Thursday, January 26, 2017

Finance Minister II Change Perception: Who Blinks First? Rafizi Ramli or Tony Pua


Finance Minister II  had warned that the economy was at the edge of a fiscal precipice, and hence wanted the government to adhere to fiscal discipline.Governments everywhere are tempted to respond to a fall in growth by raising expenditure. The global financial crisis led to a massive avalanche of public spending across the world.  Assisted with this steroid, growth accelerated to 10% levels, and India became one of the fastest-growing economies in a world languishing under recession. Governments everywhere are tempted to respond to a fall in growth by raising expenditure. The global financial crisis led to a massive avalanche of public spending across the world
suggested some pathbreaking methods over  a decade back that the economists backing
Image result for Finance Minister2 Johari
The government should now neutralise the impact of the US federal rate hike by moving full speed to reboot the economy and boost business confidence."We should not panic," Johari said.
The ringgit was slightly lower against the US dollar in the early session today on profit-taking, following the local note's recent gains.
the ringgit was traded at 4.4290/4350 against the greenback, lower than the 4.4270/4310 recorded at close .FRI, JAN 27, 2017However, a dealer said the ringgit would likely improve throughout the day as market sentiment towards the greenback, was fairly bearish on worries over US President Donald Trump's protectionist stance on trade.Meanwhile, the ringgit traded higher against a basket of major currencies.

The handful of studies on fiscal multipliers in India, however, offer an interesting insight. A study by states that the fiscal multiplier is around 2.5 for capital expenditure, while it’s less than 1 for revenue expenditure. This means that for every Rgt 1 the government invests in capital goods like roads and railways, the GDP is likely to end up increasing byRgt 2.50.
But the overall impact of spending an extra Rgt 1 on revenue expenditure, like salaries and subsidies, will end up having an overall impact of less than Rgt 1on the overall GDP.
The  Government can use it to empower the people and turn the economic initiative into a definitive political initiative?
Infrastructure investment is stuck due as companies are weighed down by debt. Public investment needs a boost to revive the economy, calling for action from the government. Stepping up public investment will create new demand. It also has the potential to crowd in private investment to meet that demand. The short point is that for same amount of private savings, there is really no threat of public borrowings competing with private borrowings.
There is no dispute that the government should cut wasteful spending and raise extra money — by adopting the goods and services tax and widening the base, and administering taxes better. But does it not make sense to achieve a 3% of GDP target for the deficit over a business cycle rather than through every year of a it? This can be done only if the government stops worrying about what rating agencies would have to say.Connectivity and high-impact infrastructure projects are implemented to help stimulate the country's economy and not for grandeur, said Prime Minister Najib Abdul Razak.

Referring to projects like the Pan-Borneo Expressway, Rapid Pengerang in Johor, Malaysia Vision Valley, Bandar Malaysia, Tun Razak Exchange, the East Coast Rail Line (ECRL) and the High Speed Rail (HSR), he said they were also not luxury projects."These projects are not for grandeur, not luxurious in nature, but to help generate the country's economy," he said at the Finance Ministry's special assembly in Putrajaya today.Najib, who is also finance minister, said the projects were capable of creating high paying jobs, as well as contract opportunities for local companies, including Class F contractors."This creates better connectivity and leads to an increase in the country's gross domestic product (GDP)," he added.Citing the ECRL project, he said when completed, it was expected to increase the growth rate of the three states in the East Coast by 1.5 percent.

"This is the government's commitment to infrastructure development, stimulating local economy and to provide a significant increase in the people's lives."We provide a transport system which is affordable and the MRT system is well-received."Come July, the MRT project, stretching 51 kilometres from Sungai Buloh to Kajang will be ready. This project is a game-changer for the country," Najib added.

As such, the prime minister emphasised the need for the projects to be carried out fast and efficiently, had high impact on the people, at minimum cost, with rapid execution and sustainable."These should be made the basis in determining whether a project can be implemented or otherwise," he added.
From a market-friendly viewpoint, the government’s role is to facilitate private enterprise. Provision of infrastructure is crucial for this. Providing roads and electricity to every habitation, or ports and airports for international connectivity, can hugely improve business opportunities. Some of these sectors require massive funds, carry big commercial risks, and are unprofitable (no villagers will pay tolls on rural roads). The government has the greatest capacity to raise money and take risks, since it can use tax revenues rather than commercial capital. Hence it has dominated infrastructure everywhere.
government constantly lacks funds for badly needed infrastructure. Finance Minister II ’s solution is for government undertakings to routinely sell existing assets, and use the sale proceeds to finance fresh investment. Public sector entities can sell entire subsidiary companies, or projects, or vacant land to finance fresh projects.The greatest potential lies in recycling infrastructure. Instead of depending on money from the stressed budget, infrastructure sectors can raise all the equity they need by selling old assets. Instead of building in order to own and run, the government should build in order to sell.model had the private sector building, operating and transferring a project to the government. The new model has the government building, operating and then transferring projects to the private sector. This reversal makes excellent sense.
 while the government has a major role in building infrastructure, should it maintain and operate roads or power stations? No, not at all. Once the commanding heights have been built, they can be sold to private entities for routine operation. model was fundamentally unsound. Construction is the riskiest part of an infrastructure project, when unanticipated delays and glitches are common. Major infrastructure projects the world over have suffered huge cost overruns. New model entrusted construction, the riskiest part, to the private sector, to be transferred to the government after the risky stage was over. This placed the maximum burden of risk on heavily leveraged private players, who were least equipped to bear it.
. It said the government, which has the greatest risk-bearing capacity (it can always use tax revenues to rescue a project) should build projects, and operate them in the initial phase when revenues are uncertain. Once the project is firmly established and revenues are steady and predictable, it can be sold to private players (including international ones) who will pay a high price for utilities with stable revenues. The sale proceeds can then be recycled into new projects.

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