The coronavirus or Covid-19 epidemic/pandemic is causing businesses, governments and
public great concerns on its impact amongst others on their business operations, economy
and lives. Critically discuss using relevant theories, researches and mechanisms, how to
address these issues and their implications.
1. Introduction to the Issue
Pandemic COVID-19 causes a catastrophic condition to many sectors. This outbreak not only
affected and challenges the world health system but buzzed the alarm of economic and social
side. According to World Health Organization (2020), this pandemic was originally spread in
China specifically in Wuhan. The viruses become serious issue when it spread so quick to all
over the world and causes many numbers of deaths. Until this day, the viruses continue
spreading and the cure and vaccine still in progress to be developed.
Besides, Pandemic Covid-19 pressures many countries to impose strict regulation to ensure the
number of new cases decrease and reduce the number of death. Most of country in the world
decided to close their country boarder to prevent the viruses from outside to be contagious. Any
cross border activity among countries have been restricted and temporarily close involving
transportation by airways, sea and road until further notice depends on advice given by WHO.
This has further slowed down global economic activities. Furthermore, Movement Control Order
(MCO) that has been imposed for almost 3 month gives a big hitter to the businesses. This causes
disruptions on economic movement by reduce activity of world trade with interruptions to the
functioning of global supply chains. Many firms around the world either big or small size forces
to close down or some of them declared bankrupts as the effect of slow or could be freeze of
cash flow movement in the country. Some example of business that significantly affected by
Pandemic Covid-19 is tourism activity, transportation sector and retail.
A business also forces to retrench their staff in order to limit their expenses they would
experience a significant losses for 6 month to 1 year period. This situation brings a new issue
which is an increase of unemployment rate.
Specifically in Malaysia, Chief statistician, Mohd Uzir Mahidin (2020) mentioned Pandemic
Covid-19 causes an increase of unemployment rate by 5% in April 2020 which for an about 3
month after Covid-19 spread actively in Malaysia.
Consequently, the impact on unemployment rate alone triggers some panic action among
consumers and firms, its shareholder, and also government has distorted the usual patterns of
consumption and created anomalies in the market. Global financial markets responded to the
significant fluctuation in normal share price and stock indices.
2. Literature Review
Theories
Fiscal Policy
Pandemic Covid-19 as mentioned above triggers many parties especially government to take
action on a freeze economic condition. So first theory is Fiscal policy. Bhattarai and
Trzeciakiewicz (2017) suggested that fiscal policy is the government initiative by increase its
spending and re-enact tax policies to influence economic conditions, in particular associate with
the aggregate demand for goods and services, economic growth, inflation and employment.
Fiscal policy is primarily based on the theories of the British economist John Maynard Keynes
(1883-1946) who concluded that “economic recessions are due to a deficit in consumer spending
and to the business expenditure components of aggregate demand”.
There are several studies done in advanced countries such as European countries, USA and Japan
who studies and observe the effects of fiscal policy. Fiscal policy research significantly influence
by the Great Recession event which also focuses on unemployment rate for particular country
(Breusch, Thomas S., and L. Godfrey, 1981). Besides, in related to the fiscal policy, government
introduced Bantuan Prihatin Nasional (BPN) to trigger and initiate back the economic movement
cycles.
Monetary Policy
Monetary Policy according to Bernanke and Mihov (1998) where the authority of a particular
country adopted a policy which controls mainly on interest rate payable especially in short term
borrowing and money supply, usually it’s targeting inflation or the interest rate to ensure price
stability and general trust in the currency.
Monetary policy suggested that, both velocity of money and output are assumed as constant, thus
any increase in the quantity of money will only eventually increase prices proportionally in
accordance with the quantity theory (Moazzami, B., & Gupta, K. L., 1995).
In the case of Covid-19, Malaysian government with the assistant of Central Bank or Bank
Negara introduce Moratorium which offer the deferments of loan payment and exceptional on
interest rate to all Malaysian and also Ministry of finance introduce support package to all
businesses including SME’s which also given the flexibility on tax impose and tax return period.
Agency Theories
As Pandemic Covid-19 play with many rumors and expectation regarding the future economic
condition, it give arise to the issue for the businesses between Principal and Agent. The low
expectation in future performance for the company and lower expectation on agent credibility to
deal with Covid-19 causes the shareholder to pull out their money. It forces the company to close
down or downsize their business by retrench their staff. It would reflect to research, policy
making and practices of the Agency Theory.
