Although the debate on fiscal stimulus has died down in Malaysia, I am still very much amused, if not outright dismissive, of a number of arguments made by advocates of stimulus. One argument is related to transparency: stimulus has to be transparent. Although the argument for transparency is a generic one and many have voiced it, it was reiterated by somebody well-known in Malaysia recently. I am thinking of Nazir Razak of CIMB but at 3 o’clock in the cold Sydney, I have lost all desires to look for the article.

My criticism of having a timely stimulus and transparency is summarized in one word: naive.

Fiscal stimulus has to be timely, especially when there is no automatic stabilizers with arbitrary stimulus. If it takes too long to implement, or in other words, it takes the government too long to spend the money, there is a good chance that the stimulus will be obsolete by then. By the time the money is spent, the market situation has already improved that the stimulus is not required any more.

In fact, untimely implementation might disrupt recovery through, for instance, crowding out process by the government.

Unfortunately, transparency does not run parallel with the concern of timeliness.

Why transparency is inconsistent with timeliness?

Simple.

Transparency requires processes. Reporting is paramount. In other words, bureaucracy.

Red tapes have been derided as suffocating but it does play a huge role in rule of law. It is only through bureaucracy can controls be exerted on spending. Through those controls based on known clear rules and not through arbitrary acts which are susceptible to  abuse compared to rule-based system, transparency is achievable.

That rule-based system aimed at transparency is more convoluted than the paragraphs I have just written before this one. It take time to go through the bureaucracy. Hence, the issue of timeliness.

So, how useful is a stimulus if it is untimely done?

You know my answer.

I am for transparency but I am also a realist here. I understand that if one is concerned with transparency, it is hard to support a timely stimulus.

If you want a timely stimulus, something has to give. It is a dilemma.

Before I am accused of supporting corruption, leakage or anything of such, do note that I do consider those things negatively. Remember, I am arguing against fiscal stimulus, not transparency.

I do not have that dilemma. I am typically anti-stimulus; I cut through it.

Stimulus advocates cannot accuse me of giving nontransparent practices a blind eye. For those who like to moralize about transparency however, you my dear have a moral problem.

6 Responses to “[2232] Of fiscal stimulus, timeliness and transparency”

  1. on 31 Jul 2010 at 18:25 hishamh

    Actually, as far as I can figure out, there wasn’t any fiscal stimulus in Malaysia, at least not one worth talking about. The difference between planned (budget 2009) versus actual expenditure (incl development spending), was all of RM4.5 billion, or about 0.67% of 2009 GDP. Whatever boost arose out of the stimulus packages was completely lost from cutbacks in other areas. It’s essentially a shift from consumption to investment, but as far as I figure, the overall impact is pretty much what you’d get from just leaving it up to automatic stabilisers.

  2. on 01 Aug 2010 at 00:39 Hafiz Noor Shams

    So, that means recovery originated mostly from external demand?

  3. on 02 Aug 2010 at 13:18 hishamh

    As far as it goes, yes.

    There’s of course the impact of the deficit itself, which was almost wholly caused by the drop in revenue. That provided some notional support during the worse of the downturn. But it was a drop in the bucket compared to the sharp fall in external demand.

    There’s also the RM30+ billion in credit guarantees, but I don’t know how to quantify that – though not very much I think, as that’s less than 4% of total loans.

    I think the recovery and the downturn before it were really a combination of three things – lean inventory management (fast cuts, then fast bounceback in manufacturing output), external demand, and commodity prices.

    Note that I don’t think Malaysia has fully recovered yet: we’re still way below trend growth.

  4. on 08 Sep 2010 at 03:47 Habib

    I thought as a libertarian, one should not support any expansionary fiscal policy, regardless of its shape.

  5. on 08 Sep 2010 at 08:14 Hafiz Noor Shams

    Am I advocating fiscal stimulus here? I am not.

  6. […] transparency is of a concern, then it will adversely affect the timeliness of the stimulus […]

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