On 2015 Selangor Budget: MB Azmin Ali breaks new ground


November 25, 2014

MB Azmin Ali breaks new ground in Maiden Budget for Selangor

Commentary
by the Malaysian Insider@www.themalaysianinsider.com

Azmin AliIt might not seem much, but Selangor Menteri Besar Mohamed Azmin Ali broke new ground today when he proposed a RM200,000 allocation each for people-friendly programmes in opposition-held seats in the country’s wealthiest state.

His own Pakatan Rakyat (PR) assemblymen will each get RM700,000 for similar activities under the Program Mesra Rakyat as part of the move to improve local representative services to the people.

“I hope the federal government will get a clear message from Penang and Selangor that we respect the role of opposition members in the assemblies. They should reciprocate and respect the roles of MPs at the federal level,” Azmin said after tabling the state’s Budget 2015 proposals today.

Aside from Selangor, Penang provides allocations of RM40,000 to each of its opposition members for small-scale development projects. It really is not the amount that matters. It is the fact that a government realises that even their political foes represent the people and public funds are for all and not just for those who vote in the government.

For too long, Malaysians have been used to seeing a federal government that only allocates funds for its MPs while others get help through a “federal office”.

And public projects using public funds are labelled as a Barisan Nasional (BN) project – considering the fact that it is the only government known to most Malaysians throughout their lives since Merdeka.

What does it say then that in the past two elections, more Malaysians reject the BN candidate in favour of a PR candidate despite the plethora of BN projects from roads to hospitals to schools and other infrastructure.

What does it say then that it BN appears to punish those who vote in their foes while politicians such as Azmin and Lim Guan Eng have taken the high road and provide some funds for their respective state’s opposition BN lawmakers?

New politics? Populism? Or really, a government that realises the people should not suffer for the choice they have made. That the electorate will evaluate politicians by how sincere they are through the years rather than just during election campaigns.

What Azmin is doing for his Budget 2015 proposals for Selangor – be it a car for the state opposition leader and the proposed allocations for all lawmakers – is a step that must be praised.

The election campaign is over and he has whatever remains of PR’s mandate to run the state and provide for the people of Selangor, no matter whether they are PR or BN supporters.

Because, his government is a government of the people, by the people and for the people of Selangor. And all the funds he allocates are public funds, and not his government’s money.

Putrajaya can learn something from Azmin Ali and Lim Guan Eng, that it takes more than just slapping a label on a project to remind people which government is doing the job or that they should be grateful for the project. Fact is, it is the government that should be grateful it is elected to run a state or a country, and not the people.

Kudos to Azmin, for showing that politics is not a zero sum game and that rakyat’s interest always comes first. – November 24, 2014.

Horrendous Devastation of Cameron Highlands due to Plainly Ugly Greed


November 23, 2014

Horrendous Devastation of Cameron Highlands due to Plainly Ugly Greed

by Tunku A  Aziz@www.nst.com.my

Sultan of PahangIF a picture, as the saying goes, is worth a thousand words, then the New Straits Times’ startlingly brutal depiction of the horrendous devastation of Cameron Highlands merits at least ten thousand drops of tears of anger, frustration and despair because those entrusted to protect our precious natural heritage have betrayed our trust.

 The wanton destruction of the environment and the disregard for human life all bear the hallmarks of human greed; we were jolted out of our complacency and forced to see corruption in all its ugliness.

No longer do we think that corruption is none of our business; no longer do we dare say, “Why all the fuss when only two parties are involved, the giver and the taker?” And no longer will we be able to dismiss the fact that there are victims whenever corruption rears its head.

The Cameron Highlands tragedy, both in human and environmental terms, has turned corruption on its head. The pristine hill station of the 1960s and 1970s is now a distant memory. My annual Christmas break was usually spent with my family in Cameron Highlands, with its promise of bracing mountain air and country walks in quiet, salubrious surroundings. This yearly ritual, sadly, started to lose its appeal with uncontrolled development that rapidly changed the character of the place.

Overnight, Cameron Highlands, the country’s premier Little England that once had trout in its mountain streams and rose bushes in every garden, took on an ominously grotesque aspect. It was transformed into a noisy, gaudy and boisterous bazaar that could give Petaling Street a good run for its money. I have not been back there for more than thirty years, preferring to treasure in the deep recesses of my memory the Cameron Highlands that I once knew and loved.

