Medicine for the economy

Prepared by Helmy Haja Mydin, Arif Astaman and Intan Nadia Jalil

MALAYSIA has just implemented a movement control order (MCO), a drastic but necessary social distancing measure to “flatten the curve” of the Covid-19 outbreak. The aim is to decelerate infection rates, thus preventing our healthcare facilities from being overwhelmed. However, the MCO will exert a toll on our economy. If prior to it, voluntary self-distancing and cross-border measures had led to a drastic drop in revenue for the tourism and hospitality sectors, the MCO will see a domino effect on almost all economic sectors. Economists expect production to at least halve in March. Micro and small businesses are on the brink of closure with disruptions to supply chains. In short, efforts to flatten the curve will lead to flattening the economy as well. This outcome is not inevitable. Other countries are demonstrating that it is possible to execute a plan that addresses the public health crisis while mitigating the effects of an economic recession and laying the groundwork for recovery. Using a medical metaphor, this action plan has three phases – triage, treatment and recovery. Given the urgency of the situation, we will focus on triage and treatment measures. A. Triage: Immediate measuresAs necessary as the MCO is, its abrupt and confusing implementation has led to significant disruptions to income streams and supply chains. The impact of these disruptions must be addressed urgently so that this temporary measure does not inflict permanent damage. Priorities include: > Ramping up the provision of personal protective equipment (PPE) and medical equipment. Supply chain disruptions have ranged from a drop in medical glove production to plastic factories being unable to supply plastic covers for patients. In a time of medical crisis, some key sectors should be ramping up production. For example, Malaysia produces 60% of the world’s rubber gloves; we should be asking our factories to scale up production in a time of global need. > Addressing loss of income: For the rakyat, cash transfers on top of existing cost of living assistance should be at the top of the agenda. Such measures have already been implemented in some form in Japan and Hong Kong. It provides rapid response to the loss of income suffered by all and its universal application minimises bureaucratic hurdles. For small businesses, there needs to be more in terms of support to keep them in business. Moratoriums on payments, assistance to pay for workers’ wages or government guaranteed loans to help businesses rebuild can go a long way in helping businesses to stay afloat. B. Treatment (now to month nine) and recovery (month 10 to 24) Most projections estimate that it will take 12 to 18 months for the Covid-19 pandemic to pass. In this period, the domestic and global economy will suffer. Unlike a typical recession caused by either a demand or supply shock, the pandemic means that the government will need to address both declines in demand and a drastic reduction in global capacity. We can expect the global economy in 2020 to resemble that of the 1929 recession and global financial crisis (2007-2008) combined. Given that it will take time for households and the private sector to recover, the government will need to cushion the impact of a likely recession and ensure that it is not unnecessarily protracted. This means that a comprehensive, sustained and substantive fiscal and economic survival and recovery package is needed to significantly ramp up the capacity of our health system in terms of test kits, medical equipment, infrastructure and human resources, rebuild domestic supply chains in essential goods and services to compensate for global disruptions, as well as incentives to ensure that businesses remain open and are able to take advantage of global economic recovery in the longer term. In short, we need to “flatten the curve” on the negative impacts of an economic recession in the medium term to support economic growth in the long term. The successful execution of such an action plan requires the following: > A Covid-19 task force that plans for, coordinates and implements these measures across all functions of the government, avoiding the silo effect and ongoing bureaucratic inefficiencies. The task force will also enable the action plan to be based on a set of common assumptions and projections. > A large-scale economic survival and recovery plan. The government released a RM67bil package to fight the global financial crisis. Given that the Covid-19 induced recession is likely to exact longer-lasting damage of higher magnitude, we call for a plan that is double this amount, financed by monetary expansion. This will require Parliament to be convened earlier than the planned date of May 18. This should be done as soon as possible, without politicians from either side of the aisle taking advantage of the situation. Our government must act quickly. Make no mistake, we are at war. The time for decisive action is now. This article was originally published in The Star Online.