analysis It is generally agreed the Asian Tiger phenomenon was based on foreign investment. The tiger is fast becoming as extinct as its namesake, as the withdrawal of foreign funds continues.

For a time, it was announced that Malaysia was capable of independence, with internal resilience and strengths; that domestic demand would rise to provide sufficient economic activity to stave off any downturn. Now there is a growing awareness that foreign trade activity plays a larger role than the government is willing to admit.

The aggregate figure, derived from combining monthly import and export figures, tends to vary, and the trend is difficult to see. But it is possible to average the figures so that the trend approaches a smooth curve.

In Figure 1 (above) the curve shown in blue is based on the raw data, taken from the official government amounts (in billions of ringgit). The smoothed red curve is the moving average for the months of February through July last year. The figure shows what vigorous growth looks like on a graph.

The figures for July, 2001 have just been announced, and it is possible to construct the same graph, where the blue lines connect the raw numbers, and the red curve indicates the moving average, as in Figure 2 (left). It is easy to see that things are not the same, and there is every expectation that the picture is to become worse.

The trend is certainly not flat. It is down, though not down so sharply as it might become, because the figures refer to business activity past. The most recent data indicate there is no change in the trend, and indeed, the downward angle of the curve may be expected to increase in the coming period. This is because the July raw datum (49.6) is lowest of all the months shown.

The data for 2000 and 2001 may be plotted on the same chart for comparison. [Figure 3, (left)]. The difference in the trade situation is immediately obvious. Last year during this period there was support for unbounded optimism, and the economic policies of the government were defensible. This year, however, there is clearly a change in the situation. The level of economic activity that is related to foreign trade is less than flat, and the July figures are more disappointing.

While the 2001 curve (red) seems to be leveling, after the August figures are plotted together with the low July figure (49.6), the curve will continue its downward trend. One notes the sharp drop from RM61.4 billion in July last year to RM49.6 billion this year. This is a year-on-year decrease of RM 11.8 billion in foreign trade activity (-19.2 percent).

Sense of danger

Is such a drop a serious issue for the national economy? The prime minister says "No, there is no recession. The full year GDP can approach plus 2 percent growth." Some disagree. The tiger got fed on foreign trade.

The news from Japan and the US, our largest trading partners, is not good, and Singapore is also tightening its belt. More layoffs are reported daily. Over 200,000 Malaysians work in Singapore, and they are certainly to be affected as Singapore acts to protect its own. Because Singapore is a transhipment point for much that goes forward to Japan and the US, so far as Malaysia is concerned, all three trading partners are inter-related.

If the economic fate of Malaysia is free of dependence on foreign trade activity, as the government states, the fall in this sector is not worrisome in the long run. There is no urgency, no sense of danger, and there is no awareness that Malaysia faces a serious situation.

The economic picture is, however, being treated seriously in Japan, Singapore and the US. The question then turns on whether the domestic demand in Malaysia is strong enough to ignore the lower foreign trade statistics.

In 1991, the national debt was around RM25 billion. Over the next eight years, this figure was reduced to under RM10 billion. At the time of the '1997 crisis', there was enormous pressure to sharply increase the public spending, especially for large mega-projects favored by the government.

Since 1998, the national debt at the federal level has escalated. To this must be added the state and other lower level debt, plus the debt in the private sector. In addition to this increased debt load, the government has bail out the large corporations under its control.

The debts and non-performing loans of some major companies are now too heavy to survive a significant downturn, and the current level of defaults on interest will soon be a major factor in the financial embarrassment of the country.

Lean times

As if this were not enough, the pension funds of the public employees have been employed in the pump priming scheme, and it is impossible to get an an accurate accounting of the losses they have sustained. The various funds under the government control have lost their flexibility.

The analysis here presented is a sad one, and begs to be proven wrong. But the government has a fetish for secrecy, and no reliable disclosure is to be forthcoming. The evidence is there, in the recurrent extension of payment dates, the lack of external audits, the rolling over of bonds due, and the total unwillingness to allow any investigation or prosecution of the sizable crimes and frauds which have been exposed to date.

In the present situation, one would expect prudence. Some acknowledgment of an interest in financial conservatism would seem wise. But no. If it took eight years to pay off RM15 billion in the good times of 1991-98, how many years will it take to pay down the present level, which is so much more higher? Can the Malaysian government continue its pump priming exercise at the same level indefinitely? Certainly not.

The oil is sold years ahead, the timber resources are depleted, and agricultural commodity prices are low. Keynesian economics postulates that a country cannot go broke, that national debt can be internalised indefinitely. That theory is presently under test around the world.

Foreign sources for further borrowing will surely dry up as the defaults make the situation more transparent, forcing the government to admit its ridiculous 'spend our way out' policies have led to serious problems. Government deficit spending at a rate of over RM75 billion per year has made things for a time look better than they are. But the fat, along with the butter, is now gone, and lean times are surely ahead.

HARUN RASHID is a scientist avidly interested in the application of Islamic principles in international affairs. The promotion of goodwill through civilisational dialogue motivates his writing. His Worldview column is a personal analysis of Malaysian affairs from a global perspective.