The recent tragedy has, as expected, produced a slew of responses, ranging from the sublime to the ridiculous. In my long and eventful existence, I have heard a few ideas that are clearly beyond the pale, but nothing has quite prepared me for the proposal, that I suppose, could only have been conceived in the cluttered mind of a politician: to plant a million trees over a three-year period as part of a programme to rehabilitate Cameron Highlands that many believe to have been damaged beyond redemption.

I say with all due deference to the Natural Resources and Environment Minister, Datuk Seri G.palanivel Palanivel, that we are not talking about transplanting hair on a vain politician’s head — a painful enough process as some who have resorted to this treatment will tell you.

A million trees? The mind boggles at the very idea. Audacious and out of the box, yes. But is it doable and at what cost? All this leads me to ask why, with all the empirical evidence staring them in the face, didn’t our enforcement officers do what they were employed to do — enforce the law, plain and simple?

There were quietly whispered hints of “interference from above”, which puzzles me quite a bit because the “Yellow Letters”, according to the sultan of Pahang himself, did not come from the palace because, for one thing, they were not written on the official palace note paper and did not bear his signature. Who is it then that enforcement officers were pointing the finger at?

Whoever the exalted personage might be, he must be exposed because it is vitally important to show our people that there is one law for all. The Sultan’s standing and reputation, no less, must be protected and not to be trifled with.

The drama that unfolded on the slippery slopes and the silted valleys of Cameron Highlands has brought us face to face with the debilitating effects of corruption on society.

The reality on the ground is not a pretty sight. It is corruption writ large: if that does not turn our stomachs, then I suggest we deserve more of the same. The time for whinging is over. It is about time we took ownership of the fight against corruption and its attendant problems. I do not think it would be wise to leave such an important matter as fighting corruption especially to politicians. There is no need for elaboration.

Pahang, of course, is not alone of the Malaysian states that can claim a long history of illegal logging and land clearing. Stories, both anecdotal and factual, of corruption in forestry and land offices up and down the country are legion. Sabah and Sarawak occupy top spots in the forestry corruption league table. But, that is a story for another time. It is refreshing to hear the new chief minister of Sarawak, Tan Sri Adenan Satem, warning illegal loggers that stern action would be taken against them and that he would not tolerate corruption in his administration. I am not, in a manner of speaking, about to put the champagne on ice, and neither am I holding my breath. I do not know of any head of government anywhere in the world singing his heart out in praise of corruption. All politicians would have us believe that they are part of the solution. I should like to see the colour of their money first.

Returning to Pahang, I wonder why enforcement agencies who are paid to prevent these breaches of the law have allowed the situation to get so wildly out of control? The short answer, on the evidence that has long been in the public domain, is that the State of Pahang has been ‘captured’ by influential, almost always, titled crooks with loads of money, howsoever acquired, to seduce greedy and corrupt public officers. If they had only carried out their duties honesty, a great deal of the damage could have been prevented, and the good minister of one million trees would have saved himself a few blushes, and the treasury a lot of money.

 Royal Commission should be set up now to inquire into the state of corruption in the country as a whole. It is in the country’s interest to gauge accurately the true reading of the nation’s corruption barometer, so that we would not be wasting time and money treating symptoms because we have no clear idea of the root causes of corruption in national life.

Malaysia: High Income Nation, but Low Income Rakyat


November 18, 2014

Malaysia: High Income Nation, but Low Income Rakyat

By Anas Alam Faizli

Anas Alam FaizliMalaysia’s current socio economic structure can be summed up in four words, “Rich Malaysia, Poor Malaysians.” Malaysia is blessed with abundant natural resources with petroleum being the most precious. Add the land, other commodity resources, large youthful population and the country has all the essential ingredients to flourish.

How then did this small nation of 30 million manage to end up with the unsolicited title of among the region’s most unequal nation between the rich and poor. What happened?

NEP: The Noble Intention, Initially

The NEP that was introduced in 1970 was the grand plan that were two things; our proactive action to begin developing the newly independent nation, and our reaction to the British Divide-and-Conquer system.

Textbooks tell us that the NEP strategy was two-pronged; eradication of poverty, and the restructuring of society. But what popular culture and the masses cannot help but to associate the NEP with is the deeply entrenched Bumiputera agenda at its core which target Bumiputeras to own 30 percent equity share in the Malaysian economy.

But “share of the economy” here apparently has broader connotations and implications. It expands from assets and equity ownership, right down to contract procurement, education quotas, and employment policies. Bumiputeras were the poorest of all ethnic groups. Thus the idea was to positively discriminate Bumiputeras, get them on their tracks, and realize a more equitable ownership of the economy. And thus we began traversing down this path of affirmative action.

