Can Malaysia Airlines survive after MH17?


July 19, 2014

COMMENT: Of course, our national airline can. With a bailout by Khazanah and thedinmerican Malaysian Government. There is too much pride and dignity for Malaysians not to have a national carrier to fly the Jalur Gemilang (our Flag). It will need large amounts of money to save it.

And we have little choice as far as I can see it. But this funding should only be made at the cost of a total revamp of the airline including a corporate culture change, new competent and accountable Board and management, the dismantling of the MAS Employees Union that has been an albatross to MAS management, and renegotiation of all contracts with UMNO crony companies and other parties.

The question is whether the Najib administration has the stomach to proceed with such drastic measures. Tan Sri Azman Mokhtar, CEO of Khazanah Nasional, who I know well, can be very tough this time around.–Din Merican

Can Malaysia Airlines survive after MH17?

by in Beijing @theguardian.com(07-18-14)

http://www.theguardian.com/world/2014/jul/18/malaysia-airlines-survive-mh17-disaster-mh370-disappearance

MH17 Crash site 2

 Malaysia Airlines was still reeling from the impact of flight MH370′s March disappearance when news of MH17′s crash in Ukraine broke on Thursday. Now many question whether the carrier can survive a second disaster in such a short time.

“It is a tragedy with no comparison. In the history of aviation, no airline has gone through two tragedies of this magnitude in a span of four months,” said Mohsin Aziz, an aviation analyst at Maybank. “Even before the second incident, I have been very sceptical over the company’s ability to survive beyond the second half of 2015. They are making huge losses … This is probably going to hasten that.  It doesn’t matter who is at fault. The perception to the customer is ‘I don’t want to fly Malaysia Airlines any more’, and to battle that is not easy.”

Shares in the carrier fell sharply on Friday, down 11% by the midday break in trading in Kuala Lumpur, as already negative investor sentiment deepened. In all, it has dropped by 35% this year.

Questions were also raised about the airline’s choice of route, after it emerged that some other carriers had avoided the area for months – though many companies were flying in the same area, rerouting only after Thursday’s disaster.

The carrier, and the Malaysian government, came under heavy criticism for its handling of MH370′s disappearance – particularly in China, which lost more than 150 nationals in that disaster. While any airline and any nation would have struggled with the extraordinary twists and turns in a mystery that remains unresolved, relatives complained of confused and contradictory information and insensitivity on the part of the government and company.

At Kuala Lumpur International airport on Thursday night, angry relatives demanded to see the passenger manifest, but could not find a Malaysia Airlines official, Reuters reported.

“We have been waiting for four hours. We found out the news from international media. Facebook is more efficient than MAS. It’s so funny, they are a laughing stock,” one young man told reporters angrily.

While the two Malaysia Airlines flight disasters are clearly very different, the uncanny coincidences are likely to resonate.

“This comes very close [in time]; it was the same airline; the same aeroplane type. It happened outside the more common way of crashing for big airlines; most accidents happen close to landing or just after takeoff. They both have an element of mystery and perhaps unlawful and external interference,” noted Sidney Dekker, an expert on aviation safety at Griffith University.

“If the public is willing to keep them separate and say they really have little to do with each other, and any common link is not Malaysia Airlines, you can probably survive with the brand relatively intact,” he said.

But that is a big if. Five years after Trans World Airlines flight 800 crashed into the ocean near New York in 1996 with the loss of 230 lives, the carrier filed for bankruptcy and was acquired by American Airlines. For an already troubled company, the disaster was the straw that broke the camel’s back, said Dekker. For others, a disaster may well mean “rebranding, rebadging, a new air operator’s certificate”.

The Malaysian Transport Minister, Liow Tiong Lai, declined to comment on the airline’s future at a press conference about the disaster on Friday, describing that as a separate issue.

Prior to MH370′s disappearance, Malaysia Airlines was making losses but seemed to be improving, said Mohsin; it was reducing operating costs and selling more tickets. But while its flights were increasingly full, it had not managed to bump up its fares.

Now the airline’s previously strong safety record has effectively been erased for passengers by two such losses. According to the International Air Transport Association, there were an average of 517 deaths annually in commercial aviation incidents between 2009 and 2013. Now a single airline appears to have surpassed that death toll in a single year.

“People are only willing to fly with Malaysia Airlines if the ticket price is really, really cheap,” said Mohsin. The airline has also faced additional costs, such as supporting the families of victims and increasing its spending on marketing.

Reuters reported earlier this month that Malaysian state investor Khazanah Nasional Bhd planned to take MAS private as the first step towards restructuring the company, citing two unnamed sources.

“For it to completely disappear would be too much of a loss of pride for Malaysia,” said the Maybank analyst. “It is more realistic or probable for the government to intervene directly or via Khazanah.”

One key question is whether the airline should have chosen another course for the Boeing-777, given that two aircraft had been downed in the region that week.

Malaysia Airlines said early on Friday: “The usual flight route was earlier declared safe by the International Civil Aviation Organisation. International Air Transport Association has stated that the airspace the aircraft was traversing was not subject to restrictions.”

Cathay Pacific, Australia’s Qantas and Korea’s two major carriers are among airlines that stopped flying over Ukrainian airspace months ago due to concerns.

“Although the detour adds to flight time and cost, we have been making the detour for safety, and until the Ukrainian situation is over we will continue to take the detour route for our cargo flight out of Brussels,” an Asiana Airlines Inc spokeswoman told Reuters.

But many major players were still flying through the area, though Malaysia Airlines, Singapore Airlines and others, such as China Eastern, have stopped using that airspace in the wake of the disaster.

“‘What’s wrong with Malaysia Airlines?’ is completely the wrong question to ask and will lead us down a rabbit hole of entirely useless thinking,” said aviation expert Dekker. “It is pure chance. I flew through Ukrainian airspace on Monday with my daughter. It could have been us.”

While pilots ultimately have the discretion to refuse to fly along a particular course if they have concerns, they do not make the routes. Those are based on a multitude of factors, including airspace charges and wind speeds that affect journey times, but also, of course, safety.

While the US Federal Aviation Authority had cautioned American carriers not to fly over the Crimean peninsula, there was no such warning for the area where MH17 came down. Ukrainian officials had closed airspace to 32,000ft (9,750 metres), but MH17 was flying 1,000ft above that.

“What I have heard raised in various guises is the broader question: can we come to more efficient international agreements about where to avoid flying and where to fly?” said Dekker.

Brasil 2014, Football and Germany


July 14, 2014

Brasil 2014, Football and Germany

by Josh Hong@www.malaysiakini.com

Germany's players lifts the World Cup trophyI once saw a picture at the German National Museum of Contemporary History in Bonn, the capital of the former West Germany. Dated July 4, 1954, it depicted a group of men with broken teeth, crutches and in worn-out clothes shouting for joy over West Germany’s victory at the FIFA World Cup Final.

The West Germans had just barely recovered from the horrific World War II, and Hungary had been widely tipped to win the title. Still, West Germany went on to claim the crown as a dark horse, and the game is known historically as ‘Das Wunder von Bern’ (‘the Miracle of Bern’; Bern is the Swiss capital where the final was held).

The 1954 World Cup was particularly meaningful to West Germany for several reasons: it was the first time that Das Lied Der Deutschen (the Song of the Germans) was played at an international sporting event since the end of WWII, signifying the return of the country into the world community, while defeating the then communist-ruled Hungary was hailed as an ideological triumph.

Two decades later, West Germany was showered with greater global recognition when it hosted the 1974 World Cup and was crowned champion. If 1954 symbolised West Germany’s international acceptance, 1974 probably took on a greater significance in that the country demonstrated proudly to the world its reemergence as an economic power, rising from the ashes of the catastrophic Nazi regime (which hosted the 1936 Olympics in Berlin), preceded also by the 1972 Olympics.

It was most ironic that, while Britain and France, the two WWII victors, were mired in incessant labour strikes as industrial production came to a virtual halt, West Germany’s economic development and standard of living continued to improve by leaps and bounds.

Then came the eventful autumn of 1989, when the Eastern Blocs were on the verge of drastic revolution. Berlin Wall, 1989Many East Germans drove their Trabants right up to the Berlin Wall and demanded that the gates be opened.

When their calls went unanswered, they took out sledgehammers and chisels and started dismantling the wall themselves, and the (in)famous wall did come tumbling down within weeks. Welcoming the Ossis was not only the far advanced Volkswagen produced by the Wessis, but also the abundantly available commodities in the shops in West Berlin.

When West Germany beat Argentina to claim the World Cup title on  July 8, 1990, East German fans erupted in euphoria publicly for the first time. Three months later, East and West Germany became history.

Rebranding the country

When the reunified Germany hosted the 2006 World Cup, the German government at the time made use of the opportunity to rebrand the country as a Land of Ideas (Land der Ideen), seeking to promote to the world Johann Wolfgang von Goethe, Beethoven, philosopher Jürgen Habermas and many other modern achievements alongside football.

It represented a conscious effort on the part of the Germans to remind the international community that, having faced up to historical issues squarely, it was time that Germany should be free to celebrate its achievements for and contributions to the world.

The reunified Germany failed to win the World Cup in 2006, but many a European country was impressed with a new Germany that was not only confident and forward-looking, but also warm and hospitable, so much so that the British tabloids, usually relishing in insulting Germany with WWII references, toned down their wording and English fans could be seen waving the German flag during the semi-final between Germany and Argentina.

Now that Germany has once again made it to the final, the question whether the reunified country will win a historic World Cup is again in the mind of many, for a win on this coming Sunday (Brazilian time) would go a long way in affirming Germany’s coming of age, and I wish them all the best.

After all, no other competition arouses one’s nationalistic sentiment and sharpens political differences more than football – with the exception of an actual war. Seen in this light, what Germany destroyed last Tuesday was not just Brazil’s world status as a land of football, but it’s very national identity as well.

For historical reasons, the Germans are not used to overt symbols of nationalism, but it does not mean they should tolerate idiotic insults such as Bung Mokhtar’s ‘Hitler tweet’ in the wake of Germany’s thumping victory over Brazil. It is outrageous because no other countries have demonstrated so much goodwill and sincerity in dealing with historical baggage as Germany, especially when the country has shown no signs of relenting in pursuing justice for the victims.

Bung Mokhtar’s brainless tweet is more than a personal gaffe because it exposes the quality (or the lack thereof) of UMNO politicians. The fact that he continues to be a wakil rakyat is an utter shame to Malaysia.

NOTE: Germany defeated Argentina 1-0 in extra time on Sunday July 13, 2014 in Rio . It was thriller. witnessed by Chancellor Angela Merkel and a strong contingent of German fans while the rest of the world witnessed a spectacle of great sportsmanship and fine football. –Din Merican
________________
JOSH HONG studied politics at London Metropolitan University and the School of Oriental and African Studies, University of London. A keen watcher of domestic and international politics, he longs for a day when Malaysians will learn and master the art of self-mockery, and enjoy life to the full in spite of politicians.

We Expect Our MPs and Government to be ACCOUNTABLE to the People


July 14, 2014

We Expect Our MPs and Government to be ACCOUNTABLE to the People

by Citizen Nades/R. Nadeswaran@www.thesundaily.com (07-13-14)

KEN CLARKE, a Minister in the Cabinet Office in England, claimed the cost of paying for an 11p rulernadeswaran on his expenses. He also claimed for a pack of pens costing £21.73, and a pack of adhesive notes for £14.27.

British Prime Minister David Cameron claimed for a glue stick costing £4.68 and a box of clips costing 8p, and printer cartridges costing £133.57. Vince Cable, the business secretary, claimed 43p for a pair of scissors. Justice Minister Shailesh Vara bought a pair much cheaper – 24p.

Cameron, who earns £142,500 a year, raised eyebrows by claiming 7p for a “bulldog” clip in January, even though processing the claim would have cost four times as much as its value. He also claimed 26p for “banner bar tags”, and 38p for a staple remover.

How do we know these trivial details? They were from the Independent Parliamentary Standards Authority, which processes and monitors MPs’ expenses. Last week, it released figures for February and March which showed that MPs claimed about £3.6 million in expenses. It processed over 32,000 claims. The bulk of the expenses was attributed to train tickets from their constituencies to Westminster in London.

Everyone has access to these records and one can check the amount claimed by his or her MP. Malaysia is said to have adopted the Westminster system and one wonders why we did not adopt this principle of openness and transparency.

Our lawmakers have been shouting themselves hoarse on so many other inconsequential matters like the World Cup football and even glorified Adolf Hitler, but yet choose to remain silent on matters of public interest such as their own expenses.

