Malaysian Prime Minister’s 2015 Budget Speech


October 15, 2014

Malaysian Prime Minister’s 2015 Budget Speech

Below are my comments:

Najib at the Press ClubThe Budget Speech was a pathetic demonstration of our Prime Minster’s inability to come clean or present the big picture. The point is not about what he said but what was not said. Most of the 30 pages of the speech were devoted to the spending side which essentially was all about handouts and a laundry list of projects that will benefit  UMNO warlords and their cronies.

Very briefly:

GST & Income Taxes: The GST will yield RM 23.2 billion but with the repeal of Sales Tax (RM13.8billion), net increase will be RM 9.4 billion. This means a net burden on middle and low income households whose incomes are stagnating . This burden is on top of the hit from the withdrawal of subsidies on fuels. True enough the PM hands back in some by way of an increase in BR1M and a few other handouts. Nevertheless, the net outcome is that middle and low income households will bear the brunt. He next lowers corporate and personal income tax – the beneficiaries are the rich, the well-connected and the tycoons and their corporations.The budget ignores all sense of equity and fairness. The effect is that the wide income disparities that exist will be further widened.

Macro-Economic Picture: Najib’s speech hardly provides any details about the basic fundamentals that were used. He essentially painted the usual rosy picture – 5 to 6% growth in GDP. This is higher than what the IMF has projected ( 5.2%).  Najib does not say a word about inflation. Note IMF is projecting inflation at  4.1 % in 2015 a jump from 2.9% in 2014. The tables in the Treasury Economic Report show some detail — key is that Private Consumption and Investment growth will be slower in 2015. Overall growth will thus depend on the public sector.

The critical issue of public debt is dismissed in a sentence or two. He is telling us like the snake oil salesman “ Trust me, the deficit will be 3.0 % next year!” No details are given on how we  can get there! Nor are we told what the hidden contingent liabilities are or how much off budget borrowing there has been or will be in the year ahead. There is not  even a whisper about the ballooning size of private household debt last reported to be in excess of 85% of GDP.

 Najib also hardly makes mention of the huge illicit capital flight that continues or the brain drain that directly impact adversely on his vision of a knowledge based, innovative, high tech economy. He repeats the mantra of joining the ranks of the developed high income countries by 2020. That is a pipe dream given the lower rates of growth experienced in the recent past and now projected.

Here is a bombshell about which we hear not a pip from Najib or for that matter in the media. The bombshell is reported in the Treasury Economy Report. The Economic Report discloses that Malaysia’s external debt totals RM 729 billion, equivalent to 67.6 percent of GDP. This compares with a debt level of RM 335.6 billion or 31.1 percent of GDP before the revision. This more than doubling of the external debt cannot be swept under the carpet.  It should be sounding alarm bells.

The Report goes into a long discourse about revised international standards for debt reporting being the reason for a sudden rise in the level of foreign debt. Under the new definition non-resident holdings of local currency debt, loans and credits and non-resident financial flows are treated as external liabilities.

The Treasury Report offers a weak justification for the high level of external debt asserting that the rapid growth of the bond market has led to sizable increases in the participation by non-residents in lending in the Malaysian market.

However, the Report fails to point out that a sizable part of the debt is short-term (with a ratio of 47.6 percent to GDP). Such short term debt is by nature volatile and subject to flight in periods of uncertainty.  It would appear that we did learn lessons from the 1998 East Asia Crisis which was triggered by the withdrawal of short term funds. It is highly irresponsible to ignore the dangers and not have clear policies to address a potential devastating crisis.

 By the way, speaking of the Treasury Economic Report, here is an indication of sheer incompetence: Take a look at Table 1.3 – Key Economic Data of Selected Developing Countries. Yes, the Whiz kids in the Treasury have taken upon themselves the task of reclassifying Australians and the Russians as part of the Developing World.  It is also noteworthy that Asia’s third largest economy (India) does not merit mention.

