July 31st, 2010 by Hafiz Noor Shams
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?
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.