It is not a matter of prying into their private affairs. No one is even suggesting that they have and still are making unjustified claims. It’s just that the path to transparency must start from the doorsteps of Parliament which dictates policy and draws up legislation.

While it is common knowledge that previously two or three lawmakers were charged with making false claims, shouldn’t it be in everyone’s interest that the claims are scrutinised by the same people who pay their salaries and elected them to Parliament?

In the absence of any requirement, would any MP in the name of transparency, take the first step by putting up their expense claim on their website? Wouldn’t this be a noble gesture which will propel or compel others to follow suit?

Any takers?

WE NEED TO KNOW

Steve Shim RCIThe Members of The Steve Shim RCI on Illegal Immigrants

FOR a few days last year, I was at the High Court in Kota Kinabalu listening attentively to witnesses who testified at the Royal Commission of Inquiry into Illegal Immigrants in Sabah. They included the former prime minister Tun Dr Mahathir Mohamad and his then Deputy, Datuk Seri Anwar Ibrahim.

The inquiry heard some startling evidence including “Project IC” where illegal immigrants were given blue identity cards to enable them to vote for the ruling party. The inquiry was also told that some were asked to assemble in a community hall where they were issued documents which afforded them “protection” from the immigration authorities and the police.

There were even accusations that this project was done at the behest of national leaders who afforded support and protection in this clandestine operation. There were also accusations that officers from the National Registration Department sold blue ICs and were subsequently held under the Internal Security Act.

The inquiry was headed by former Chief Judge of Borneo Tan Sri Steve Shim, which started on January 29 last year, heard from 211 witnesses, and ended on September  23. The report was presented to the government in May this year.

However, Putrajaya has withheld making public the findings without providing any reasons. Our leaders have remained silent. The people of Malaysia, especially the Sabahans, are eagerly awaiting the findings as they have often said that “we are strangers in our own land” and that “the population of immigrants has exceeded the locals”. They also complained about social problems and the public health system bursting at its seams because of the presence of the foreigners.

Right-minded citizens will agree that the findings and the implementation of the recommendations of the panel will go a long way in placating and pacifying the anger of Sabahans who are being displaced by foreigners.

R. Nadeswaran says that our lawmakers must be in the forefront leading and demanding for transparency. Comments: citizen-nades@the sundaily.com

The Story Behind CIMB’s Mega Islamic Bank Deal


July 13, 2014

The Story Behind CIMB’s Mega Islamic Bank Deal

by Yvonne Tan@www.thestar.com.my (07-12-14)

cimbmontagenazirzetishahril1207With Islamic finance gaining global acceptance, it’s only natural to set up the biggest Islamic bank in Malaysia.

INDIRECTLY, the seeds of the proposed merger between CIMB Group Holdings Bhd, RHB Capital Bhd (RHB Cap) and Malaysia Building Society Bhd (MBSB) were sown not in Kuala Lumpur but in the world’s financial centre – London.

When CIMB got the mandate to be one of the book runners for the first Islamic finance sukuk raised by a sovereign in the Western world, it was a sure sign that Islamic finance was gaining wider acceptance. Upon returning to Kuala Lumpur, CIMB’s Chairman Datuk Seri Nazir Razak spoke to a group of journalists during Invest Malaysia about how Islamic finance was at the tipping point for growth, considering that the Western world was embracing it.

 Malaysia has the cutting edge in Islamic finance but there have been no takers for a proposal by Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz to establish a mega Islamic bank with a capitalisation of US$1bil (RM3.2bil).

It’s easy to fathom why.

No bank would want to fork out US$1bil to establish a mega-Islamic bank as the returns are not there.But the landscape is fast changing and Nazir seized the moment.

On Thursday, he proposed the setting up of a mega-Islamic bank as part of a merger with RHB Cap and MBSB that would possibly create the largest bank in the country and one of the largest in the region. “The merger fulfils Bank Negara’s objective of the creation of a mega Islamic bank,” says an investment banker.

RHB Cap’s decision last month to call off its Indonesian PT Bank Mestika Dharma proposed buy, which it had been pursuing since 2009, as well as Nazir taking over as chairman effective September 1, were the telling signs of a much bigger plan that was brewing.

The three financial institutions announced this week that they had received the green light from Bank Negara to start exclusive talks for the proposed merger, which includes the formation of a mega-Islamic bank.

In this respect, MBSB, an Islamic financial institution, is slated to fill that role in the merger.Nazir says Islamic finance is at the tipping point for growth, considering that the Western world is embracing it. The parties have 90 days to decide on the pricing, structure and other relevant terms and conditions. Bank Negara’s approval is valid for six months from Thursday.

Amidst this, questions are being raised as to why there is an exclusivity clause in the 90-day agreement, which essentially means that there will not be any competing bids for RHB Cap during this period, suggesting that shareholders may be missing out on more competitive bids.

“There are two reasons for this. One is that RHB Cap is not being sold; it is a merger candidate, and secondly, it is to minimise disruptions,” says an official close to the Employees Provident Fund (EPF).

CIMB Deal

The fact that Bank Negara gave the three institutions approval in less than 24 hours after they wrote to it is a sure sign that it is not against the merger.If the mega-bank materialises, then it will not be difficult to see why it will easily give the country’s current largest bank – Malayan Banking Bhd (Maybank) – a run for its money.

Based on latest figures, the merged entity’s asset size is expected to be more than RM600bil, market value close to RM90bil and combined profits exceeding RM7bil.It will surpass Maybank, which had an asset size of RM578bil as of March 31.

CIMB has a strong commercial presence in Indonesia which is a major contributor to the group’s earnings. Operationally, RHB Cap and CIMB’s resources combined will give a boost to the merged entity’s regional presence.

For one, RHB Cap, which has a full banking licence in Singapore enabling it to venture into diverse businesses – consumer banking, business banking, corporate banking, treasury and investment banking – intends to grow this aggressively over the next few years. This will complement CIMB’s Singapore operations.

CIMB, meanwhile, has a strong commercial presence in Indonesia – something which RHB Cap is lacking – via its PT Bank CIMB Niaga Tbk, which is a major contributor to the group’s overall earnings.

Valuations

There is no doubt that the merged entity will be huge.Its market capitalisation will be more thanOctopus RM90bil, assuming the deal is concluded at about 1.70 to 1.75 times book value.

According to a source, the deal is likely to be done at 1.75 times book value based on CIMB’s current valuation of almost 1.70 times book and unlikely to be transacted at anything less.Recall, in 2012, RHB Cap had paid 1.77 times book value for OSK Investment Bank, lower than the 1.9 times book value Maybank had paid for Kim Eng Securities.

In this current merger deal, the EPF is said to be the main driver because it has significant stakes in all three entities.It is the major shareholder in RHB Cap with a 40.76% stake. The other major shareholders of RHB Cap are Aabar Investments PJSC with a 21.43% stake and OSK Holdings Bhd with a 9.91% stake.

The EPF has a 64.73% stake in MBSB and is the second-largest shareholder in CIMB with 14.46% after Khazanah Nasional Bhd.

It has been learned that the exercise would possibly involve a share swap between CIMB and RHB Cap at a book value of 1.75 times and an outright buyout of MBSB. The eventual merger will see the EPF emerge as the largest shareholder in the mega-bank, with a stake estimated to be more than 25%.

RHB Cap had been a takeover target as far back as three years ago, with both CIMB and Maybank being its suitors. However, the deal fell through because Aabar wanted a higher valuation. Nevertheless, RHB Cap has always been viewed as a takeover target even with the entry of OSK two years ago. This is because the block in RHB Cap that belongs to Aabar from Abu Dhabi has always been viewed as being up for sale and could be used as a launch pad to take over the bank.

Even in May, Taiwanese financial group Mega Financial Holding Co Ltd was reportedly in talks to buy into RHB Cap, leading to speculation that the interested seller was Aabar.

Aabar acquired its stake in RHB Cap from its sister company, Abu Dhabi Commercial Bank PJSC, for RM5.9bil or RM10.80 apiece in 2011, valuing RHB Cap at a hefty 2.25 times its book value then. The transaction between the two related companies was done to set the price for RHB Cap, should there be a takeover.

However, RHB Cap’s share price has never reached that price over the past few years.The counter was traded at RM8.72 on Wednesday before suspension.

Assuming the deal is concluded at 1.70 times, RHB Cap’s share will be worth RM11.40 per share, a 5.6 % premium to Aabar’s cost of RM10.80. But would Aabar be agreeable, or would it seek higher valuations?

Past Deals

RHB Cap, currently the fourth-largest banking group, is no stranger to banking deals.The latest is its merger with OSK Investment Bank that was completed about two years ago. However, its merger and acquisiton history goes back much further than this.

The RHB Banking group assumed its current name only in 1997.It came about via a merger between Kwong Yik Bank Bhd and DCB Bank Bhd (formerly known as Development and Commercial Bank Bhd) in 1997. That year saw entrepreneur Tan Sri Abdul Rashid Hussain emerge as the group’s executive chairman. The bank’s current initials are based on his name.

Kwong Yik Bank was founded by the Chinese community led by Wong Loke Yew, or better known as Loke Yew, in July 1913, while DCB Bank was established in 1966 by the-then Finance Minister Tun Sir Henry H S Lee.

In the aftermath of the 1997/98 Asian financial crisis, the troubled Sime Bank Bhd (formerly known as UMBC Bank) was merged into the RHB Banking group in 1999.Four years later, when Kuching-based Bank Utama Bhd, the banking arm of Cahya Mata Sarawak Bhd, became the latest bank to be merged into the RHB Banking group, Rashid made his exit from the group.

CIMB is also the result of a merger between CIMB, Bumiputra-Commerce Bank and Southern Bank Bhd which was completed in 2006. Both the RHB and CIMB groups have gone through more than their fair share of mergers. But this merger, if it happens, will probably be the last stop for RHB Cap, a bank founded by Rashid Hussain.

Between the two, CIMB Group has a bigger franchise in the region, a larger pool of tested managers and is likely to take the lead.This is something the EPF is not likely to object because it will enable the pension fund to go back to its role as a passive investor in financial institutions.

Gotta’ keep on learning


July 13, 2014

Schumpeternomics: Gotta’ keep on learning

by (Tan Sri) Dr. Lin See-Yan@www.thestar.com.my (07-12-14)

Lin See-YanI JUST returned from the summer meeting of the board of governors (on which I am a long-standing member) and the board of trustees of the Asian Institute of Management (AIM) in Makati, Manila. It celebrated its 45th anniversary…

To mark the occasion, AIM held its second Asian Business Conference against the backdrop of an emerging ASEAN Economic Community (AEC) by 2015. It was well attended by a wide cross-section of Asian businesses, research institutes and universities, under the banner: “2015 Approaching: Priming for ASEAN Integration.”

I spoke at the strategic session on banking and finance with particular focus on the need for Asia (and indeed ASEAN) to keep on innovating to create a truly learning society, in order to maintain its competitive edge and remain relevant in an increasingly hostile and uncertain world. To survive, we just gotta’ keep on learning!

Technological progress

I learned early as a Harvard graduate student in the 1970s from no less than Nobel laureate Robert Solow at the Massachusetts Institute of Technology (MIT) down the Charles, that rising output and incomes can only come about in a sustained way from technological progress (TP), not from mere capital accumulation. Put simply, Solow repeatedly emphasised that TP comes from learning how to do things better; indeed, there’s always a better way.

As a practising banker and economist at Bank Negara after my PhD, I quickly undertstood that much of the productivity increases we see come from small incremental changes – they all add-up, other than the lumpy gains arising from dramatic discoveries or from unpredictable phenomena. It all starts with nurturing our education system and the process of its development to ensure youths are properly educated, not just in terms of literary, quantitative and scientific skills, but also with the right moral values and civic outlook.

Broadly, along what Nobel laureate Joseph Stiglitz (pic) has been advocating – it always makes goodJ Stiglitz sense “to focus attention on how societies learn, and what can be done to promote learning, including learning how to learn.”

Innovation and creative destruction

The seeds of the critical role of innovation in economic growth were first planted about a century ago by Harvard economist and political and social scientist Joseph Schumpeter, a contemporary of John M. Keynes. His economics (hence, Schumpeternomics) is based on the ability and capability of the market economy to innovate on its own.

I recall reading his 1939 book Business Cycle: A Theoretical, Historical and Statistical analysis of the Capitalist Process, where he wrote “Without innovations, no entrepreneurs; without entrepreneurial achievement, no capitalist returns and no capitalist propulsion. The atmosphere of industrial revolutions – of “progress” – is the only one in which capitalism can survive.”