Bottom line: Judging by the way the Government is managing the economy, by 2020 we shall as a country, already trapped in the middle income group,  move into the sub-category of Highly  Indebted Countries.

How I wish I could be more generous. For a more sympathetic commentary please read Tan Sri Dr. Ramon Navaratnam’s article [ http://www.freemalaysiatoday.com/category/highlight/2014/10/14/many-thanks-for-the-goodies-mr-pm/%5D

–Din Merican

 

Anwar Ibrahim’s Response to Najib’s 2015 Budget Proposals


October 13, 2014

Anwar Ibrahim’s Response to Najib’s 2015 Budget Proposals

Anwar Ibrahim Ops Leader

When I said I had great difficulty in understanding our Finance Minister’s 2015 Budget Speech which he delivered to our august Parliament last Friday, I could not have been more serious. PM Najib’s slogans and acronyms left me puzzled, in particular his National Blue Ocean Strategy (NBOS).

This concept was borrowed from Blue Ocean Strategy, a book published in 2005 and written by W. Chan Kim and Renée Mauborgne, Professors at INSEAD and Co-Directors of the INSEAD Blue Ocean Strategy Institute. Based on a study of 150 strategic moves spanning more than a hundred years and thirty industries, Kim & Mauborgne argue that companies can succeed not by battling competitors, but rather by creating ″blue oceans″ of uncontested market space. They assert that these strategic moves create a leap in value for the company, its buyers, and its employees, while unlocking new demand and making the competition irrelevant. The book presents analytical frameworks and tools to foster organization’s ability to systematically create and capture blue oceans. (Source: http://en.wikipedia.org/wiki/Blue_Ocean_Strategy)

That was why I sought the help of my friends, associates and readers of this blog to explain Najib’s 2015 Budget proposals in simple layman’s terms. But judging from the number of responses I received by way of comment, the 2015 Budget was not taken seriously.

Here is a speech (below) in Parliament by Dato’ Seri Anwar Ibrahim, Opposition Leader and former Minister of Finance. His response to Najib’s 2015 Budget  proposals makes a lot of sense to me. Despite my occasional disagreements with the politics and antics of the Opposition leader, I acknowledge that in debating the 2015 Budget, the Opposition leader presented an excellent critique in Parliament. Please judge it for yourself and then make your comments.–Din Merican

Southeast Asia: The Bright Spark


October 8, 2014

Southeast Asia: The Bright Spark in a Gloomy World

by W. Scott Thompson@www.nst.com.my

OLYMPUS DIGITAL CAMERAThe Bright Spark in a Gloomy World

“AROUND the world in 80 days”, or even eight days, might not be a happy trip in 2014. Start with my country: the current issue of political journal Foreign Affairs has a cover saying “See America: Land Of Decay And Dysfunction”. Head south and it’s hard to find success stories. Argentina is in a financial mess, Venezuela is moving back into the hands of the Army and Mexico is all about drugs.

For Europe, the biggest joke is that only Belgium has escaped the financial crisis, mostly because it has no real government and no prime minister during the key years. You can’t blame Germany for being thrifty and resenting to pay for the high life in Greece, Italy and Spain over the last 20 years. A compromise has yet to be found between the northern proponents of austerity and those believing that more consumer spending will get the southern countries out of their doldrums. Unemployment rates at 25 per cent don’t make for easy governance.

Africa is a mixed bag. Even the leading stars in growth, like Ghana, are in financial trouble. Fighting continues in Congo, extremists continue to move south and even if overall, Africa has an average growth rate better than most of the world, it’s too small a part to change things — CNN attempts to show the bright side, notwithstanding.

Let’s just skip the Middle East; it’s a disaster zone and it’s too early to say whether the Islamic State can be stopped — though it has to be. Suffice to say that if IS takes control of Syria’s largest city, Aleppo, the best scenario indicates it would take a year or two to evict them. As usual, Iran is a shadow player and in the end, will be the most important one to stabilise the region.

