Massive stimulus packages not enough to rescue coronavirus-hit economies

Size does not necessarily matter when it comes to stimulus packages, amid concerns over dysfunctional execution, haphazard allocation and weak accountability
In Southeast Asia, where governments have shown a willingness to spend, there is good reason to question some of the measures being rolled out

Bhavan Jaipragas

Published: 7:00am, 19 Jun 2020

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The battlefield terminology of “fiscal bazookas” and “fiscal firepower” used to describe governments’ massive stimulus packages give the impression that big spending alone will lift coronavirus-wracked economies out of their current doom.

Unveiling Germany’s post-pandemic stimulus package of US$146 billion earlier this month, the usually tight-fisted Finance Minister Olaf Scholz sought to tap on that warlike rhetoric, saying the measures would bring Europe’s largest economy out of the downturn with a “ka-boom”.

Market watchers say they expect more buoyancy in weeks to come as investors too are vested in the belief that unprecedented fiscal spending is a cure-all, even if a second wave of the pandemic comes around.

Expectations are rising that the United States may soon lay out a fresh US$1-3 trillion package in addition to the more than US$3 trillion pumped out since the virus outbreak began.

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I have to admit, I too have found myself quite in awe of the headline sums of fiscal injections bandied about in recent months by Southeast Asian leaders, whom I track closely.

Among the region’s bigger economies, Indonesia is spending US$49 billion, Singapore close to US$65 billion, Malaysia US$69 billion, and Thailand US$60 billion.

Some of these packages, like in Malaysia, include large amounts of credit and loan guarantees rather than hard cash spending. Still, these are head spinning amounts.

But will big spending alone help these economies get out of the worst recession since the Great Depression?

Among economists, the orthodoxy seems to be that large stimulus packages are likely to be unhelpful if they are paired with dysfunctional execution, haphazard allocation of funds and weak accountability.

Customers shop at a supermarket in Indonesia, using face masks and plastic curtains, as economic activity resumes. Photo: AFP

In an interview this week, the International Monetary Fund’s chief Kristalina Georgieva said her agency’s advice to countries in the midst of the pandemic was to “spend whatever is needed [but] to spend wisely and keep your receipts”. In other words, spend big but only in necessary areas, and make sure there is proper accounting and scrutiny of public spending.

In Southeast Asia, while governments have shown they are willing to spend – even through unprecedented borrowing and quantitative easing – there is good reason to question the wisdom of some of the measures being rolled out.

Accountability over how the money will be spent has been found severely wanting, though not surprising for a 10-nation bloc known more for its dissent-squashing strongmen leaders.

Singapore-style stimulus can’t be copied across Southeast Asia: economists

Take Thailand for instance. Prime Minister Prayuth Chan-ocha has pledged a “step-by-step screening” of how the country’s biggest ever cash injection is spent, but detractors say they are not ready to take the former junta chief at his word.

A key concern is how Prayuth’s government will manage a 1 trillion baht (US$32 billion) loan that is part of the stimulus. Of this, 400 billion baht is marked for “economic and social rebuilding”, while 600 billion baht will be spent on schemes to support farmers and others affected by the pandemic-inflicted economic crisis.

In parliament – a virtual rubber stamp due to the military’s control of the upper house – opposition MPs questioned why the loan funds were purportedly distributed to ministries before they were approved by the legislature.

A worker pushes goods at a wholesale market in Kuala Lumpur, as sectors of the economy reopen following restrictions to halt the spread of Covid-19. Photo: AFP

In Indonesia, President Joko Widodo’s government is facing a different problem.

Having received the go-ahead for a 695.2 trillion rupiah (US$49 billion) package, officials have in recent days acknowledged bottlenecks in getting cash in the hands of citizens, especially to the estimated 60 per cent of the workforce who are self-employed in unregistered businesses.

Ask Malaysian Prime Minister Muhyiddin Yassin’s critics and they will say their country is the worst off in the region when it comes to stimulus accountability.

Mahathir upbeat about Malaysia’s coronavirus recovery

The prime minister, who came to power in an ugly Australia-style party-room coup in March, has yet to open his financial relief measures up for scrutiny in parliament – with his rivals saying he is afraid of a no-confidence vote.

Many want the government to increase the stimulus by borrowing more, but Muhyiddin must first face the legislature to get approval to raise the debt-to-GDP ceiling.

With this level of dysfunction, it would be foolhardy – at least in Southeast Asia – to think that governments wield the silver bullet to rescue their troubled economies by virtue of the size of their stimulus packages.

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