As time went by and various development plans under the Malaysia Plan or Rancangan Malaysia were undertaken, tremendous improvements were made. Bumiputeras and Malaysians, in general, now own more assets than their parents. A middle class population burgeoned. Poverty rate, measured on an absolute basis, has gone from as high as 49.1 percent to 1.7 percent as reported in the latest Household Income Survey for 2012 published recently.

The Trickle-Down Disaster

Unfortunately, in the 1990s the equity target was still far off the target. Time was running out and Malaysia took a short cut with the ill-planned “trickle down” effect. Malaysia throttled down the road of enriching and empowering a few Bumiputeras who would go on to be successful entrepreneurs and asset owners and the subsequent multiplier effect will trickle down onto and propel the rest of the Bumiputera community. The philosophy was for this “trickle down” effect that surely, it was believed, would be inevitable.

The trickle down effect did not and does not work. Even the Prime Minister Dato’ Seri Najib Tun Abdul Razak himself acknowledged this in a recent interview with Martin Soong of CNBC. In fact, it perpetuated high inequality amongst Malaysians. It became something we so desperately clung on as an economic doctrine and still believed as true.

So even before we got there, we are now taking on a new “Malaysian Dream”. Surely, it is only natural that the next course of action is aiming for a bigger middle class. Or are we really achieving it?

Yet Another Missing Target?

We say High Income Nation is the way to go and have set a new target to achieve a per capita income of US$15,000 by year 2020. It means the Gross National Income (GNI) – a measure of the country’s production adjusted with net incomes from overseas – divided by the country’s population must equal US$15,000. That target, we are told, is achievable by 2017-2018. Currently, our per capital income is $US9,970.

Never mind that many of the relatively lower income-earners find themselves in pretty much the same position on a relative basis. Never mind that Bumiputera households are still the poorest on average in the bottom 40 percent rung of Malaysian households. Never mind that even if most of this nation’s income in year 2020 accrued to say, only 100 of the richest people in the country, we can achieve that $15,000 per capita target because it is grossly divided by the whole population.

Measuring income in US dollar term is already problematic. Many in the research community and the public have expressed concern about this as the US dollar is not the currency that most Malaysians earn and transact in. So when the Ringgit was stronger than the US Dollar last year, we have every reason to question whether GNI per capita measured in dollar terms, represented the true magnitude of growth per capita, and whether this target is truly achievable.

But even if we put this currency issue aside, the $US15,000 per capita income target cannot be that headline “dream” we can congratulate ourselves on when achieved. Here are some reasons why:

Rich Malaysia, Poor Malaysians

First, for majority Malaysian households, about 90 percent of their incomes are attributed to wage and salary, including self-employment. Even for those who can afford to own some assets, this is still true. What more those who do not even own assets, and thus do not have incomes from owning assets.

Note that Malaysian GDP (measured using the income method) will indicate the following breakdown: 28 percent wages and salaries, 67 percent business profits (including mixed income), and 5 percent taxes and subsidies. What does this mean? It means that out of total GDP, only 28 percent is attributable to the working Malaysian population.

For the past 15 years, the contribution of wages and salaries to Malaysian GDP has fluctuated between 26 to 32 percent and the only reason it hiked up to 32 was because of the recession in 2008 when corporate profits declined. In Singapore, this number is already as high as 42 percent in 1997.

In other developed countries such as Korea, Canada, the UK and Japan, the corresponding number is 46 percent, 51 percent, 55 percent and 52 percent, respectively. Malaysians are not getting the bulk of the country’s production into their pockets! This is set to worsen; the ETP’s document (A Roadmap for Malaysia: Chapter 2) itself indicated that forecast wages over GDP for the NKEAs will drop to as low as 21 percent in 2020! What are we smoking and what are our priorities, really?

In fact, for the past 15 years as well, the salaries of Malaysian workers have been lagging behind our productivity. Productivity growth rates were in line with rates of growth of salary circa 1998, but it has been slowly lagging thereon. As of last year, the productivity in the manufacturing sector is 45 percent above salaries. This roughly translates into the fact that our workers are under-paid by at least 45 percent. All this illustrates how GNI per capita will not represent well the incomes that majority Malaysians will enjoy as wages and salaries.

Second, more than 90% of the wage-earning workforce does not even earn much. Only 11.05 percent of government income is generated from personal income tax and only 1.7 million of the 12.4 million workforce is eligible to pay tax. EPF reported that 78.6% of its contributors database earn RM3,000 monthly or less. This is another illustration of how low the majority of the Malaysian people’s incomes are at the individual level. So what is this High Income Nation we are about to achieve in a few years? A High Income Nation with a low earning population?

