Thursday, January 29, 2009

Is Asia Doing Enough Stimulus?

Well, the US can afford the stimulus because it can print as much Treasuries that it wants as long as there are demand for it. Other countries don't have it so good. Other countries have to watch our balance sheet, our reserves, our foreign debt levels, etc... Its unfair, and the global economic paradigm will shift, albeit slowly, to require more accountability from the US, but until then, we have to play by the slanted rules. Asia have come up with its own economic stimulus, with Japan and China hogging the limelight, and both should have no problem financing the stimulus. What about other Asian countries?

So far, Asian countries are introducing over $600 bn in fiscal stimulus to raise govt spending on infrastructure and public services, cut taxes, offer subsidies and ease credit for households and firms incl. exporters and SMEs in order to cushion domestic demand, promote investment and curtail job losses amid export slowdown and global recession. Stimulus by most countries have been a small share of GDP, esp. in those running deficits. Therefore, stimulus will be largely insufficient to offset the shortfall in private demand during 2009.

Apart from stimulus spending, other risks to fiscal deficit may reduce the ability of govts to use counter-cyclical policies: High food and fuel subsidy burden (esp. in in Indonesia, Malaysia, India, Taiwan, Vietnam), slowing income and corporate tax revenues. Cut in import tariffs/excise duties (to reduce import prices of food, oil) are reducing revenues; scheduled elections in 2008-09 in India, Indonesia and political uncertainty in Malaysia is also raising populist spending.

India - Eased credit access for NBFCs, infrastructure, housing, SMEs, export firms in 2nd stimulus. 1st stimulus of $4bn incl. additional spending; value-added tax cut; export credit and elimination of duties; govt refund for sales taxes; tax-free bonds for infrastructure. Fiscal deficit may hit 8-9% of GDP in 2009.

China - $586 bn fiscal stimulus package is dominated by infrastructure spending but includes tax reform to support fixed investment, and social security investment, provide capital SMEs; has increased selected export rebates. But falling revenues post challenge. Furthermore some of the package is repackaging of older projects. Still, China's stimulus if enacted speedily, will cushion the slowdown from export demand somewhat. Dollar for dollar, the China's stimulus is greater in its effects than the $825 bn proposed by Obama.

Taiwan - speed up infrastructure and investment-promotion projects, distribute spending vouchers, loan guarantees for businesses. Budget deficit to be around 2% of GDP in 2008-09. One of the mildest stimulus packages - does the Taiwanese think they are so different from the rest?

Malaysia - RM7 bn stimulus to boost govt investment, spending on infrastructure, public services, incentives for firms. Govt planning for another RM7-10 bn package. Deficit estimate for 2009: 4.8% of GDP. Unlike other market watchers, I am not terribly concerned with the level of deficit funding as that is just one side of the story. I am comfortable with another RM7-10 bn package. Just stop lying to the people - our politicians need to grow up because the populace have. Its not like 30 years ago whereby you can control the media and say the right things and lull people into a false sense of security. The internet is the great equaliser with most taking their news and analysis from the web rather than mainstream media. We all know the global credit crisis is bad, what we want is a government that acknowledges the problem and deals with it. Nobody is blaming the government, we ride it out but we want honest people to us things as it is, and not whitewash them. Its a credibility issue.

Thailand - Announced 3 stimulus packages to alleviate the impact of inflation on poor and govt's waning popularity; Oct-08:10 billion baht injection into SET, accelerated disbursement of government expenditure; Aug-08: $1.3bn package to cut excise tax on fuel, subsidize transportation and electricity; Mar-08: Personal and corporate tax cuts, state-owned bank loans to small businesses and low-income earners. Will raise 2009 deficit to 3.5% of GDP

HK - higher fiscal spending incl. rent concession, Inflation relief package, electricity subsidies, cash grants; reduce diesel duty and fuel tax; projected $15 bn surplus for 2008-09 and may return $7bn to public (20% of total spending). Being the most open economy in the world, HK has the added cushion of being the services capital to mainland China. The flow on effects of China's stimulus will help HK somewhat.

Indonesia - 27.5 trillion IDR package in tax incentives and lower import duties for labor intensive exporting firms, lower diesel and electricity tariffs, spending on infrastructure and public services, create 3 mn jobs. Deficit forecast to rise to 2.5% of GDP in 2009 financed by multilateral loans. Hate to say this but Indonesia will be more harshly affected than most of its neighbours. It has to do with its balance sheet.

Singapore - S$20.5 bn in tax incentives and public works spending. Includes corporate tax cut, tax rebates for industrial/commercial properties, loss-making firms to retain local workers. Split risks of bank loans to firms; rebates for citizens, the poor and unemployed. deficit forecast for FY2009 of S$8.7 bn (3.5% of GDP) will be financed using S$4.9 bn of its forex reserves. The country which has put out the most aggressive stimulus and defence plan. The package is already more than 3x the size proposed by Malaysia. Singapore is more vulnerable owing to its open economy and property bubble there as well.

Vietnam - $1bn stimulus fund (to aid businesses) as part of the overall $6bn stimulus package to promote consumption and investment incl. construction projects, electricity plants, low-income housing; cut taxes on businesses. Deficit expected to rise to 7% in 2009. Vietnam was already in trouble prior to the global credit crisis. Will be a long hard slog for the country. Beware companies that still have huge committments in Vietnam.

p/s photo: Zhou Wei Tong

1 comment:

SH said...

The focus should be on whether "Enough Stimulus" has been planned to increase Asia's medium term to longer term economic competitiveness.

It is pointless to create jobs for the sake of creating jobs or trying to prevent further loss of jobs. Government should not get involved in preventing or delaying the full functioning of the free market system to cleanse itself of people/companies who had made incompetent decisions.

The whole world had experienced significant capital destruction. To ride out the deepening recession Asian governments must work towards attracting new investment capital to come in with attractive tax incentives that eventually will yield future tax revenues.

There is no quick cure for the current deepening economic pain. But a quick "Stmulus Programme" to increase the economic competitiveness of Asia is urgently needed right now.