The Malaysian Insight

GOVERNMENT intervention is needed in the short term to prevent the economy from collapsing as recovery will take too long if it depends purely on private business and consumption, an analyst said.

While stimulus packages to keep businesses afloat and give households enough cash are good measures, Ravindran Navaratnam of the Malaysia-China Chamber of Commerce proposed that Putrajaya implement a command and control structure to respond to the economic crisis.

Such a structure is required to stop the dislocation of capital and labour as well as stimulate the economy, Ravindran told a webinar recently.

This approach, applied selectively to the supply side and not just the demand side, would boost the  economy, said Ravindran, who is an adviser in corporate finance and restructuring.

Ravindran’s suggestion comes on the back of Putrajaya’s RM35 billion short-term economic recovery plan announced yesterday. It aims to help micro and small businesses survive sluggish consumption and help companies retain workers.

As an example of both supply and demand side intervention by the government, Ravindran cited the UK’s actions during World War 2, when it coordinated and funded the production of fighter planes.

“The problem with this crisis is that it is not just the demand side but the supply side as well in which the government should intervene,” Ravindran said during the webinar entitled “Covid-19 Safety Net for People and the Economy: How to Fund it”.

“Selectively and for a short period, the government can affect both the demand and supply side,” he said.

The country cannot purely depend on the private sector to get employment back quickly in a time of crisis as they are generally risk-adverse, have limitations on raising capital and are constrained
by short term profit motives.

“So, I’m suggesting a greater role for the government in this crisis. Don’t worry about funding, because the crisis is like a war and no one talks about deficits during a war.”

To achieve this, Ravindran suggested the government set up a command-and-control structure, similar to the one used to tackle the 1998 financial crisis.

The three-layered structure ties in banks, special purpose vehicles, the private sector and workers with the government on top dictating the flow of funds and commercial activity.

“We have to stop the suffering and the government has to spend. It has the central bank and it should make use of it to fund the deficit.”

“The safety net is absolutely critical. So, the government has to spend enough to get the gross domestic product up.” – June 6, 2020.