Third, there is the grave issue of purchasing power. High income alone does not necessarily translate into better economic well-being and quality of life if that high income cannot purchase much. A simple analysis would show how a fresh graduate in 1980 could purchase more compared to today’s graduate. With an estimated pay of RM1,000 a graduate could afford an Opel Gemini costing RM12,400 or about 12 months of his salary and purchase a decent house, perhaps even in Taman Tun, costing at RM62,000 or 56 months of his salary.

Today, a graduate can have a basic pay of RM2,500 which is only 2.5 times higher than a graduate in 1980. But a comparable Mazda 6 now costs RM178,000 or about 71 months of his salary and a decent house far outside Kuala Lumpur, say in Nilai, would cost RM350,000 or 140 months of his salary. The cost of living has spiraled viciously upwards and the purchasing power of the average salary man has slumped.

Fourth is the issue of inequality, and this is by far the most compelling argument against a headline US$15,000 High Income Nation target. There is a reason that many academics, civil society groups and the people at large have recently been blowing the inequality trumpet; Malaysia has among the highest income disparities in the region. On August 3, 2013 the Second Finance Minister Datuk Seri Ahmad Husni has also acknowledged this.

Income growth measured from 1970 have shown that the Top 20 percent households far overtake that of the Middle 40 percent and the Bottom 40 percent households, while the income gap between them on average is widening. The GINI coefficient, which measures the degree of disparity between the highest income and the lowest income, remained rather stubbornly high without any improvement around 0.43 to 0.44 across the span of the past 20 years for Malaysia.

Earning RM10,000 a month on a household basis will already put you as the top 4 percent of Malaysian households, and essentially in the same group as even tycoons like Ananda Krishnan. 73 percent of households earn less than RM5,000, with an average of 2 income earners or workers per household. This alone shows how much disparity there is. Furthermore, it renders our $15,000 High Income Nation target achievable in form, yet void in spirit and substance.

How did this high and persisting inequality happen? The failure of that very “trickle down effect” that we hoped for is a major contributor. The continuous enrichment of the select few continuously fosters this gap in a long and perpetual cycle. The inequality in our education system also contributed to the large 77 percent of Malaysian workers being only SPM qualified and below thereby commanding low salary levels.

For the sake of profits, businesses are unwilling to invest in productivity and training of locals. We appease the business community by giving way to large influx of foreign workers, especially in factories, in place of relatively more expensive locals. The myth that locals are choosy and unwilling to work in factories is then proliferated, despite locals being able to work in factories if compensated adequately. This is proven in the oil and gas industry; hard laboring welders and fitters are all local Malaysians, despite having to work under scorching heat, as the compensation is rewarding.

So What is Really the Malaysian Dream?

We do not have one! But if we plan to have one, we cannot leave the average salary man behind, the man that forms more than 80% of the Malaysian population. We need a dream that is inclusive and holistic and addresses quality livelihood for Malaysians at large, and not just a select few.

Income inequality is a very serious impediment to our hopes for a truly developed nation. It would be a great irony if the majority of Malaysians do not truly experience that high-income status, once we reach that $US15,000 mark.

How are we to declare ourselves high income when the effects of inequality such as crime, unemployment, health and social problems as well depleting social goods will be so apparent? Even if we do make that high-income bar, problems that emerge out of inequality raise serious questions about the sustainability of that high-income status.

For as long as we do not come together, commit to say no to inequality in resolute, and help alleviate the bottom 60 percent potential economic producers, this problem will not solve itself and will come back to haunt us.

Moving forward our policies should be designed and constructed based on this understanding. We would have not proposed a regressive GST to increase our source of revenue if we understood this fact.

We would have instead tried to increase revenue from other sources that will not hurt the majority of our people like the inheritance tax, progressive taxation and capital gains tax.  But that argument, is for another day.

plato

Tengku Razaleigh Hamzah’s Letter to his Parliamentary Colleagues


November 12, 2014

COMMENT: This is a well written letter by YBM Tengku Razaleigh Hamzah, our former Minister of Finance and incumbent Member of Parliament for Gua Musang. Unfortunately, this letter missed its target. It should be addressed the Prime Minister cum First Finance Minister and his colleagues and staff at the Treasury. Our Parliamentarians, especially backbenchers from the ruling party, are not interested in substantive issues related to our public finances. These MPs prefer to shout down at opposition parliamentarians when the latter speak before our august House. No meaningful debate can, therefore, take place in our Parliament.  Just look at the antics of Bung Mokhtar, MP for Kinabatangan, Sabah for starters.