So, Schumpeter went about challenging conventional wisdom in three areas: (i) misplaced focus on competitive markets. He contended that what matters was “competition for the markets, not competition in the markets,” as rightly pointed out by Stiglitz. It is competition for the markets that drives innovation. Sure, this can (and do) result in the rise of monopolies; still this would lead to improved living standards over the long haul (eg. Microsoft, Nokia – acquired in 2013 by Microsoft). (ii) undue focus on short-run efficiency which can be detrimental to innovation over the long-term – classic example is helping “infant industries” learn.

But governments should not be in the game of picking winners; the market can do this better (witness Obama’s failed “clean energy” projects or Malaysia’s wasteful car-maker Proton). Sure, there are exceptions where government invests in research that has since led to development of the Internet and discovery of DNA with enormous social benefits.

Schumpeter

(iii) Innovation leads to creative destruction – it can (and do) wipe out inefficient industries and jobs. The Internet has turned businesses from newspapers to music to book retailing upside down. In their place, more efficient businesses have popped up. In his biography of Schumpeter – Prophet of Innovation, Thomas McCraw wrote: “Schumpeter’s signature legacy is his insight that innovation in the form of creative destruction is the driving force not only of capitalism but of material progress in general. Almost all businesses, no matter how strong they seem to be at a given moment, ultimately fail – and almost always because they failed to innovate. Competitors are relentlessly striving to overtake the leader, no matter how big the lead. Responsible business people know that they ignore this lesson at their peril.”

In 1983, the 100th anniversary of the birth of Schumpeter and Keynes, Peter F. Drucker proclaimed at Forbes that it was Schumpeter, not Keynes, who provided the best guide to the rapid economic changes engulfing the world, according to McCraw.

Higher education

The business of higher education has changed little since Plato and Aristotle taught at the Athenian Lyceum. With government patronage and support, close to 4 million Americans and 5 million Europeans will graduate this summer. Emerging nations’ universities are expanding even faster. I was told in Shanghai last month that China has added 30 million university places in the past 20 years.

Indeed, I do see a revolution coming for three main disruptive reasons:

  •  Rising costs – Baumol’s disease has set in, i.e. soaring costs reflecting high labour intensity with stagnant productivity; for the past two decades, costs have risen 1.6 percentage points above inflation annually.
  •  Changing demand – a recent Oxford study contended that 47% of occupations are now at risk of being automated and as innovation wipes out jobs and drastically change others, vast numbers will be needing continuing education.
  • Fast moving TP will change the way education is packaged, taught and delivered. MOOC (Massive Open Online Course) today offers university students a chance to learn from the world’s best and get a degree for a fraction of today’s cost. Harvard Business School will soon offer an online “pre-MBA” for US$1,500 (RM4,778)! The reinvention of universities will certainly benefit many more than it hurts. Elites like Harvard, MIT and Stanford will gain from this creative destruction process. Education is now a global digital market.

What then, are we to do

Corporate giants come and go in a competitive economy. Microsoft and Nokia used to rule the digital world. Now they don’t. No monopoly is permanent, unless enforced by government, which as everyone knows hardly changes, even as the rest of the world passes it by. In the United States, it is reported that the administration wants to prevent Apple’s iTunes and AppStore from abusing the network “lock-in” created by Apple’s tech ecosystem. But the judge has since ruled that “I want Apple to have the flexibility to innovate.” That’s something, isn’t it?

economics-poster-smallMy professor at Harvard, Nobel laureate Kenneth Arrow, used to extol about the importance of learning by doing. So, those who want to innovate, let them just do it – hopefully with no government intervention even though there is a compelling “infant” argument for industrial protection, which can be a double-edged sword when it comes to learning and innovating.

Most of the time, the infant seldom grows up. But reinventing the ancient institution of higher learning will not be easy. EdX, a non-profit MOOC founded (and funded) in May 2012 by Harvard and MIT, is now a consortium of 28 institutions worldwide. No one knows how big the online market will eventually be. It’s more akin to online airline-booking services – expanding the market by improving the customer experience.

Still, innovation at MOOC will definitely reduce the cost of higher education, grow market size but with widespread creative destruction collateral damage, and turn inefficient universities on their heads. MOOC estimates that university employment can fall by as much as 30% and 700-800 institutions can shut-down. The rest have to reinvent themselves to survive. Our learning society will change forever, whether we like it or not.

Former banker, Dr. Lin See-Yan is a Harvard educated economist and a British chartered scientist who writes on economic and financial issues. Feedback is most welcome; email: starbizweek@thestar.com.my. The views expressed are entirely the writer’s own.

The Regional Octopus to merge with rivals to create mega Islamic bank


July 11, 2014

The Regional Octopus to merge with rivals to create mega Islamic bank

by Reuters-www.themalaysianinsider.com

OctopusCIMB Group Holdings Bhd is seeking to acquire two lenders to create the country’s biggest bank in a move that is likely to push larger rival Maybank and others in the region to bulk up too.

CIMB, the nation’s second-largest bank, is likely to offer an all-stock deal to buy RHB Capital Bhd and Malaysia Building Society Bhd although details have yet to be hammered out, a source familiar with the matter said

The three banks confirmed today they had obtained approval from Bank Negara Malaysia to begin merger talks.

The “three parties have entered into a 90-day exclusivity agreement to negotiate and finalise pricing, structure, and other relevant terms and conditions for a proposed merger of the three entities and the creation of a mega Islamic bank,” the three banks said in a statement.

The statement came after shares in all three banks were suspended on Thursday pending an announcement. Shares will resume trade on Friday. The proposal comes ahead of a planned partial integration of Southeast Asian economies that is due to begin by the end of next year, with countries in the 10-nation alliance keen to build national champions to bolster their banking systems.

CIMB has been the most acquisitive of Malaysia’s banks and a deal would be the last major move by CEO Datuk Seri Nazir Razak, brother to the Prime Minister, before he relinquishes the helm in September after 15 years.

A successful deal would see CIMB’s assets climb to RM614 billion, 6% bigger than Malayan Banking Bhd (Maybank), and could help with pricing power in an intensely competitive domestic market.

“We believe that we can structure a value creating combination between our three groups and that is worth taking the next steps,” Nazir told employees according to an internal memo.

“I would urge everyone to look forward to the possibility of a significant scale change for us overall, but specially in Malaysia and Singapore, with the caveat that we have only just begun negotiations.”

But some analysts warned CIMB may pay too much and that there could be too much overlap between CIMB and RHB – the nation’s No. 4 bank, as they have similar portfolio mixes and strengths. RHB and Malaysia Building Society have a combined market capitalisation of around US$9 billion (RM28.5 billion), almost half of CIMB’s US$19 billion market value.

“We opine that such a merger could be value destructive to the merged entity given the degree of operational and revenue duplications between CIMB and RHB Capital,” brokerage UOB KayHian said in a client note.

Representatives for CIMB did not respond to requests for comment while RHB said there was no further update at this stage. Representatives for Malaysia Building Society were not immediately available for comment.

A deal would make CIMB the fourth-largest bank in the Association of Southeast Asian Nations (ASEAN) after Singapore’s three biggest lenders. By comparison, the largest, DBS Group Holdings, has assets of US$337 billion.

CIMB's Nazir3Malaysia’s Top Banker in ASEAN

Nazir is the architect of the bank’s expansion over the past decade that saw it buy domestic rival Southern Bank, the Asia equities and investment banking business of RBS as well as lenders in Indonesia and Thailand.

A new deal is bound to heap pressure on Maybank to acquire a rival too, analysts said, with some speculating that Public Bank Bhd could fall within its sights.

“Maybank might want to take over Public Bank, which compared to RHB Capital, is much better in terms of asset quality, and is well-managed and well-capitalised. This makes Public Bank a vulnerable target,” said Ei Leen Tan, an analyst with Affin Investment.

A key player in any acquisition by CIMB of its two smaller rivals will be the Malaysian state pension fund, Octo2the Employees Provident Fund (EPF). It owns 41.3% of RHB and 65% of Malaysia Building Society. The fund also owns a 14.5% stake in CIMB, according to Thomson Reuters data.

Another will be Abu Dhabi-based Aabar Investment which bought a 25% stake in RHB for RM10.80 per share in 2011 – regarded as a particularly high valuation.

Both CIMB and Maybank walked away from a deal to buy RHB in 2011 after failing to secure support from Aabar. The state fund currently owns nearly 22% of RHB. The EPF said in an email it would not be able to comment on the matter as it is very preliminary in nature and specific details are still pending.

A spokesman for Aabar said it doesn’t comment on any of its investments.While plans for ASEAN integration are widely expected to suffer delays, bankers and analysts expect more deals done as the banks from Singapore, Malaysia and Indonesia prepare for a more competitive landscape.”This will give impetus to other countries in the region to think of something similar,” said a M&A banker who advises on bank deals. – Reuters, July 10, 2014.

IMD (Switzerland) World Competitiveness Survey: Malaysia moves up to 12th position


July 8, 2014

IMD (Switzerland) World Competitiveness Survey: Malaysia moves up to 12th position

img_enewletter-issue7-01Malaysia  ranked 12 in List of 60 economies

Malaysia moved up the world competitiveness ranking again, securing a spot in the enviable top dozen and improving the country’s attractiveness to investors.

The International Institute for Management Development (IMD), a Switzerland-based top-ranked business school, lifted Malaysia to 12th position from 15th last year in a list of 60 economies.

“The improved rankings will renew interest and attract investments to the country,” IMD World Competitiveness Center director Professor Arturo Bris told the New Straits Times. The country also continues to be ahead of the United Kingdom (16th), Australia (@17th), Finland (18th), New Zealand (20th), Japan (21st) and South Korea (26th).

Malaysia, Bris said, improved its openness to foreign markets and attracted capital and investment at increasing rates.

In a separate statement, International Trade and Industry Minister Datuk Seri Mustapa Mohamed saidMiti's Mustapa 12th position was Malaysia’s best performance in the past four years and reflected the progress of the Government Transformation Programme and the Economic Transformation Programme.

“Malaysia expects a much better performance in the next three to five years as more of its initiatives begin to bear fruit,” he said.

The Survey

The World Competitiveness Yearbook 2014 is the 26th publication since 1989.The findings are compiled each year by IMD’s World Competitiveness Center in a survey of 60 economies called the World Competitiveness Yearbook.

The yearbook analyses and ranks the ability of each nation to create and maintain an environment that sustains the competitiveness of enterprises.The survey rates at the availability of fixed telephone lines, broadband, railroad network, part-time employment market, illiteracy, medical assistance and other criteria.

The report is based on statistical data and perception data obtained through a survey that reviews 338 criteria in four categories:

  1. Economic Performance covers the domestic economy, international trade, international investment, employment and price.
  2. Government Efficiency looks into public finance, fiscal policy, institutional framework, business legislation and societal framework.
  3. Business efficiency looks at productivity and efficiency, the labour market, finance, management practices, attitudes and values.
  4. Infrastructure rates technological, scientific, health, environmental and educational infrastructure.

In the category of countries with gross domestic per capita of less than US$20,000 (RM64,300), Malaysia remained at the top among 29 economies. Among countries with populations above 20 million, Malaysia climbed up to 4th position from 5th last year.

In ASEAN, Malaysia remains number two after Singapore and ranked third in the Asia Pacific region compared with fourth last year, while Thailand, Indonesia and the Philippines are fourth, fifth and seventh respectively.

Malaysia has consistently performed well in other international surveys, including being ranked 6th by the World Bank in Ease of Doing Business 2014, 24th in the World Economic Forum’s Global Competitiveness Report 2013-2014 and 32nd in the Global Innovation Index 2013 by INSEAD Business School.

Monetary Policy and Financial Stability by Fed Chair Janet Yellen


July 7, 2014

Chair Janet L. Yellen

At the 2014 Michel Camdessus Central Banking Lecture, International Monetary Fund, Washington, D.C.

July 2, 2014

Monetary Policy and Financial Stability

Janet_Yellen_FEDIt is an honor to deliver the inaugural Michel Camdessus Central Banking Lecture. Michel Camdessus served with distinction as governor of the Banque de France and was one of the longest-serving managing directors of the International Monetary Fund (IMF).

In these roles, he was well aware of the challenges central banks face in their pursuit of price stability and full employment, and of the interconnections between macroeconomic stability and financial stability. Those interconnections were apparent in the Latin American debt crisis, the Mexican peso crisis, and the East Asian financial crisis, to which the IMF responded under Camdessus’s leadership. These episodes took place in emerging market economies, but since then, the global financial crisis and, more recently, the euro crisis have reminded us that no economy is immune from financial instability and the adverse effects on employment, economic activity, and price stability that financial crises cause.