In South Asia, India’s new Prime Minister has made it big at the United Nations, but it’s an open question whether he can really can open up the Indian economy for the rapid growth on which success depends. Let’s not even mention Pakistan.

All the talk about China centres on Hong Kong and what the demonstrations portend. But I would pay more attention to western China, where the Islamic Uighurs are a far bigger headache for the Politburo.

Jokowi WidodoCome to Southeast Asia and you might start smiling. Discussion is dominated by the old forces of the Indonesian military under the leadership of General Prabowo Subianto, in voting out all the moves of decentralisation that have achieved so much since 1999. President-elect Widodo will be sworn into office on October 20; he does not command a majority in Parliament but he hasn’t even begun to use presidential patronage to block Probowo’s attempts to turn the clock back. I wouldn’t bet against the new President’s powers of persuasion and presidential suasion. On balance, we should be very optimistic about Indonesia.

Now, go around the region and just about everything is moving, if slowly, in the right Thailand Democracy Protestdirection. That is, if you see the Thai coup d’état as a necessary evil that will restart the political system without the cost of long-term death to democracy that former PM Thaksin Shinawatra represents. The political establishment has regained control and let’s not forget the 60 years of transformation that the coalition has provided. Next to China, no sizeable state has grown so fast.

Malaysia provides one of the world’s best examples of a tricky balanmalaysia-truly-asia-girls11cing act in providing stability in a multi-ethnic state. It is basically because it is a strong state; even its critics must admit the remarkable success of its leaders. It is gaining ground in the middle income division of the world’s states. The economic model says that countries well-endowed with natural resources are the first ones to fail, relying too heavily on what they can get out of the ground or grow on trees. But it secured independence with strong leaders who changed all that. This is quite an oversimplification, but the bottom line is a big success story.

The PhilippinesNow, welcome to the Philippines, home of, in my experience, the world’s happiest people. Its growth rate is closing the gap with China. Critics say the rich elite is getting more than its fair share, yet, studies of wealth division show the Philippines with not much different a Gini coefficient of wealth distribution than the other countries in the region.

And if nothing else, everybody is benefiting from investments in infrastructure. Bulldozers and backhoes are everywhere, widening roads to population centres, and providing jobs for the best of the young professionals in the all but ubiquitous call centres. President Benigno Aquino III has managed two thirds of his six-year term without an agenda, but he always says the right things and leaves no taint of corruption — leaving aside consideration of some of his associates whom he’s too nice to fire.

Everyone in the region is worried about China’s claim to much territorial waters of littoral states in the South China Sea. My guess is the new President of China is too smart to let its navy push too far. Anyway, if you came from Mars and could live anywhere, you certainly wouldn’t choose Russia or China, most of Africa, and so many other places with deeply rooted problems.

Well, this is a bit subjective for me, having chosen Southeast Asia 50 years ago as a research area that was on the go — and when the world was my oyster and I could live anywhere. I’m glad I chose Bali, the Philippines, and the capital cities of Thailand and Malaysia.

1MDB: A Financial Time Bomb (?)


October 7, 2014

1MDB: A Financial Time Bomb (?)

by Tony Pua@www.malaysiakini.com

Prime Minister Najib Abdul Razak will on Friday announce the Federal Government’s 2015 Budget. However, any announcement by the Prime Minister without addressing the extravagance of 1Malaysia Development Bhd (1MDB) and its debt of RM36 billion will be missing the massive elephant in the room.

Najib as Finance MinisterShould the 100 percent Finance Ministry-owned 1MDB collapse with the burden of its debt, and with the financial community getting increasingly worried and restless with this possibility, Najib will go down in history as the Prime Minister who will possibly bankrupt the Malaysian government.

Due to explicit and implicit guarantees by the Federal Government, 1MDB has accumulated a debt exceeding RM36 billion within a short span of only five years, some of which are already due and require immediate repayment.

