptions for manufacturing and service companies on levies currently paid into the Human Resources Development Fund; and

• Postponement of tax payments.

The expansion of domestic demand arising from the cash handouts, totalling about RM15 billion ($5.7 billion), to the poorest 70% of families, single adults, university students, government employees and retirees, grab [similar to Uber] drivers, taxi drivers and others will help resuscitate SMEs.

Hopefully, these measures, and the boost they will give to the domestic market, will be sufficient to save the majority of SMEs from financial ruin.

Night markets

The issue of allowing micro-businesses in night markets and other people’s bazaars to restart in the post-MCO period has to be addressed. How can this be accomplished without compromising too much on social distancing measures that will still have to be in force? 

Many small SMEs will not be able to get back on their feet if we do not allow them the space to operate. At the same time, we cannot afford another upward spike necessitating another MCO.

Perhaps measures already being taken to limit the number of people entering food markets could be implemented at other markets and bazaars.

The provision of infra-red visors to Local Authority staff would help identify those with a fever. These people should be required to go home, self-isolate and report to designated centres for proper screening. 

All this has to be thought through and guidelines prepared with serious consideration given to input from healthcare professionals. It should not be decided on the basis of populist sentiments, as the cost to society could be severe if we get this wrong.

Budget deficit

The measures outlined in the CESP are correct at this stage of the very unusual situation we are in. The actual outlay on the part of the government is about RM25 billion ($9.5 billion). 

Prime Minister Muhyiddin Yassin said this will come from operating expenditure and that the government would not be borrowing to meet expenses.

But the 2020 budget approved by the Pakatan Harapan (Alliance of Hope, PH) government in December only forecast a RM5 billion ($1.9 billion) surplus. 

With the steep drop in oil prices and expected corporate tax income, the budget is going to take a hit. It is difficult to see where the extra RM 25 billion ($9.5 billion) is going to come from without cuts to other ministries.

If a re-allocation of funds among ministries does not free up sufficient funds, the government may have to consider a strategy of selling government securities to the Central Bank.

Central banks have been buying bonds and securities from the private sector to “inject liquidity” into the financial system since the 2008 financial crisis. They term this quantitative easing (QE). 

Why not some QE for the federal government, whereby our Central Bank buys some fresh government securities? This would give the government the funds it needs to institute the above measures.

Unaddressed issues

The CESP does not address certain important issues. There are industries, such as the airline and tourism sectors, that will not be resuscitated by debt restructuring and the provision of easier credit alone.

International air travel will have to be restricted for the next 18 months, until the pandemic is well and truly controlled. This means employees in these industries will have to be absorbed into other sectors of the economy, while a small number of workers safeguard and maintain the assets of the sectors until they can again open for business.

Investors who might need assistance in paying retrenchment benefits for staff they lay off could be given long-term loans with repayments starting in 2 years' time.

Unemployment will be a major problem. Manufacturing predominantly involves global chains of production, many of which will be cut off or trimmed down as markets are affected by lockdowns. 

We will need to generate employment opportunities for hundreds of thousands of Malaysians, but we cannot rely on the export market or private sector to do this. The government will have to step in and generate jobs through public sector projects.

We need projects to expand food production for domestic consumption. 

We need better management of municipal waste: recycling, production of bio-methane and the construction of sanitary landfills. 

We need tens of thousands of low-cost terrace houses built for the poorest 20% to rent. We also need to clean, repair and spruce up low-cost flats.

We need to set up factories to produce electric-powered buses. We need to set up solar farms in every district. We need reforestation of logged forests and rehabilitation of rivers.

The government will need to provide training so workers can take up jobs in these projects.

We cannot depend on the profit motive to inspire companies to initiate all this.

Just as we cannot expect private hospitals to handle COVID-19, we also cannot expect the private sector to handle the economic fallout from the pandemic.

The PSM thinks the government, working with local authorities, should fill the void and set up local or regional-based agencies to carry out these projects.

We should avoid huge bureaucracies that breed corruption and inefficiency. Smaller agencies with local participation and transparency in the way they are run should be the way. Involvement of the local population and state and district governments should be the norm. 

Fiscal stimulus

These are huge issues which the CESP does not address. Funding is obviously a big issue.

QE for the public sector should be discussed, with the downsides explored and planned for. One of them is a potential balance of payment problem and the pressure this could put on the Malaysian ringgit. Producing consumer goods within Malaysia, so that all the extra wages paid out for these public works does not cause runaway inflation, is imperative.

These are important issues, and they are not insurmountable. 

We are in uncharted waters. We face the huge risk of a deep and prolonged recession. Reducing interest rates and QE will not work if there is a collapse in aggregate demand. We will need other strategies.

The government’s handling of the COVID-19 epidemic and the initiatives undertaken in its supplementary budget are reassuringly measured. Now it should be prepared to listen to ideas from the public and engage with civil society groups about how the current crisis should be managed.

[Dr Jeyakumar Devaraj is chairperson of the Socialist Party of Malaysia and a former two-term MP for Sungai Siput. A longer version of this article is available at Links International Journal of Socialist Renewal.]

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