The recent crises have appropriately increased the focus on financial stability at central banks around the world. At the Federal Reserve, we have devoted substantially increased resources to monitoring financial stability and have refocused our regulatory and supervisory efforts to limit the buildup of systemic risk. There have also been calls, from some quarters, for a fundamental reconsideration of the goals and strategy of monetary policy. Today I will focus on a key question spurred by this debate: How should monetary and other policymakers balance macroprudential approaches and monetary policy in the pursuit of financial stability?

In my remarks, I will argue that monetary policy faces significant limitations as a tool to promote financial stability: Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach; in addition, efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment. As a result, I believe a macroprudential approach to supervision and regulation needs to play the primary role. Such an approach should focus on “through the cycle” standards that increase the resilience of the financial system to adverse shocks and on efforts to ensure that the regulatory umbrella will cover previously uncovered systemically important institutions and activities. These efforts should be complemented by the use of countercyclical macroprudential tools, a few of which I will describe. But experience with such tools remains limited, and we have much to learn to use these measures effectively.

I am also mindful of the potential for low interest rates to heighten the incentives of financial market participants to reach for yield and take on risk, and of the limits of macroprudential measures to address these and other financial stability concerns. Accordingly, there may be times when an adjustment in monetary policy may be appropriate to ameliorate emerging risks to financial stability. Because of this possibility, and because transparency enhances the effectiveness of monetary policy, it is crucial that policymakers communicate their views clearly on the risks to financial stability and how such risks influence the appropriate monetary policy stance. I will conclude by briefly laying out how financial stability concerns affect my current assessment of the appropriate stance of monetary policy.

Balancing Financial Stability with Price Stability: Lessons from the Recent Past

When considering the connections between financial stability, price stability, and full employment, the discussion often focuses on the potential for conflicts among these objectives. Such situations are important, since it is only when conflicts arise that policymakers need to weigh the tradeoffs among multiple objectives. But it is important to note that, in many ways, the pursuit of financial stability is complementary to the goals of price stability and full employment. A smoothly operating financial system promotes the efficient allocation of saving and investment, facilitating economic growth and employment. A strong labor market contributes to healthy household and business balance sheets, thereby contributing to financial stability. And price stability contributes not only to the efficient allocation of resources in the real economy, but also to reduced uncertainty and efficient pricing in financial markets, which in turn supports financial stability.

Despite these complementarities, monetary policy has powerful effects on risk taking. Indeed, the accommodative policy stance of recent years has supported the recovery, in part, by providing increased incentives for households and businesses to take on the risk of potentially productive investments. But such risk-taking can go too far, thereby contributing to fragility in the financial system.1 This possibility does not obviate the need for monetary policy to focus primarily on price stability and full employment–the costs to society in terms of deviations from price stability and full employment that would arise would likely be significant. I will highlight these potential costs and the clear need for a macroprudential policy approach by looking back at the vulnerabilities in the U.S. economy before the crisis. I will also discuss how these vulnerabilities might have been affected had the Federal Reserve tightened monetary policy in the mid-2000s to promote financial stability.

Looking Back at the Mid-2000s

Although it was not recognized at the time, risks to financial stability within the United States escalated to a dangerous level in the mid-2000s. During that period, policymakers–myself included–were aware that homes seemed overvalued by a number of sensible metrics and that home prices might decline, although there was disagreement about how likely such a decline was and how large it might be. What was not appreciated was how serious the fallout from such a decline would be for the financial sector and the macroeconomy. Policymakers failed to anticipate that the reversal of the house price bubble would trigger the most significant financial crisis in the United States since the Great Depression because that reversal interacted with critical vulnerabilities in the financial system and in government regulation.

In the private sector, key vulnerabilities included high levels of leverage, excessive dependence on unstable short-term funding, weak underwriting of loans, deficiencies in risk measurement and risk management, and the use of exotic financial instruments that redistributed risk in nontransparent ways.

In the public sector, vulnerabilities included gaps in the regulatory structure that allowed some systemically important financial institutions (SIFIs) and markets to escape comprehensive supervision, failures of supervisors to effectively use their existing powers, and insufficient attention to threats to the stability of the system as a whole.

It is not uncommon to hear it suggested that the crisis could have been prevented or significantly mitigated by substantially tighter monetary policy in the mid-2000s. At the very least, however, such an approach would have been insufficient to address the full range of critical vulnerabilities I have just described. A tighter monetary policy would not have closed the gaps in the regulatory structure that allowed some SIFIs and markets to escape comprehensive supervision; a tighter monetary policy would not have shifted supervisory attention to a macroprudential perspective; and a tighter monetary policy would not have increased the transparency of exotic financial instruments or ameliorated deficiencies in risk measurement and risk management within the private sector.

Some advocates of the view that a substantially tighter monetary policy may have helped prevent the crisis might acknowledge these points, but they might also argue that a tighter monetary policy could have limited the rise in house prices, the use of leverage within the private sector, and the excessive reliance on short-term funding, and that each of these channels would have contained–or perhaps even prevented–the worst effects of the crisis.

A review of the empirical evidence suggests that the level of interest rates does influence house prices, leverage, and maturity transformation, but it is also clear that a tighter monetary policy would have been a very blunt tool: Substantially mitigating the emerging financial vulnerabilities through higher interest rates would have had sizable adverse effects in terms of higher unemployment. In particular, a range of studies conclude that tighter monetary policy during the mid-2000s might have contributed to a slower rate of house price appreciation. But the magnitude of this effect would likely have been modest relative to the substantial momentum in these prices over the period; hence, a very significant tightening, with large increases in unemployment, would have been necessary to halt the housing bubble.2 Such a slowing in the housing market might have constrained the rise in household leverage, as mortgage debt growth would have been slower. But the job losses and higher interest payments associated with higher interest rates would have directly weakened households’ ability to repay previous debts, suggesting that a sizable tightening may have mitigated vulnerabilities in household balance sheets only modestly.3

Similar mixed results would have been likely with regard to the effects of tighter monetary policy on leverage and reliance on short-term financing within the financial sector. In particular, the evidence that low interest rates contribute to increased leverage and reliance on short-term funding points toward some ability of higher interest rates to lessen these vulnerabilities, but that evidence is typically consistent with a sizable range of quantitative effects or alternative views regarding the causal channels at work.4 Furthermore, vulnerabilities from excessive leverage and reliance on short-term funding in the financial sector grew rapidly through the middle of 2007, well after monetary policy had already tightened significantly relative to the accommodative policy stance of 2003 and early 2004. In my assessment, macroprudential policies, such as regulatory limits on leverage and short-term funding, as well as stronger underwriting standards, represent far more direct and likely more effective methods to address these vulnerabilities.5

Recent International Experience

Turning to recent experience outside the United States, a number of foreign economies have seen rapidly rising real estate prices, which has raised financial stability concerns despite, in some cases, high unemployment and shortfalls in inflation relative to the central bank’s inflation target.6 These developments have prompted debate on how to best balance the use of monetary policy and macroprudential tools in promoting financial stability.

For example, Canada, Switzerland, and the United Kingdom have expressed a willingness to use monetary policy to address financial stability concerns in unusual circumstances, but they have similarly concluded that macroprudential policies should serve as the primary tool to pursue financial stability. In Canada, with inflation below target and output growth quite subdued, the Bank of Canada has kept the policy rate at or below 1 percent, but limits on mortgage lending were tightened in each of the years from 2009 through 2012, including changes in loan-to-value and debt-to-income caps, among other measures.7 In contrast, in Norway and Sweden, monetary policy decisions have been influenced somewhat by financial stability concerns, but the steps taken have been limited. In Norway, policymakers increased the policy interest rate in mid-2010 when they were facing escalating household debt despite inflation below target and output below capacity, in part as a way of “guarding against the risk of future imbalances.”8 Similarly, Sweden’s Riksbank held its policy rate “slightly higher than we would have done otherwise” because of financial stability concerns.9 In both cases, macroprudential actions were also either taken or under consideration.

In reviewing these experiences, it seems clear that monetary policymakers have perceived significant hurdles to using sizable adjustments in monetary policy to contain financial stability risks. Some proponents of a larger monetary policy response to financial stability concerns might argue that these perceived hurdles have been overblown and that financial stability concerns should be elevated significantly in monetary policy discussions. A more balanced assessment, in my view, would be that increased focus on financial stability risks is appropriate in monetary policy discussions, but the potential cost, in terms of diminished macroeconomic performance, is likely to be too great to give financial stability risks a central role in monetary policy decisions, at least most of the time.

If monetary policy is not to play a central role in addressing financial stability issues, this task must rely on macroprudential policies. In this regard, I would note that here, too, policymakers abroad have made important strides, and not just those in the advanced economies. Emerging market economies have in many ways been leaders in applying macroprudential policy tools, employing in recent years a variety of restrictions on real estate lending or other activities that were perceived to create vulnerabilities.10 Although it is probably too soon to draw clear conclusions, these experiences will help inform our understanding of these policies and their efficacy.

Promoting Financial Stability through a Macroprudential Approach

If macroprudential tools are to play the primary role in the pursuit of financial stability, questions remain on which macroprudential tools are likely to be most effective, what the limits of such tools may be, and when, because of such limits, it may be appropriate to adjust monetary policy to “get in the cracks” that persist in the macroprudential framework.11

In weighing these questions, I find it helpful to distinguish between tools that primarily build through-the-cycle resilience against adverse financial developments and those primarily intended to lean against financial excesses.12

Building Resilience

Tools that build resilience aim to make the financial system better able to withstand unexpected adverse developments. For example, requirements to hold sufficient loss-absorbing capital make financial institutions more resilient in the face of unexpected losses. Such requirements take on a macroprudential dimension when they are most stringent for the largest, most systemically important firms, thereby minimizing the risk that losses at such firms will reverberate through the financial system. Resilience against runs can be enhanced both by stronger capital positions and requirements for sufficient liquidity buffers among the most interconnected firms. An effective resolution regime for SIFIs can also enhance resilience by better protecting the financial system from contagion in the event of a SIFI collapse. Further, the stability of the financial system can be enhanced through measures that address interconnectedness between financial firms, such as margin and central clearing requirements for derivatives transactions. Finally, a regulatory umbrella wide enough to cover previous gaps in the regulation and supervision of systemically important firms and markets can help prevent risks from migrating to areas where they are difficult to detect or address.

In the United States, considerable progress has been made on each of these fronts. Changes in bank capital regulations, which will include a surcharge for systemically important institutions, have significantly increased requirements for loss-absorbing capital at the largest banking firms. The Federal Reserve’s stress tests and Comprehensive Capital Analysis and Review process require that large financial institutions maintain sufficient capital to weather severe shocks, and that they demonstrate that their internal capital planning processes are effective, while providing perspective on the loss-absorbing capacity across a large swath of the financial system. The Basel III framework also includes liquidity requirements designed to mitigate excessive reliance by global banks on short-term wholesale funding.

Oversight of the U.S. shadow banking system also has been strengthened. The new Financial Stability Oversight Council has designated some nonbank financial firms as systemically important institutions that are subject to consolidated supervision by the Federal Reserve. In addition, measures are being undertaken to address some of the potential sources of instability in short-term wholesale funding markets, including reforms to the triparty repo market and money market mutual funds–although progress in these areas has, at times, been frustratingly slow.

Additional measures should be taken to address residual risks in the short-term wholesale funding markets. Some of these measures–such as requiring firms to hold larger amounts of capital, stable funding, or highly liquid assets based on use of short-term wholesale funding–would likely apply only to the largest, most complex organizations. Other measures–such as minimum margin requirements for repurchase agreements and other securities financing transactions–could, at least in principle, apply on a marketwide basis. To the extent that minimum margin requirements lead to more conservative margin levels during normal and exuberant times, they could help avoid potentially destabilizing procyclical margin increases in short-term wholesale funding markets during times of stress.

Leaning Against the Wind

At this point, it should be clear that I think efforts to build resilience in the financial system are critical to minimizing the chance of financial instability and the potential damage from it. This focus on resilience differs from much of the public discussion, which often concerns whether some particular asset class is experiencing a “bubble” and whether policymakers should attempt to pop the bubble. Because a resilient financial system can withstand unexpected developments, identification of bubbles is less critical.

Nonetheless, some macroprudential tools can be adjusted in a manner that may further enhance resilience as risks emerge. In addition, macroprudential tools can, in some cases, be targeted at areas of concern. For example, the new Basel III regulatory capital framework includes a countercyclical capital buffer, which may help build additional loss-absorbing capacity within the financial sector during periods of rapid credit creation while also leaning against emerging excesses. The stress tests include a scenario design process in which the macroeconomic stresses in the scenario become more severe during buoyant economic expansions and incorporate the possibility of highlighting salient risk scenarios, both of which may contribute to increasing resilience during periods in which risks are rising.13 Similarly, minimum margin requirements for securities financing transactions could potentially vary on a countercyclical basis so that they are higher in normal times than in times of stress.