In fact, according to Kinibiz.com, 1MDB plans to raise another RM8.4 billion in sukuk to finance its activities this year. At the same time, it is also busy rescheduling its short-term debts to avoid immediate default throughout the past year.

According to the Singapore’s Business Times, the above rescheduling of debt has come at an expensive price of 2.5 percent interest above the annualised cost of funds, on top of RM20-30 million in upfront fees.

central-bank-of-malaysiaThe report said the real threat of default had “ruffled the feathers of Malaysia’s top banking circles as well as the country’s banking regulator, Bank Negara”.

The financial distress in 1MDB is so serious that the government has been forced to renege on its promises to the market of fair and open tenders for Independent Power Producer (IPP) contracts to ensure the lowest cost of electricity supply to Tenaga Nasional Bhd.

The government has  awarded an IPP contract to 1MDB despite the latter not having bid the lowest price. Subsequently, the government decided to eschew the open tender process altogether to award 1MDB a 50MW solar power plant in March and another 2,400MW gas-fired power plant in August this year. The shocking concern is that the 2,400MW power plant isn’t required till 2021 but it has been awarded via direct negotiations now.

The above actions are clearly expensive bailout exercises of the Federal Government to enable 1MDB to secure sufficient revenue to list its power plant projects. 1MDB desperately needs to do so in order to raise urgent funds to repay its burgeoning debt.

1MDB overpaid for expiring IPP companies

This is especially  since 1MDB overpaid for expiring IPP companies in 2012, which has resulted in a massive impairment of RM2.7 billion recorded in the financial statements ending March 2013.

The irony of the massive cash call is that 1MDB actually has RM7.18 billion in liquid assets, mysteriously invested offshore in the Cayman Islands. The investment has generated a pitiful 5.76 percent in returns recorded in 2013, despite the fact that the cost of funds for 1MDB is in excess of six percent.

Prime Minister Najib must provide a convincing answer as to why these funds residing in well-known, secretive tax havens have not been repatriated home for the much-needed funding for 1MDB’s local projects.

Najib must also provide a detailed road map and explanation for 1MDB’s splurge of RM1.38 billion for 238 acres of land in Penang, where it promised to build 9,999 units of low-cost and affordable housing a mere six days before the last general election.

For more than a year now, 1MDB has done absolutely nothing with the acquisition, which was paid with debt raised from financial institutions. The Prime Minister’s pet project, 1MDB, is able to single-handedly bring down the entire Malaysian financial system. The desperation of the Federal Government in awarding the company with lucrative contracts and cut-price prime property assets cannot be more obvious.

The RM36 billion direct and indirect contingent liability for the federal government4th PM of Malaysia casts a deep and dark shadow over any possible improvements in our budget deficit to be announced by Najib.

To quote former Prime Minister Dr Mahathir Mohamad himself: “The money for 1MDB is not from the country’s surplus. It is a debt. Billions of ringgit in debt that is added to the already-high national debt. The national debt must be paid. If not, we will be bankrupt like Argentina. A country that has been facing a deficit every year could not possibly pay off a debt this big.”

TONY PUA is DAP’s Petaling Jaya Utara MP.

David Cameron’s Speech at Conservative Party Convention


October 6, 2014

David Cameron’s Speech at Conservative Party Convention: Securing a Better Future

Listen to this superb speech from Prime Minister David Cameron of Great Britain to his party. Listen also to George Osborne and William Hague. I wonder what our Prime Minister will say to his party members at the next UMNO General Assembly.–Din Merican

David Cameron

George Osborne

William Hague

Book Review: ‘The Innovators,’ by Walter Isaacson


October 4, 2014

Sunday Book Review

Geek Squad

http://www.nytimes.com/2014/10/05/books/review/the-innovators-by-walter-isaacson.html?ref=review

Innovators--Book

‘The Innovators,’ by Walter Isaacson