According to Jensen (2000), he defines Agency Theory as contractual relationship in which a
person (the principal) employs another person (the agent) to perform some action in his favors,
which requires delegating certain decision-making power to the Agent. Based on the above
definition by Jensen, Bouckova (2015) sees Agency Theory as a contractual relationship between
two contracting parties namely the principal and agent in which the principal will delegates his
power for decision making to the agent and expect the agent to act to his best of interest in
exchange of certain rewards.
Therefore, the agent is expected to perform certain tasks, make decision and to take risk for
doing so. However, arising from the structure of the Agency Theory, it creates the PrincipalAgent problems in which each party had conflicting interest over the subject matter. According
to Josh, Eric & Phillip (2016), the agent of the principal has the tendency to make decision based
on its own self-interest instead of the principal interest. Eisenhardt (1989) views that the agency
theory originates from the economic view of risk sharing between the principal and its agents.
Both parties may have different views and approaches when solving a problem (Jensen &
Meckling, 1976).
4. Summarize of Action to the Issue
As per current main issue is to deal with the impact of Pandemic Covid-19, the are also other
issue arises such as businesses close down, downsizing, retrenchment, increase in unemployment
rate, and slow in economic movement.
With theory and policy mentioned above, it would be a mechanism to addresses those issue.
Firstly, with fiscal policy, government would be able and have a power to encourage and initiate
the economic movement back to normal by giving flexible tax policies, giving money support to
the people to encourage spending to the local businesses, and giving additional aid to company to
maintain their staff to support employment.
Next, using monetary policies could be a helping hand to the businesses and also to the people
who holding a loan. Moratorium incentive given by commercial bank with the initiative by Bank
Negara give a significant relieve to most of businesses and loan holder during the hard time.
Besides, ‘Pakej Prihatin’ that introduce by Ministry of Finance encourage businesses including
SME’s to continue their businesses post Covid-19.
Finally, to deal with the internal issue of the firm between Principal and an agent which
generally between manager and shareholder, clear and transparent disclosure need to be
presented and management are required to engage more with consultant to produce more reliable
forecast regarding the company direction future to be presented to the shareholder. Hence,
amidst of Covid-19 hardship, communication and understanding between both parties are very
important.
5. Conclusions and Policy Implications
Government plays such an important role in restructuring back the economic condition. There’s a
number of requirement and needs of policy changes and revision. As for now, Bank Negara
Malaysia need to ensure this happens by providing flexible and adaptable practices. This could
initiate the economics to continue functioning while the pandemic still occur. In the face of the
real and the real Financial stress is a critical role for governments.
Though it is possible to reduce interest rates Response to the crisis for Bank Negara but it not
only deals with a demand firm agency issue, but a multi-faceted crisis that will require monetary
and fiscal responses. Movements Control Order (MCO) impose and quarantine those affected
people are one of the emergency alternative to balance the numbers of Covid-19 cases.
Finally, as the pandemic of Covid-19 still out there, it’s important to distress the important of
good hygiene and social distancing practices. According to Levine and McKibbin (2020), those
practices require low cost to be done but highly effective response that can decrease the extent of
Covid-19 cases and then finally reduce the economic cost that cause by pandemic covid-19.
6. References
Al Hasan SM, Saulam J, Kanda K & Hirao T. The novel coronavirus disease (COVID-19)
outbreak trends in mainland China: a joinpoint regression analysis of the outbreak data from
January 10 to February 11, 2020. [Preprint]. Bull World Health Organ. E-pub: 17 February
2020. doi: http://dx.doi.org/10.2471/BLT.20.253153
Breusch, Thomas S., and L. Godfrey. "A Review of Recent Work on Testing for Autocorrelation
in Dynamic Simultaneous Models." In Macroeconomic Analysis edited by D. Currie, R. Norway
and D. Peel. London: Croom-Helm, 1981.
Mahidin, U. (2020, June 15). Malaysia’s unemployment rate rises to 5% in April as Covid-19
takes toll. Bernama. Retrieved from
https://www.freemalaysiatoday.com/category/nation/2020/06/15/malaysias-unemployment-raterises-to-5-in-april-as-covid-19-takes-toll/