Implications for Monetary Policy, Now and in the Future

In light of the considerable efforts under way to implement a macroprudential approach to enhance financial stability and the increased focus of policymakers on monitoring emerging financial stability risks, I see three key principles that should guide the interaction of monetary policy and macroprudential policy in the United States.

First, it is critical for regulators to complete their efforts at implementing a macroprudential approach to enhance resilience within the financial system, which will minimize the likelihood that monetary policy will need to focus on financial stability issues rather than on price stability and full employment. Key steps along this path include completion of the transition to full implementation of Basel III, including new liquidity requirements; enhanced prudential standards for systemically important firms, including risk-based capital requirements, a leverage ratio, and tighter prudential buffers for firms heavily reliant on short-term wholesale funding; expansion of the regulatory umbrella to incorporate all systemically important firms; the institution of an effective, cross-border resolution regime for systemically important financial institutions; and consideration of regulations, such as minimum margin requirements for securities financing transactions, to limit leverage in sectors beyond the banking sector and SIFIs.

Second, policymakers must carefully monitor evolving risks to the financial system and be realistic about the ability of macroprudential tools to influence these developments. The limitations of macroprudential policies reflect the potential for risks to emerge outside sectors subject to regulation, the potential for supervision and regulation to miss emerging risks, the uncertain efficacy of new macroprudential tools such as a countercyclical capital buffer, and the potential for such policy steps to be delayed or to lack public support.14 Given such limitations, adjustments in monetary policy may, at times, be needed to curb risks to financial stability.15

These first two principles will be more effective in helping to address financial stability risks when the public understands how monetary policymakers are weighing such risks in the setting of monetary policy. Because these issues are both new and complex, there is no simple rule that can prescribe, even in a general sense, how monetary policy should adjust in response to shifts in the outlook for financial stability. As a result, policymakers should clearly and consistently communicate their views on the stability of the financial system and how those views are influencing the stance of monetary policy.

To that end, I will briefly lay out my current assessment of financial stability risks and their relevance, at this time, to the stance of monetary policy in the United States. In recent years, accommodative monetary policy has contributed to low interest rates, a flat yield curve, improved financial conditions more broadly, and a stronger labor market. These effects have contributed to balance sheet repair among households, improved financial conditions among businesses, and hence a strengthening in the health of the financial sector. Moreover, the improvements in household and business balance sheets have been accompanied by the increased safety of the financial sector associated with the macroprudential efforts I have outlined. Overall, nonfinancial credit growth remains moderate, while leverage in the financial system, on balance, is much reduced. Reliance on short-term wholesale funding is also significantly lower than immediately before the crisis, although important structural vulnerabilities remain in short-term funding markets.

Taking all of these factors into consideration, I do not presently see a need for monetary policy to deviate from a primary focus on attaining price stability and maximum employment, in order to address financial stability concerns. That said, I do see pockets of increased risk-taking across the financial system, and an acceleration or broadening of these concerns could necessitate a more robust macroprudential approach. For example, corporate bond spreads, as well as indicators of expected volatility in some asset markets, have fallen to low levels, suggesting that some investors may underappreciate the potential for losses and volatility going forward. In addition, terms and conditions in the leveraged-loan market, which provides credit to lower-rated companies, have eased significantly, reportedly as a result of a “reach for yield” in the face of persistently low interest rates. The Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued guidance regarding leveraged lending practices in early 2013 and followed up on this guidance late last year. To date, we do not see a systemic threat from leveraged lending, since broad measures of credit outstanding do not suggest that nonfinancial borrowers, in the aggregate, are taking on excessive debt and the improved capital and liquidity positions at lending institutions should ensure resilience against potential losses due to their exposures. But we are mindful of the possibility that credit provision could accelerate, borrower losses could rise unexpectedly sharply, and that leverage and liquidity in the financial system could deteriorate. It is therefore important that we monitor the degree to which the macroprudential steps we have taken have built sufficient resilience, and that we consider the deployment of other tools, including adjustments to the stance of monetary policy, as conditions change in potentially unexpected ways.

Conclusion

In closing, the policy approach to promoting financial stability has changed dramatically in the wake of the global financial crisis. We have made considerable progress in implementing a macroprudential approach in the United States, and these changes have also had a significant effect on our monetary policy discussions. An important contributor to the progress made in the United States has been the lessons we learned from the experience gained by central banks and regulatory authorities all around the world. The IMF plays an important role in this evolving process as a forum for representatives from the world’s economies and as an institution charged with promoting financial and economic stability globally. I expect to both contribute to and learn from ongoing discussions on these issues.


1. The possibility that periods of relative economic stability may contribute to risk-taking and the buildup of imbalances that may unwind in a painful manner is often linked to the ideas of Hyman Minsky (see Hyman P. Minsky (1992), “The Financial Instability Hypothesis (PDF),” Leaving the Board Working Paper 74 (Annandale-on-Hudson, N.Y.: Jerome Levy Economics Institute of Bard College, May)). For a recent example of an economic model that tries to explore these ideas, see, for example, Markus K. Brunnermeier and Yuliy Sannikov (2014), “A Macroeconomic Model with a Financial Sector,” Leaving the Board American Economic Review, vol. 104 (February), pp. 379-421. Return to text

2. For a discussion of this issue encompassing experience across a broad range of advanced economies in the 2000s, including the United States, see Jane Dokko, Brian M. Doyle, Michael T. Kiley, Jinill Kim, Shane Sherlund, Jae Sim, and Skander Van Den Heuvel (2011), “Monetary Policy and the Global Housing Bubble,” Leaving the Board Economic Policy, vol. 26 (April), pp. 233-83. Igan and Loungani (2012) highlight how interest rates are an important, but far from the most important, determinant of housing cycles across countries (see Deniz Igan and Prakash Loungani (2012), “Global Housing Cycles,” Leaving the Board IMF Working Paper Series WP/12/217 (Washington: International Monetary Fund, August)). Bean and others (2010), examining the tradeoffs between unemployment, inflation, and stabilization of the housing market in the United Kingdom, imply that reliance on monetary policy to contain a housing boom may be too costly in terms of other monetary policy goals (see Charles Bean, Matthias Paustian, Adrian Penalver, and Tim Taylor (2010), “Monetary Policy after the Fall (PDF),” Leaving the Board paper presented at “Macroeconomic Challenges: The Decade Ahead,” a symposium sponsored by the Federal Reserve Bank of Kansas City, held in Jackson Hole, Wyo., August 26-28). Saiz (2014) suggests that about 50 percent of the variation in house prices during the 2000s boom can be explained by low interest rates, and finds that it was the remaining, “non-fundamental” component that subsequently collapsed–that is, the interest rate component was not a primary factor in what Saiz terms “the bust” (see Albert Saiz (2014), “Interest Rates and Fundamental Fluctuations in Home Values (PDF),” Leaving the Board paper presented at the Public Policy and Economics Spring 2014 Workshops, hosted by the Harris School of Public Policy, University of Chicago, April 8). Return to text

3. The notion that tighter monetary policy may have ambiguous effects on leverage or repayment capacity is illustrated in, for example, Anton Korinek and Alp Simsek (2014), “Liquidity Trap and Excessive Leverage (PDF),” Leaving the Board NBER Working Paper Series 19970 (Cambridge, Mass.: National Bureau of Economic Research, March). Return to text

4. See, for example, Tobias Adrian and Hyun Song Shin (2010), “Liquidity and Leverage,” Leaving the Board Journal of Financial Intermediation, vol. 19 (July), pp. 418-37; and Tobias Adrian and Hyun Song Shin (2011), “Financial Intermediaries and Monetary Economics,” in Benjamin Friedman and Michael Woodford, eds., Handbook of Monetary Economics, vol. 3A (San Diego, Ca.: Elsevier), pp. 601-50. For a study emphasizing how changes in the response of monetary policy to financial vulnerabilities would likely change the relationship between monetary policy and financial vulnerabilities, see Oliver de Groot (2014), “The Risk Channel of Monetary Policy (PDF),” Leaving the Board International Journal of Central Banking, vol. 10 (June), pp. 115-60. Return to text

5. This evidence and experience suggest that a reliance on monetary policy as a primary tool to address the broad range of vulnerabilities that emerged in the mid-2000s would have had uncertain and limited effects on risks to financial stability. Such uncertainty does not imply that a modestly tighter monetary policy may not have been marginally helpful. For example, some research suggests that financial imbalances that became apparent in the mid-2000s may have signaled a tighter labor market and more inflationary pressure than would have been perceived solely from labor market conditions and overall economic activity. Hence, such financial imbalances may have called for a modestly tighter monetary policy through the traditional policy lens focused on inflationary pressure and economic slack. See, for example, David M. Arseneau and Michael Kiley (2014), “The Role of Financial Imbalances in Assessing the State of the Economy,” FEDS Notes (Washington: Board of Governors of the Federal Reserve System, April 18). Return to text

6. For a summary of house price developments across a range of countries through 2013, see International Monetary Fund (2014), “Global Housing Watch.” Leaving the Board Return to text

7. For a discussion of macroprudential steps taken in Canada, see Ivo Krznar and James Morsink (2014), “With Great Power Comes Great Responsibility: Macroprudential Tools at Work in Canada,” Leaving the Board IMF Working Paper Series 14/83 (Washington: International Monetary Fund, May). Return to text

8. See Norges Bank (2010), “The Executive Board’s Monetary Policy Decision–Background and General Assessment,” Leaving the Board press release, May 5, paragraph 28. Return to text

9. See Per Jansson (2013), “How Do We Stop the Trend in Household Debt? Work on Several Fronts,” Leaving the Board speech delivered at the SvD Bank Summit, Berns Salonger, Stockholm, December 3, p. 2. Return to text

10. For a discussion, see Min Zhu (2014), “Era of Benign Neglect of House Price Booms Is Over,” Leaving the Board IMF Direct (blog), June 11. Return to text

11. These questions have been explored in, for example, International Monetary Fund (2013), The Interaction of Monetary and Macroprudential Policies (PDF) Leaving the Board (Washington: IMF, January 29). Return to text

12. The IMF recently discussed tools to build resilience and lean against excesses (and provided a broad overview of macroprudential tools and their interaction with other policies, including monetary policy); see International Monetary Fund (2013), Key Aspects of Macroprudential Policy (PDF) Leaving the Board (Washington: IMF, June 10). Return to text

13. See the Policy Statement on the Scenario Design Framework for Stress Testing at Regulation YY–Enhanced Prudential Standards and Early Remediation Requirements for Covered Companies (PDF), 12 C.F.R. pt. 252 (2013), Policy Statement on the Scenario Design Framework for Stress Testing. Return to text

14. For a related discussion, see Elliott, Feldberg, and Lehnert, “The History of Cyclical Macroprudential Policy in the United States.” Return to text

15. Adam and Woodford (2013) present a model in which macroprudential policies are not present and housing prices experience swings for reasons not driven by “fundamentals.” In this context, adjustments in monetary policy in response to house price booms–even if such adjustments lead to undesirable inflation or employment outcomes–are a component of optimal monetary policy. See Klaus Adam and Michael Woodford (2013), “Housing Prices and Robustly Optimal Monetary Policy (PDF),” Leaving the Board working paper, June 29.

http://www.federalreserve.gov/newsevents/speech/yellen20140702a.htm

Thanks to Matthew Goldman. For reaction to Chair Janet’s Speech read this:

http://www.acting-man.com/?p=31577

Malaysia’s Top Economist and Mr.Transformer speaks


June 24, 2014

Malaysia’s Top Economist and Mr. Transformer speaks

I missed this one dated June 20, 2014, posted in Malaysiakini because Dr. Kamsiah and I were away in Taipei. Reading it, I thought the authorities in Taiwan should have appointed Dato Seri Idris Jala as their chief propagandist.  So here it is:

idris guitarSenator Dato’ Seri Idris Jala is a Minister in the Prime Minister’s Department and CEO of Malaysia’s Performance Management and Delivery Unit (PEMANDU), an organization tasked with ensuring Malaysia meets the goals set forth under the National Transformation Programme (NTP).

He spoke with The Prospect Group about the Economic Transformation Programme’s (ETP) goals for 2014, which includes Gross National Income (GNI), investment, and job creation, and ensuring Malaysia’s economy is resilient in the face of global uncertainty.

