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INTRODUCTION
Mr Speaker Sir,
We are grateful to the Almighty for enabling us to assemble here
today for the tabling of the 2002 Budget. This Budget is crucial for
us as we need to address the greater challenges arising from an
increasingly difficult external environment.
World economic growth slowed down since the beginning of the year,
following weak economic performance in the United States and Japan.
The horrendous attack on the United States further aggravated global
economic conditions with prospects of an early recovery becoming
more uncertain. The attack was inhuman with thousands of lives being
lost. The whole world was shocked and the effects are indeed far
reaching. It not only weakened economic performance, but also
threatened global political stability and security. Malaysia opposes
violence. At the same time, we are also against a war to combat
violence. War is not a solution as many more lives will be lost and
more resources destroyed. It will also cause further sufferings. It
will not eradicate terrorism, nor curb terrorist activities. Those
involved are not Afghans and not many are in Afghanistan. These
terrorists reside in many countries and can launch their attacks
from any location. Malaysia has fought terrorism for 42 years. While
our military assaults were only confined to terrorists, we also
undertook psychological warfare to win the hearts and minds of the
people to neutralise their support, while eradicating the root cause
of terrorism.
Military assaults alone will not solve the problem. War will only
worsen the already weak world economy. Already we have to face war
risks. Links with our trading partners may be disrupted. Costs of
insurance on shipping, freight and air transportation have
escalated. Global demand for products will continue to decline while
costs of trading will increase.
The aftermath of the September 11 incident witnessed a crash in
major equity markets, some unprecedented. Equity markets in the
United States were the worst affected with the Dow Jones declining
by double digits, to the lowest level in recent years. A day after
the attack, stock markets throughout the world experienced heavy
selling pressure. The Dax Index fell 8.5 per cent, marking its
biggest single-day decline. The FTSE Index shed 5.7 per cent, also
reflecting the largest single-day fall since 1987. The Nikkei Index
which was already at its lowest level in 17 years, declined further
by 6.6 per cent to a new low. Similarly, other stock market indices,
like the Hang Seng and the STI also slumped. Stock markets in
Taiwan, Thailand and Kuala Lumpur which reopened on 13 September,
experienced similar declines.
Costs of finance and insurance will surge. Investor sentiment and
consumer confidence deteriorated. There was flight to quality with
investors shifting their funds to other financial centres. The
United States is no longer a 'safe haven'. Amidst this environment,
the prospects for an early recovery are increasingly dim. Industrial
economies may be faced with the possibility of recession. With the
possibility of a prolonged attack on Afghanistan, global economic
prospects will undoubtedly deteriorate further.
As an immediate response to prevent the economy from deteriorating,
the United States Administration injected liquidity into the
financial system and reduced interest rate to 2.5 per cent. This
represented the ninth interest rate cut from the level of 6.5 per
cent early this year. The United States Congress approved a 40
billion dollar fiscal allocation for reconstruction, security and
relief efforts. An additional 75 billion dollar fiscal stimulus
package was also announced. The United States Administration further
approved a bail-out package of 15 billion dollars to support their
airlines industry. In this regard, when Malaysia restructured its
companies, including our national airlines, international financial
institutions, in particular the IMF and World Bank accused us of
bailing out cronies. We were accused of practising nepotism and
lacking in transparency in corporate governance. It is obvious that
in critical situations, other countries also adopt the very measures
that we undertook which were criticised. Apart from bailing out,
other measures taken by Malaysia which were once condemned by the
foreign media are also being implemented by these countries. The
foreign media did not condemn these actions. The foreign media
themselves is now not that independent anymore. The safety of the
majority is more important than total freedom.
As an open economy with trade accounting for more than 200 per cent
of GDP, the Malaysian economy has been affected by the growing
difficulties in the external sector. The economy has just recovered
from the financial crisis of 1997-1998. However in the ,light of the
recent developments, GDP growth for 2001 which had been revised from
7 per cent to between 5 to 6 per cent in March 2001, has been
further revised downwards to between 1 to 2 per cent. The Government
responded immediately by putting in place measures to prevent
further deterioration in the economy. As we cannot be overly
dependent on external trade, growth must be led by domestic economic
activities as well as by exploring new markets.
In line with the domestic-led growth policy, the Government
announced an additional pre-emptive fiscal package of 4.3 billion
ringgit on 25 September 2001. This is an addition to the earlier
pre- emptive package of 3 billion ringgit which was announced in
March. The package is aimed at stimulating domestic economic
activities as well as alleviating the negative impact on the
low-income group and the disadvantaged. It is also aimed at
promoting business activities, increasing income opportunities for
small entrepreneurs and assisting retail businesses. In this regard,
specific small rural projects have been offered to class F
Bumiputera and non- Bumiputera contractors. The package will provide
skill training for retrenched workers and unemployed graduates.
The fiscal stimulus package will not have its intended impact of
generating higher growth, if the programmes and projects under the
package are not implemented immediately. The Government has,
therefore, reviewed the procedures, rules and guidelines on the
implementation of development projects and payments to contractors.
To expedite the implementation of projects, ministries and agencies
have been empowered with greater delegated authority. ender Boards
at ministries have been given the authority to approve tenders up to
50 million ringgit for works procurement and 30 million ringgit for
supplies and services. Their Tender Boards can also approve
restricted tenders up to 5 million ringgit without Treasury
approval. As for statutory bodies, the approval limit for tenders
for all supplies, services and works has been raised to 100 million
ringgit and up to 10 million ringgit for restricted tenders. This
delegation should not result in abuses of authority, but should be
accorded greater responsibility.
A task force has been established in the Ministry of Finance to
monitor the progress as well as identify and address plementation
problems to ensure that all measures under the fiscal stimulus are
implemented immediately. A Flying Squad has also been established to
ensure that the implementation of public and privatised projects is
carried out as scheduled. In order to expedite payment, all
Ministries and agencies are required to pay 50 per cent upon
submission of claims. Payment of claims must be settled within 30
days from the date of submission. The Administration, including
Ministers will monitor financial management without getting involved
in decision making. Aggrieved parties will have recourse to the
Ministers. On the other hand, Ministers must exercise care and
caution in their supervisory functions to avoid accusations of
favouritism.
Monetary policy will continue to be accommodative to complement
fiscal stimulus. On 20 September, Bank Negara Malaysia reduced the
3-month intervention rate by 50 basis points to 5 per cent, aimed at
stimulating business sentiment and consumer confidence. This
reduction represents the first cut in more than two years and is in
tandem with actions taken by other .central banks in several major
industrialised countries. Following the reduction, the base lending
rate of commercial banks and finance companies declined to reach
historical lows of 6.4 per cent and 7.45 per cent, respectively.
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