Rajah Rasiah, Asia-Europe Institute, Universiti Malaya: This paper by Muhammed Abdul Khalid provides a reasonable account of how the COVID-19 pandemic unraveled in Malaysia, how it has affected the economy, and what types of policy interventions were taken. Khalid has largely provided a detailed account of the health and economic consequences and how interventions have impacted the country on both fronts. However, I think some parts of the account could have benefited from a more careful scrutiny of the data, and that the presentation should have told us more about the link between the health impact and the economic impact.
Importantly, apart from recommending a higher fiscal deficit to provide additional social assistance, including much needed assistance for low-wage workers and small businesses, the paper could have done more with concrete suggestions on how the handling of the economy could be improved. In the interest of the space and time given to me, I shall address the following issues.
Handling of COVID-19
Like most other nations, Malaysia was caught unaware when the COVID-19 pandemic struck. Compared with many developed countries, Malaysia is endowed with strong health fundamentals. However, it has to be noted that Malaysia still did not perform better than many East Asian countries including some poorer ones—for example, Vietnam, Lao PDR, Cambodia, and Thailand. Although the spike in infections and deaths for Malaysia since September has severely aggravated the figures from the time Khalid completed the paper, the relative rank of Malaysia has remained below these countries.
Malaysia had 817 cases, 7 deaths, and 61,753 tests per million population on 25 October 2020 (Worldometer 2020). Against these figures, South Korea had 504 cases, 9 deaths, and 49,649 tests per million population. While South Korea has only done slightly better on COVID-19 infections, Malaysia has been outperformed by Vietnam, Taiwan, Lao PDR, Cambodia, Thailand, and Singapore on some of these metrics. For example, Thailand had 53 cases and 0.8 deaths per million people. Lao PDR, Cambodia, Vietnam, and Taiwan had 3, 17, 12, and 23 cases per million people, respectively. Meanwhile, Vietnam, Taiwan, and Singapore had 0.4, 0.3, and 5 deaths per million people, respectively. Although there have been changes in the absolute figures, the relative differences were similar in August 2020 when Khalid wrote his paper.
Handling of the Economy
I think Khalid has been overly generous on the government's handling of the 1997–98 Asian financial crisis (AFC), and the 2008–09 global financial crisis compared to its handling of the 2020 global recession.1 While I am in support of the capital controls that were introduced in 1998, because it provided the insulation that was essential to restructure non-performing loans (NPLs) and debt, the abandonment of the due diligence exercise on ailing corporations denied the opportunity for transparent corporate governance to reduce corruption (Rasiah 2000). It also prevented the introduction of regulations to discourage the participation of corporations owned by sovereign wealth funds in the market from crowding out private sector firms.
The AFC provided the experience for not just Malaysia, but all East Asian countries to keep NPLs low, and to reduce reliance on foreign loans, including short-term debt. Malaysia was fortunate during the AFC as it still had international reserves surplus when capital controls were introduced (Mahani and Rasiah 2009). Thus, while South Korea, the Philippines, Indonesia, and Thailand had to visit the IMF to settle its foreign capital deficits, Malaysia did not have to go cap in hand to seek such funds. The 2008–09 global financial crisis attracted a knee jerk reaction from Malaysia's Finance Ministry, however. As exports crashed, the government lowered interest rates and collateral requirements to stimulate domestic consumption.Such a move aggravated household debt in the country (Rasiah 2017).
Finally, it is important to note that the COVID-19 pandemic is different from these other crises as pointed out by both the World Bank and the IMF. For the most part, generations living now did not experience a similar crisis before, which came in the form of the Spanish flu in 1918. The two earlier financial crises had clearer dimensions for the use of fiscal and monetary policies, while the current one is still unfolding with no clear sight of the floor. Any fiscal injection may fall through with no economic impact if lockdowns or restricted openings are essential to stem the spread of COVID-19 infections. There must be strong connectivity and coordination between those handling the health crisis and those handling the economic recession to overcome both issues. Among the recovery initiatives that the government launched but are not addressed in Khalid's paper include the resumption of logistics activities, strong emphasis on the manufacturing of personal protective equipment, and continued support for export-oriented industries. In addition to the recovery initiatives, which has gained currency from April 2020, the government also noted the need to anticipate and promote the new industries likely to arise from the crisis. Although it is unclear as to how the government would address the reforms, there are a number of developments that could be tweaked to address these issues. In addition to quickening the introduction of Industry 4.0 technologies, in which Taiwan has done well to reshore manufacturing from China since 2019 following the China–U.S. trade war (Jennings 2019), the substitution of fossil fuels to renewable energy can be accelerated. The crisis also offers Malaysia an opportunity to focus on intensive food crop and animal farming using robots and drones to overcome its current account deficit, which has worsened since 1989.
The 2008–09 global financial crisis, which hit the United States in 2007, affected Malaysia from 2008.