Q: What are the ETP’s main focal points for 2014?

JALA:

Our focal point for 2014 is to make sure we implement. We have to implement what we promised under the ETP as well as the GTP. The public wants results and the way in which we have to fulfill those results is to execute the initiatives within the 12 National Key Economic Areas (NKEAs) that will achieve big results fast.

Q: What are your 2020 GNI, investment, and job creation goals?

JALA:
By the year 2020, we would like to have become a high-income economy that fulfills the GNI targets of $15,000 per capita. That is our long-term goal. To do that will require a lot of investment; something like $444bn is needed to propel the Malaysian economy to grow. We also need to create 3.3m jobs; you have to create a lot more high-paying jobs so that the citizens can benefit. So those are the three true-North targets: gross national income per capita, private investments that will drive it, and jobs that are created. The good news today is that, from when we first began, in four years, we have been able to grow our total GNI per capita by 50%. We are at the halfway mark today. So we are very pleased with the progress made on the GNI target. With regard to job creation, we are supposed to create 3.3m jobs, and we have created 1.3m jobs in the four-year period. So that is really very good.

We have met more than 60% of the investment targets, signifying we are well on the way to achieving this as well. My view today is that we would like this coming year to continue in the same way as we have experienced over the last three years. That means that everything is on the right trajectory. If things continue the way that they are, we will fulfill our targets before 2020.

 

Q: In terms of time frame and the trajectory you are on today, when do you anticipate these goals will be achieved?

JALA:
I think we should reach our targets by the year 2018. But, as you know, the world is not linear. If you look back over the last four years, it has been a good run for us, but we are subject to what happens in the global economy. We have to build in a lot more resilience within the Malaysian economy to face any global crisis or any global slowdown to ensure we can weather storms that happen between now and the year 2020. It has been a very good run for the last four years.
Q: In a world of constantly changing economic realities, how can Malaysia’s Economic Transformation Programme (ETP) and National Key Economic Areas (NKEAs) adapt?
JALA:

Adaptation is a very important requirement moving forward for Malaysia. So what we want to do in Malaysia moving forward is to ensure we build enough resilience in our economy.Let me begin by saying we must implement proper fiscal reforms. Public debt in our case should not exceed 55% of our GDP. Now there are many countries that have gone to 80%, 90%, 100%, and even 190% public debt to GDP. So if you make sure that you grow the economy and make sure the government debt is below the 55% threshold, we believe that is the way to go. You cannot and should not over leverage, so we are really focusing on that.The second thing about being resilient as an economy and being able to face any un-foretold difficulties with the global economy is to make sure we do not have a fiscal deficit that exceeds 6%. We have been steadily reducing our fiscal deficit. When we first started, our fiscal deficit was 6.6%. We have since cut that down to 5.8%, and then to 4.8%, and last year we reached 3.9%.

The other aspect of making sure we can adapt is obviously to make sure we have the right competent talent. A competent talent pool means that whatever structural changes take place in the economy, people are able to be mobile and will do what is needed to produce products and services that can compete in the world outside.

The other is that we made changes in the way the civil service operates. We have become a lot more efficient and the good news today is that we have been able to improve the ease of doing business. It is very easy to do business in Malaysia. The World Bank assessed Malaysia in 2009 at number 23. We then moved to number 18, and then to 12, and last year, for the first time, we moved to number 6 overall in the world in terms of the ease of doing business. So if it is easy for investors to put money and investment in Malaysia, and at the same time the government is fiscally prudent and we bring in all the fiscal reforms, and we have a talent pool in the country, then we can adapt very quickly to changes that are happening.

Q: How does this philosophy play into the ideology that Malaysia should move away from being a primary resource based economy and into a higher value added service based economy?

JALA:
If you look at the history of Malaysia, we were an agrarian economy during independence in 1957 and then we moved into a more commodities play. So what we are now doing is making sure that our manufacturing arm grows a lot bigger and we have started doing that. In fact, when it gets down to palm oil, we are now telling the industry it is fine and good for us to do a lot more primary products and selling that as crude, but it is much more important for us to start producing downstream products such as oleo chemicals and we gave a lot of incentives to allow this to happen as evidenced by the establishment of more refineries. That is happening as we speak today, the downstream component has to come in. At the same time, between now and 2020, we wanted to see that we increase the services sector of the GDP to become more than 60% and we have been growing that rapidly. You can see today that tourism is big for us, financial services are big, the health sector as a part of the economy is also growing, and the education sector. So all of these all together, they will become, by the year 2020, at least 60% of our GDP. So I think for the first time doing this, we will have to diversify the economy so that we do not rely entirely on the commodities play, but we get into the downstream part of the same sectors and at the same time we grow the services sector. I think if you add the two together, the Malaysian economy becomes more resilient.

Time running out to save the ailing Malaysian Airline System (MAS)


June 23, 2014

Time running out to save the ailing Malaysian Airline System (MAS)

Story by

Stephanie Jacob stephanie@www.kinibiz.com

Maybank KE has advised Malaysia Airlines Bhd (MAS) investors to sell, saying that time is running out to save the ailing airline and that Khazanah Nasional Bhd’s plans to take six to twelve months to come up with a restructuring plan is too long. The research house’s aviation analyst Mohshin Aziz noted that while MAS’ counter had reacted positively to Khazanah statements on restructuring, Maybank KE had been disappointed as it had hoped a plan would be introduced sooner.

In its report, Maybank KE said according to calculations, “MAS is experiencing a cash burn rate of RM5 million a day and could exhaust its entire free cash resources…by 2015.” Furthermore at this rate, its gearing could hit 5x by the end of 2015, it added.

Noting that MAS’ had a cash burn of RM494 million in the first quarter of financial year 2014 (1Q14), Maybank KE said that it expects the trend to continue on to 2Q14. The ongoing quarter is expected to be the worst so far for MAS, as together with being seasonally its weakest quarter, it is also expected to suffer from industry wide weak yields and flight cancellations.

MAS-cash-balance-movement-230614

Mohshin said that MAS’ cash balance is expected to fall to RM2.1 billion by the end of financial year 2014 (FY14) and to RM1.1 billion by the end of FY15. He added that this trend was not sustainable. READ on :

http://www.kinibiz.com/story/corporate/91927/time-seen-running-out-for-mas-restructuring.html

On Taiwan


 

June 20, 2014

Taipei, Taiwan

On Taiwan

by Din Merican

image

My wife, Dr. Kamsiah, and I spent the last few days in Taipei and its surrounds and met a number  of her Taiwanese counterparts. We asked them a lot of questions about their history, culture, their economy and government. While my wife was occupied with her course, I was  able to interact with them. Although those  we met and talked to were hampered by their limited English vocabulary and  we have zero knowledge of their language (Mandarin), we are able to understand why they are very proud of their country and its economic success but they are critical of their government. Off the bat, we can say that their society is an open one founded on democracy. They are a very hardworking and disciplined people.

I searched google and found a report from the Heritage Foundation, which confirms our cursory impressions of the country.  See below:

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Paying Tribute to Integrity


June 14, 2014

Paying Tribute to Integrity

by Ahmad Zakie Shariff (received by e-mail)

Like many others of his generation, my late father rejoiced when the Union Jack was lowered, that fateful night in August 1957. We were finally independent and free to set our nation’s future course. He was a simple man of integrity and he admired the great qualities of our Founding Fathers and he passed on that admiration to me.

hj-ahmad-zakieAs I write I am paying tribute to the founding spirit of this nation; a spirit of collective optimism and idealism. True, we may not feature in this year’s World Cup in Brazil (we can still dream, 2030 anyone?), but Malaysia is still a place where people can dream and achieve lofty goals together. United we stand, divided we fall.

But for too long, the economics discipline has understated the critical role of cooperation in economic activity. Emphasis on the individual has risen above all else and overshadowed the profound ways we depend on each other. You may have recently heard a prominent business person say “I did it all myself. I had no help from other quarters.” I want to interrupt that point.

Every successful business venture requires the cooperative effort of many people – the policymaker who believes in the benefits of the project, the banker who believes in the business plan, the customer who believes in the product, the employee who devotes precious time to the business and its owners.

A relationship exists when trust and integrity exists, and when they do, remarkable efficiencies result. Partners are spared a multitude of worries – whether they’ll get paid, whether they’ll get what they think they’re paying for. They are freed to act quickly and with confidence, again and again.

Pervasive integrity is fundamental to our society and the growth of its economy. Integrity, therefore, is not something that’s nice to have. It’s something we have to have.

The dictionary defines integrity as adherence to moral and ethical principles, rectitude, honour, and honesty. These are certainly admirable qualities. But we need to understand integrity as not simply a virtue, but a shared asset that brings social and economic rewards. Sometimes we take integrity for granted. We learn from infancy to count on other people to tell the truth, to keep their promises, and respect the rights of others.

This trusting attitude is ingrained in our culture, learnt from the cradle and accumulated over the years. However in this era, where so much seems to be going wrong, many have lost trust in their fellow citizens. Some of us have lost faith in integrity.

The path forward can’t be to stop trusting. We need to build the trust that will power our nation for decades to come.If mistakes are learning experiences, the painful lesson of recent events that pervaded our nation is that integrity really does matter. Not just to our moral wellbeing but to our economic wellbeing too.

Conventionally, integrity is considered a “behind closed doors” topic: a personal issue, entirely up to the individual. If you are upright, good for you; if not it’s no one else’s affair. We should turn conventional wisdom on its head. The real value of integrity is not personal; it’s collective. It is the underpinning for all our social relationships. We are heirs to a huge stock of integrity, built up over the years by our predecessors and visible in every aspect of our society.

It is a shared asset that has made us quite wealthy.Without integrity, our nation cannot function. There would be no trust, no mega projects, no trading, no credit, no buying and selling. Our oft-praised economy would quickly degenerate into a primitive system, and our nation’s wealth would disappear long with it.

Integrity is collective action.To actually practice integrity, to deal honestly, there has to be someone on the other side of the transaction. That means that to really understand integrity, we have to appreciate it as a relationship of trust.

An example: The Asian financial crisis of 1998 was in my mind, first and foremost, a crisis of integrity. It was by far the biggest economic disruption of my lifetime, more so than the subprime crisis of 2008.  In both crises, the seeds were sown when a number of people sought their own short-term advantage, knowing that they were putting others at risk. There was no thought spared for the collective good.

The things that will destroy us are: politics without principle; pleasure without conscience; wealth without work; knowledge without character; business without morality; science without humanity; and worship without sacrifice.–Mohandas K. Gandhi

In that climate, greed great and small multiplied and spread like potent germs in a warm petri dish. The result of all that integrity and trust unravelling was an economic contraction so profound that it impacted vast populations and diminished wealth around the globe.

It was a wake-up call. Ignoring or, worse, abusing integrity isn’t just unpleasant forGandhi a few bad apples and their unlucky victims. It had profound economic consequences. At stake were the entire regional economic system and our way of life.

There is another way to think about integrity. What if we invested in integrity? What if we took a different approach and focused on “increasing the good stuff that people do” instead of highlighting the scandals, the frauds and the cheatings? What if?

The ultimate point is that if we invest in our collective integrity, we invest in our collective wealth. We can create wealth together in ways that are not possible alone. Despite all the dishonesty, the falsehoods, the cheating and even the outright fraud we’ve seen exposed, there’s actually a lot of integrity left in this world. Without it, financial activity and the vast majority of commerce would stop completely.

Mohandas K. Gandhi once said that there are seven things that will destroy a society – wealth without work; pleasure without conscience; knowledge without character; religion without sacrifice; politics without principles; science without humanity and business without ethics.I agree with the Mahatma. He was cautioning us against the loss of integrity.

A Gathering Storm over Johor Sultan’s Commercial Dealings (Part 2)


June 12, 2014

A Gathering Storm over Johor Sultan’s Commercial Dealings

by Khairul Khalid@www.kinibiz.com

http://www.kinibiz.com/story/issues/90401/is-the-sultan-of-johor-too-powerful.html (June 11, 2014)

PART 2: Is the Sultan of Johor too powerful?

How will the Sultan of Johor fit into the state administration now that the controversial new housing bill has been passed?

Even though the Johor Menteri Besar (MB) Mohamed Khaled Nordin has since backed down on the original bill, the prevailing perception is still that the Sultan is still an immensely powerful figure in the state administration.

An observer who is a practising lawyer in Johor points out that even after the original bill was whittled down to contain only the provision for the Sultan to appoint board members (under the MB’s advice), it  is still fraught with potential conflicts of interests.

