The Malaysian government did not take into account the full impact of the Sept 11 terrorist attack on the country's economy when tabulating the 2002 budget report, an opposition leader said today.

Wan Azizah Wan Ismail (Keadilan - Permatang Pauh) said that a comprehensive analysis on the tragedy and its after-effects on Malaysia's economy was necessary as America is Malaysia's largest export and business partner.

She added that the budget also appeared to rationalise the country's economic downturn by blaming it on uncertain global economic factors rather than conducting a critical analysis of the country's domestic weaknesses.

"There was no analysis on domestic weaknesses such as transparency, corporate governance, crony capitalism, nepotism, human rights and freedom of speech which can influence investors' confidence, consideration and sentiments," she said when debating the budget in parliament today.

Wan Azizah said an innovation-based economy needed a new political paradigm where knowledge, freedom of speech and a thinking culture are given higher status.

"A paradigm where the rakyat and industries are spoon-fed and an autocratic political culture which suppresses freedom of speech will hinder an innovation-based economy," she added.

Wan Azizah said the reason investors were shying away from Malaysia was because leaders from multi-national corporations perceived the country as being in the high-risk category in five years to come as reported by the Economic Intelligence Review.

Poor reports

She said that reports on the level of democratic practices and corruption put Malaysia in a bad light even if government leaders often refuted them.

"We must remember these reports are read by corporate leaders all over the world and can influence their perception towards a certain country whether our leaders agree with the reports or not," said Wan Azizah.

In her speech, the Keadilan president quoted a report by World Bank last year stating that foreign direct investment into East Asia has increased by 42 percent or US$93 billion.

Although, it was reported that almost US$41.3 billion was invested in China and another US$9 billion in South Korea, investment flow into Malaysia fell below the expected level, she said.

A report by World Economic Forum also reported that the country's economic growth competitiveness has declined from 24th place last year to 29th this year, she added.

Another index also showed that Malaysia fell from its 30th placing last year to 37th this year in terms of resource consumption as compared with India (36), Trinidad (34), South Africa (25), Hong Kong (18) and Singapore (10), she said.

Strategy doubted

Wan Azizah also queried if the budget could fulfil its intended purpose of encouraging domestic spending to stimulate the economy.

She said that the one percent individual tax deduction, half month's bonus and 10 percent pay increase for civil servants will be 'swallowed' by the increase of petrol and diesel prices of 10 sen per litre.

"The increase in petrol and diesel price will make an impact on transport costs, leading to inflation and an increase in our cost of living," she added.

Wan Azizah said she was concerned that the government's strategy to stimulate spending may backfire.

She related a similar situation in Japan where the government took steps such as giving out spending coupons and reducing interest rates several times to encourage borrowing.

However, the strategy did not work as the Japanese started saving their money, she said.

"The same thing happened in America. The country failed to improve consumer sentiments and the intention to encourage spending and attempts to stimulate the economy did not succeed," she added.

Spendthrift government

Wan Azizah said these sentiment came about due to the people's lack of confidence in the government.

She said the people are aware of how spendthrift the government is and how it has "abused public funds to save its cronies while blaming others for its own weaknesses".

"No one can blame the people for wondering whether all the allocations announced in Budget 2002 truly are meant to benefit the people," she added.

Malaysia does not have the ability to venture into high-technology industries as potential companies who were supposed to invest in the field were sceptical, she said.

She gave the example of Microsoft, which had shown its interest in transferring its company to Malaysia from Singapore, has yet to leave the island republic.