According to the Johor lawyer, the composition of the housing board consist of 6 permanent members that includes the MB as the chairman, the local housing executive as deputy chairman, office of state secretary, state legal adviser, state director of rural and planning department and finally the state director of the economic planning unit.

These six people hold permanent positions, are all appointed government servants and do not hold political office. In addition to these six members are the four additional board members that the Sultan may now appoint, under the advice of the MB.

“This is where the trouble comes. The CEO of the board will come from these four Sultan nominees. Practically speaking, if they are the Sultan’s nominees, can the MB override him? It’s impossible. No way. The ruler will take control of the board through the CEO. It makes a mockery of the clause,” said the Johor lawyer.

The original bill that caused an uproar proposed giving unprecedented executive powers to the Sultan, including appointing board members, determining allowances and remunerations, approve the appointment of the CEO (chief executive officer) of the board, scrutinise accounts and dissolve the board.

Mohamed-Khaled-Nordin-Johor-Menteri-BesarAfter intense pressure from both ruling and opposition parties, Johor Menteri Besar (MB) Mohamed Khaled Nordin replaced most of the references to the Sultan in the original bill.

Now, the only royal provision is for the Sultan to appoint members of the board, in accordance with the advice of the MB. Even that has been met with widespread scepticism because the monarchy could still indirectly influence state administration.

According to the lawyer, the MB’s amendments were just to appease the public and a formality to give the impression that the MB is still under control.

“It’s a question of the horse or the cart coming first. These four members of the board appointed by the Sultan shall not hold office for more than two years but are eligible for reappointment, unless they resign or if their appointments are revoked by the ruler. This gives the Sultan great influence over these appointees,” explained  the Johor lawyer.

Johor Pas (Parti Islam Se-Malaysia) commissioner and Parit Yaani assemblyman Aminolhuda Hassan urges federal intervention in the new law. “Federal involvement has been somehow sidelined in the new legislation. We are talking about the state land that is one of the most important areas of economic development. We need more check and balance, and that includes the participation of the federal government,” says Aminolhuda.

The Pas commissioner also states that although the opposition leaders support the legislation in the spirit of improving the housing problems in Johor, the legislation needs to be improved.

Another observer adds that the whole issue is purely political and has nothing to do with the law. “It’s a political problem, nothing to do with the law. The whole legal debate misses the point. Regardless of the law, the Sultan is getting more influential and the MB’s position could be reduced. We need strong action by the Prime Minister and the Federal Government before things get worse,” said the observer who spoke on condition of anonymity.

Many are sceptical that the Sultan of Johor can be a neutral bystander in the state administration and see the amendments as nothing but cosmetic changes to ease the political pressure on the MB. Even without formal executive powers, most political observers feel that the Sultan of Johor wields wide-ranging power in the state especially in land matters.

According to Senai state assemblyperson Wong Shu Qi , there are a also few clauses in the bill that was passed that cause concerns.“Clause 39 gives the board power to acquire land whenever it is in the public interest to do so. Although it says it must be in accordance with recent law, why don’t they just stick with the existing national land code? This would only complicate the decision making process,” said Wong.

Another contentious clause that worries Wong allows the board to enter any premises under the instruction of the CEO.“Clause 41 of the legislation gives the power to enforcement officers, under instructions by the CEO to enter any premises regardless if the property is managed or built by the state housing authorities or not, even they are private property,” said Wong.

Dr Boo Cheng HauSkudai assemblyman and state opposition leader Dr. Boo Cheng Hau says that the opposition is satisfied with the removal of the provisions giving executive powers to the Sultan and are concentrating on other clauses that could be problematic.

“We will focus on other amendments such as clause 16 in relation to conflicts of interests among board members. For example, if any board member or their relations tenders for any state project and fails to disclose the fact, the decision to award the project remains and will not be reviewed. Even if the non-disclosure is found out, the board member will not be punished. This will encourage corruption,” said Boo.

Johor state leaders from both ruling and opposition parties seem to have backed down on the Sultan of Johor issue after the bill was amended and are wary of rattling any more cages due to the sensitive subject matter.

However, discontent about the Sultan’s growing administrative powers still bubbles beneath the surface. Many are now scrutinising the Sultan of Johor’s role in the state administration in relation to the role of the monarchy as stated in the constitution.

NOTE: Will there be another constitutional crisis? Part 3 to follow later today

A Gathering Storm over Johor Sultan’s Commercial Dealings (Part 1)


June 12, 2014

A Gathering Storm over Johor Sultan’s Commercial Dealings

PART 1: The RM 4.5 billion Backlash

By Khairul Khalid @www.kinibiz.com

http://www.kinibiz.com/?p=90213 (June 10, 2014)

Sultan-of-Johors-recent-business-deals-100614-updatedA quiet storm has been growing over the Sultan Ibrahim Ismail’s increased commercial dealings and business interests.

It looks to have come to a head with strong public and political opposition to Johor’s new Housing and Real Property Board Bill that was initiated to give the Sultan of Johor sweeping executive powers in the property industry. KiniBiz will examine that issue further tomorrow.

Many observers cite the Sultan’s sale of 116-acres of prime land in Johor Bahru lastSultan of Johore December to China developers Guangzhou R&F last year as a major turning point. The deal pocketed the Sultan RM4.5 billion. Although scant details have been released, unconfirmed sources told KiniBiz that much of it is prime land in the Johor Bahru (JB) city  centre and seafront designated as development zones in the Iskandar region.

Sources also told KiniBiz that the land was alienated to the Sultan of Johor by the state government for a lot less than the sale price. KiniBiz has not been able to verify this independently. It is not known whether the Sultan has any stake in the mixed developments to be undertaken on this land bank.

The China angle

The special economic zone of Iskandar has been buzzing with big Chinese mainland developers such as Country Garden constructing projects on a massive scale that has dwarfed other local developments.

The Sultan’s RM4.5 billion land sale to China developers clearly ruffled some feathers, not least among local developers who are worried that the local market could be swamped with units made by China developers and cause a property glut.

Ironically, only last July Iskandar Investment Bhd or IIB announced that it was limiting the sale of land in Iskandar through a “controlled release” strategy. The move was deemed necessary because Iskandar “is still a relatively small and fragile region” and to “allow investors to make money”, said IIB President and CEO Syed Mohamed Ibrahim then.

There were also concerns that selling prime state land to China was a politically insensitive move. Nevertheless, there was little vocal opposition at the time when the RM4.5 billion land sale was announced, although there were grumblings on the ground.

Fear factor

The Sultan of Johor is often treated with a mixture of respect, awe and even fear especially among Johorians. Open criticism of the Sultan is seen as social taboo. Local professionals and businessmen keep their lips pursed for fear of repercussions.

“Yes, there definitely is a fear factor,” said a local Johor businessman who did not want to be named.Things could slowly be changing with the furore over the housing bill.

“With all due respect, he (the Sultan) shouldn’t be involved in business. This is the first Sultan known to Malaysians to sell land to China. And it is prime city land. It is unprecedented. Even the previous late Sultan Iskandar (Sultan Ibrahim’s father whom the  Iskandar region was named after) did not engage in such public business dealings,” said a practicing lawyer in Johor who spoke on condition of anonymity.

In theory, the RM4.5 billion land sale to Guangzhou R&F alone could place Sultan Ibrahim among the richest men in Malaysia.

Business dealings

Vincent-Tan-Chee-YiounBased on the latest Forbes Malaysia’s 50 richest list, the Sultan of Johor would rank just behind Mahathir’s crony, Vincent Tan (a businessman that the Sultan has been closely linked to) who is at number 10 on the list with an estimated net worth of just over RM5 billion (US$ 1.6 billion).

The Sultan could have slipped quietly into the background after the mammoth land sale, but subsequently he made several other eye-catching moves in the corporate world. He has been acquiring shares in other existing businesses in deals worth more than RM600 million.

After the RM4.5 billion land sale, the Sultan of Johor bought a 15% stake in MOL AccessPortal (MOL) for RM396 million and 20% stake in Berjaya Times Square Sdn Bhd (BTS) for RM250 million.

Interestingly, both companies that the Sultan of Johor bought stakes in are linked to Batu Pahat-born Tan who is chairman of Berjaya Group and owner of Cardiff City football club.

Most recently, the Sultan of Johor made waves again, this time in the energy sector.A consortium of SIPP (SIPP) Energy Sdn Bhd, YTL Power International Bhd and Tenaga Nasional Bhd (TNB) was conditionally awarded the development of Project 4A, a new 1,000 megawatt (MW)–1,400MW combined cycle plant in Johor. The project is reported worth approximately RM6 billion, according to a CIMB report.

The Sultan of Johor owns a 51% stake in SIPP with the balance shareholding split between two company directors — Daing A Malek Daing A Rahman (24.5%) and Anuar Ahmed (24.5%).

With such high-profile business acquisitions, many have questioned whether it is appropriate for a sitting ruler to be so conspicuously involved in the business world.

Legal implications

“The constitution says that they (the royals) should be ceremonial bodies and above politics. They get a lot of remuneration and grants from the state government. These are all from public funds. They don’t need to be in business. It is also not right for a Sultan to be in competition with the rakyat for businesses. How can they compete? It is the Malay “adat” not to go against the Sultan, ” said the Johor lawyer to KiniBiz.

The lawyer is also concerned that the Sultan’s various business dealings could expose himself to potential lawsuits. “If the Sultan is involved in companies and business entities, he is liable to be sued in court if anything goes wrong. That could tarnish the royal family’s image and bring the country into disrepute,” said the lawyer.

lim-kang-hooThis is not the first time that the Sultan of Johor has been linked with prominent local businessmen. Previously, he was heavily linked with Lim Kang Hoo, majority stakeholder of Ekovest and Iskandar Waterfront Holdings (IWH).

Property tycoon Lim is ranked number 19 in the latest Forbes Malaysia’s 50 richest list with an estimated net worth of over RM3 billion (US$ 975 million).

During the 1997 financial crisis, Lim took over RM200 million debts of state investment agency Kumpulan Prasarana Johor (KPRJ) in return for land reclamation rights. With the value of land skyrocketing in Iskandar in recent years, so has Lim’s fortunes.

IWH is a public-private partnership between the state of Johor and Lim, with KPRJ having a 40% stake. Lim holds the balance 60% through his vehicle Credence Resources Sdn Bhd (CRSB). Lim is also executive chairman of public-listed property company Tebrau Teguh.

Lim owns vast tracts of land in JB’s waterfront especially in Danga Bay. Last April, Shanghai-based developer Greenland Group paid RM600 million to IWH for 13 acres of land in Danga Bay. IWH and Greenland will be in a joint venture (JV) for a mixed development worth a gross development value (GDV) of RM2.2 billion.

Previously, IWH sold 58 acres of land to Country Garden for RM900 million to develop its Danga Bay project that includes 9,000 units of high-end condominiums units and commercial development with a RM18 billion GDV.

IWH is also planning an initial public offering (IPO) later this year that could be worth up to $300 million (RM960 million).

Sultan of Johor confirmed that billionaire Lim is his business partner in a 2012 interview with a few local bloggers, including Ahirudin Attan (or Rocky as he is more popularly known as).

During the interview, the Sultan also angrily dismissed allegations that he is a “30% man” based on rumours that he was asking for a cut of major business dealings in the state. The Sultan explained that the “30% is for the state”, according to the 2012 interview.

Chinese companies have been investing huge sums of money and contributing to Iskandar’s growth substantially.

Feeding China’s love for property, land

Major Chinese developers in Iskandar include Country Garden, Guangzhou R&F, Agile Property Holdings and Greenland Group that have invested a combined US$6 billion (RM20 billion).

In 2013, Chinese institutional and retail investors poured US$1.9 billion (RM6 billion) into Malaysia properties.However, there has also been growing unease with the increasing Chinese ownership and presence in vast tracts of waterfront land in JB.

“Technically, it could compromise the security of the nation and is not in the best national interest. The Chinese have bought land all along Danga Bay up to Tanjong Pelepas. They are developing all sorts of projects without any restrictions such as the bumiputera quota that are imposed on local developers,” said the Johor lawyer.

The cocktail of big business, land, politics, royalty and foreign ownership could be a political time bomb for Johor. Both sides of the political divide are already up in arms over the Sultan of Johor’s potential involvement in state administration via the Housing and Real Property Board Bill.

Major developments and investments in the southern state such as Iskandar and Pengerang could be placed in delicate positions in light of these recent developments in Johor.

Get back on the right track,Mr. Jala


June 11, 2014

Published: Wednesday June 11, 2014 MYT 12:00:00 AM
Updated: Wednesday June 11, 2014 MYT 8:07:57 AM

http://www.thestar.com.my/Opinion/Letters/2014/06/11/Get-back-on-the-right-track/

Get back on the right track,Mr Jala

by Tan Sri (Dr) Ramon Navaratnam, Chairman,Asli Centre of Public Policy Studies

Ramon14I REFER to the article “Tackling income inequality” (The Star, June 9) by Minister in the Prime Minister’s Department and CEO of PEMANDU, Datuk Seri Idris Jala.

Jala shows compassion for the poor, having come up dramatically from a very poor village background himself.He explains the many achievements of the Government’s plans and programmes to fight poverty and states that Malaysia is on the right track to win the big war on poverty.

I would agree only generally with his assessment. It is true that we have come a long way to eradicating poverty. However, I would think that we are not necessarily on the “right track”. To put it aptly, we need to “get back on the right track!”

Why is this so? It is because we are still using the old strategies of fighting poverty through aiding small-time businesses and giving out grants to farmers, fishermen and giving out minor construction contracts to the poor.

All these uplift them in a very limited manner. That is why the Government often proclaims the individual aid given to Low-Income Households (LIH) and Amanah Ikhtiar Malaysia (AIM). But how effective are we in substantially solving the structural causes of poverty?

There are a limited number of poor individuals who gain from these small aid programmes in the short term. But what about the vast majority of the poor whose mean household income is only RM2,000 per month or lower for a family of four or about RM500 per person per month?

How do they survive and what are their prospects from getting out of poverty permanently?The public also needs to be told what proportion of the poor benefit from the schemes to uplift themselves permanently.

It is also good if Jala (pic-playing guitar) could provide the racial and geographical idris guitarbreakdown of these recipients.Unfortunately, there is this nagging perception that the very poor orang asli, the poor Sabahans and Sarawakians, and the very poor Chinese, Indians and others, are not given sufficient and equal attention by the Government.

If all the poor are treated fairly, then the Government should highlight it and be proud of this noble act. But is this being done? Although the Gini Coefficient that measures poverty is said to be improving, it’s a very slight improvement. Moreover, it is well-known that Malaysia’s Gini Coefficient is one of the worst in Asean, despite our considerable wealth in oil and gas and other natural resources and our relatively high income. They need to explain why this is happenning. Thus, in fighting poverty we need to review our old policies and “get back on track”.

While we need to carry on with short-term measures and perhaps the BR1M programmes for some time, we need to do much more to transform the structural causes of poverty.

Since Jala has rightly asked for “fair and reasonable comments”, I hope my recommendations will be considered, if not implemented.

First, increase the budget to fight poverty through long-term sustainable measures, like better infrastructure for the poor.Second, improve the quality of education. Our educational standards are rated poorly by international agencies.

Third, teach more and better English to help our dropouts, school leavers and even graduates to get higher income jobs to break out of the poverty cycle. Fourth, introduce more technical education so that the majority of our children who cannot benefit or are not interested in an academic education, can become independent and be gainfully employed as technicians. Then, they need not depend on government handouts or government jobs for the sake of employing them at taxpayers’ expense.

Lastly, instill the time-tested values of good conduct, strong discipline, racial and religious harmony and a sense of independence and competition. Tackling income inequality is a vital goal for social stability, progress and especially for national unity.

Therefore, we have to constantly review and revise our policies and practices to ensure we “keep on the right track” in fighting poverty, lest we lose our way in this tough struggle.

My message to Idris Jala, who may have forgotten his KPI on Corruption, comes from Ayn Rand, Author of Atlas Shrugged below. Minister Paul Low, what are doing in the Prime Minister’s Department, apart from earning a fat salary? –Din Merican

ayn-rand-“When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see that money is flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.”–Atlas Shrugged

 

Johor Royal Council assures no abuse of power


June 10, 2014

Johor Royal Council assures no abuse of power

by malaysiakini (June 9, 2014)@http://www.malaysiakini.com

The Royal Court assures the people of Johor (and Malaysians in general) that there is no cause for concern that His Royal Highness will misuse his authority. He values and places his rakyat above all else. The sultanate is an embodiment of all things wise, just and fair.

The Johor Housing and Real Property Board Bill, passed today by the legislative assembly, opened the floodgates on debate on whether the royal institution should be extended executive powers.

Khaled NIn its original form, the Bill contained clauses which gave the sultan powers to appoint the board members, determine remuneration, oversee board accounts and dissolve the board. It resulted in pressure on Johor Menteri Besar Mohamed Khaled Nordin (left), including from within BN, to amend the Bill.

The Bill was later amended, but Khaled insisted that the state had not tried to extend the sultan’s powers as the Bill was to be read with the state constitution.

For the first time since the issue erupted after Malaysiakini‘s exclusive report, the Johor Council of the Royal Court weighed in. Its President Abdul Rahim Ramli’s statement is reproduced in full below:

Ruler to act on advice

The Council of the Royal Court concurs with MB Khaled’s clarification that the proposed Johor Housing and Real Property Board Bill must be read together with the provisions of the Johor State Constitution of 1895.

The provisions of the Bill are not meant to surrender absolute power to the ruler and therefore should not be construed as interference of the monarchy in the management of the state. Neither does it contravene the concept of constitutional monarchy.

In his wisdom in promulgating the state constitution, Sultan Abu Bakar envisaged the transition from a feudal state to a constitutional monarchy with a caveat; the ruler does not possess absolute power.

The core of governance under the system of constitutional monarchy is embodied in the Second Part of the Johor Constitution. Article 2(1) states the executive authority of the state shall be vested in the ruler but the executive functions may by law be conferred on other persons or authorities.

Article 7(1) categorically states in the exercise of his functions under the constitution, the ruler shall act in accordance with the advice of the state executive council (exco) or a member thereof acting under the general authority of the council. The Article further provides the ruler shall be entitled at his request any information concerning the government.

Article 7(3) authorises the state government to make provisions for requiring the ruler to act after consultation with or the recommendation of a person or a body of persons other than the exco.

Three advising bodies

The constitution spells out the three bodies that are competent to give advice to the ruler, namely the menteri besar (MB) and the exco, the Council of the Royal Court, and the State Pardons Board.

The ruler shall act on the advice and concurrence of the Council of the Royal Court on matters in which the ruler or the royal house or any member thereof may be concerned.

The ruler acts on the advice of the State Pardons Board in granting a pardon reprieve or respite in respect of any offence committed in the state. Examples of the ruler acting on advice include that although the ruler at his discretion may appoint an heir and other heirs, or a regent, he does so with the advice and concurrence of the Royal Court.

The appointment of the state secretary, the state legal adviser and the state financial officer by the ruler under Article 6 of the Second Part is made on advice by the State Public Service Commission and the MB.

Although the ruler may at his discretion appoint an MB from among the legislative assembly a person who in his judgement is likely to command the confidence of the majority, such appointment is normally made after consultation and advice from the ruling party.

Similarly, the ruler acting on advice of the MB shall appoint members of the exco. The advice cannot be construed as applying political influence on the ruler. It is more a consensus of opinion in order to ensure the integrity of the government.

Sultan’s other powers

It is with this spirit of consensus that various enactments regulating the powers and responsibilities of government authorities and commissions were legislated, with relevant provisions enabling the ruler to exercise his authority upon advice.

Among them are the Johor Corporation Enactment 1968, the Administration of the Religion of Islam Enactment 2003, and the State Secretary Incorporation Enactment, the Johor Education Foundation 1982 to name a few. The Johor Corporation and other State Corporation and Foundation provided under the First Schedule were legislated in accordance with Act of Parliament No 380 Incorporation (State Legislatures Competency) Act 1962 revisited 1989.

Similarly, the proposed Johor Housing and Real Property Board Enactment will be legislated and incorporated following provisions and the Act. Therefore, it does not contravene the federal constitution.

The enactments of the various corporations provide for the ruler to appoint members of the board of directors from qualified persons, and in some instances to determine their remunerations and terms of office. In most cases, the enactments require and appoint the MB as chairman to fulfil his role in advising the ruler.

Palace acts as check and balance

Various Articles in the enactments provide for transmissions to the ruler, the minister and the state authority estimates of expenses, audited financial statements and annual reports respectively, and to cause them to be tabled at the state assembly.

Since these provisions do not require the ruler to approve the accounts and reports they should not be interpreted as the usurping of authority of the ruler. They constitute a check and balance mechanism in the management of the corporations.

The legislation of the Johor Housing and Real Property Board is in line with the provisions of the Act of Parliament and is consistent with the federal constitution. The ruler is bound by the constitution and by convention to act on advice. Therefore there is no intrusion or conflict with democracy, constitutional monarchy, federal government policies or the federal and state constitutions.

Sultan of Johore

His Royal Highness Sultan Ibrahim (above) is a wise ruler and listens to and acts on advice and concurrence. He is very well-versed in his constitutional rights and privileges and stays above politics.

The Royal Court assures the people of Johor and Malaysians in general that there is no cause for concern that His Royal Highness will misuse his authority. He values and places his rakyat above all else. The sultanate is an embodiment of all things wise, just and fair.

Malaysia must tackle its high public and rising external debts


June 9, 2014

Malaysia must tackle its high public and rising external debts

http://www.themalaysianinsider.com

Malaysia risks seeing its economy contract and losing its global market share in key export sectors if it fails to tackle its high levels of public and rising external debts, a United Kingdom-based economist has warned.

 ????????????????????????????????????Sarah Fowler from Oxford Economics said while the nation’s shrinking current account surplus was not a major concern as it was expected to stay in excess in the next few years, there are worries over Malaysia’s capital account due to rising external debt, which has shot up close to 40% of its gross domestic product (GDP) in recent years.

The country’s public debt-to-GDP ratio has been hovering at an all-time high of more than 50% since 2010 because of large fiscal deficits incurred when an aggressive stimulus package was launched to bolster the country’s economy during the global financial crisis.

“Addressing the concerns would enable Malaysia to achieve a higher growth path, reaching a higher per capita income sooner. We expect the economy to grow by just more than 4% over the next five years but if the concerns were addressed growth could exceed 4.5%,” she told The Malaysian Insider in an email.

Fowler, who produced a report on “Why Malaysia is now a more risky prospect than Indonesia” which was highlighted by global financial news site Bloomberg’s columnist William Pasek last week, used 17 indicators to develop a scorecard to assess emerging market vulnerability to external economic and financial shocks.

Among the indicators are capital inflows, external financing, the current account and budget balances, credit markets and the economy. “Our scorecard assesses Malaysia as a more vulnerable economy than Indonesia, Thailand or India,” she wrote in her report.

Touching on external debt, Fowler had reported that non-foreign direct investment capital inflows averaged 6.6% of GDP a year between 2009 and 2012, the highest in their sample of 13 emerging markets and more than Indonesia’s average of 2.2%.

“More than half of all portfolio investment in Malaysia went into debt securities between 2010 and 2012, up from close to a third between 2005 and 2009.”

She had also noted in her report that the short-term component of external debt was also increasing, which is risky as it requires repaying or rolling over earlier. Short-term debt as a share of GDP reached 15.2% by the end of last year, up from 10% in 2007. In contrast, India’s and Indonesia’s short-term debt accounted for less than 5% of their GDP.

Overall, external indebtedness in Malaysia is low relative to exports, however, which means that funding the debt may not be a problem.But Malaysia has an unusually open economy; exports are equivalent to more than 80% of GDP, lower only than in Singapore and Hong Kong.

On public debt, Fowler said although Putrajaya has reduced its fiscal deficit as aPM Najib share of GDP from 6.5% in 2009 to 3% last year, there was a need to continue to manage the public finances carefully to trim the deficit further.This, she said, could be done by broadening the tax revenue base in order to try to raise revenues.

“Public debt has risen in recent years and reducing this would be good because money that currently has to be spent paying the interest on the debt could be spent in more productive areas.”

However, Fowler expects the public debt to GDP ratio to remain above 50% for the next five years, saying Indonesia’s, Thailand’s and Korea’s public debts amount to no more than a third of their respective GDP.

Fowler is not the first person to sound the alarm bells on Malaysia’s economy.In October last year, financial analyst Jesse Colombo warned that Malaysia’s economic bubble will burst after China’s economy takes a tumble and global and local interest rates continue to rise.

Writing in Forbes online magazine, Colombo said: “Malaysia’s bubble will most likely pop when China’s economic bubble pops and/or as global and local interest rates continue to rise, which are what caused the country’s credit and asset bubble in the first place.

“The resumption of the US Federal Reserve’s QE taper plans may put pressure on Malaysia’s financial markets in the near future. Malaysia’s rapidly deteriorating current account surplus due to weaker exports is another worrisome development.” –June 9, 2014.