That said, the MP from Gua Musang has done what none of the MPs in the ruling government have done. He discusses openly the state of our national finances which are deteriorating rapidly due to internal factors arising from mismanagement of our economy by the Prime Minister, and negative developments in the global economy, particularly the economic slowdown in China which can undermine our growth prospects in 2015.

Tengku Razaleigh said, “The Government has been ignoring these signals towards a global economic reset, begun with the 2008 sub-prime crisis in the US and sovereign debt issues in the Euro-zone, which is now shifting its focus to Asia with the slowing down of the Chinese economy and the Modi government’s recharging of the Indian economy.” He mentioned our government’s exposure to the loans of 1MDB, which, in the event of default, would have serious repercussions on our national balance sheet and the economy. Of course, he is not alone in raising alarm bells. Tun Dr. Mahathir and others have been critical of Prime Minister Najib Tun Razak on 1MDB.

Najib and 1MDB

Not only have government backbenchers turned a blind eye to the emerging 1MDB scandal, they have also chosen to silence the opposition parliamentarians whenever they raise the 1MDB debt issue. Even our mainstream media refuses to write or comment on an issue of public interest. 1MDB matter is very serious no doubt. And the Najib administration must come clean on this matter as Malaysians have the right to know the facts relating to 1MDB investment activities and the state of its finances.

With regard to the 2015 Budget,  Tengku Razaleigh said, “[T]he problem with our public finance is not so much on the revenue side, but on the expenditure side. The increase in public sector fixed overhead costs cannot, for instance, be at the expense of development expenditure, especially when so much more is needed to bring up the economic status of Sabah and Sarawak in terms of social infrastructure and basic amenities compared to the Peninsular states. The share of the latter expenditure has been decreasing as the operating budget increases, from in excess of 30 per cent a decade ago to about 15 per cent of the total budget proposed for 2015.With the Auditor-General exposing wastage, profligate spending, unaccountable losses, and sheer incompetence and intransigent corruption, both petty and in high places, we are excused from any restraint to express our anger and intolerance as taxpayers and ordinary citizens at the current state of affairs.  There are efficiencies that can be had to enable cutting back on the secularly rising operating budget over the years.”

I have said a number of times in the past that the easy part of the Budget is raising money. The government is vested with the powers to tax. The challenge is using revenues to bring maximum benefit to the rakyat.  Is the present government doing this? Obviously not.  Just read the Auditor-General’s report which “exposes wastage, profligate spending, unaccountable losses, and sheer incompetence and intransigent corruption, both petty and in high places…”(Tengku Razaleigh)

We can no longer turn a blind eye  to our country’s finances. We must make it known to politicians in power and their professional advisors that we expect greater transparency and accountability in fiscal management. I also do not need to remind them that governments have been fallen when their economies are mismanaged.  –Din Merican

Tengku Razaleigh Hamzah’s Letter to his Parliamentary Colleagues

Y.B. Member of Parliament.
Y.B. Tuan,
Tengku Razaleigh Hamzah
With the utmost respect to you as responsible Members of Parliament duty-bound to serve the interest of our beloved Malaysian people, I am writing to you about some critical economic issues besetting our country today, affecting the rakyat and impacting on our future generations. Avoiding the “business-as-usual” debate on the 2015 Budget tabled by the Government now on-going in the august House, I choose this route in order to underline the seriousness of the matters involved. The negative impact of the current Budget proposals, I believe, will most immediately be felt by our middle-class, recent graduates, first time employees and the poorer income groups.  While endorsing the “people economy”, the Budget 2015 does not seem to give them priority over the “capital economy”.
2. From the current perspective, we can only see that the nation is moving headlong in the wrong direction, that current economic trends are not sustainable, which, if not corrected, will lead to a crisis, which we can ill afford, sooner than we can safely anticipate, nor can we get out of it without much hardship to our ordinary citizens. Such a crisis will threaten the future peace, prosperity and security of our nation.
3. The 2015 Budget projects that GDP growth rate next year will likely be around five to six per cent, which is thought  to be sufficient as envisaged in the Economic Transformation Programme (ETP) to push the country forward to achieve developed status by 2020. This forecast may be overly optimistic given the current global economic threats and our own model of growth that depends so much on our external markets and the optimism of foreign interests in our economy. As noted in the 2015 Economic Report, the downside risks are at higher odds that may impel an economic shock through our body politic. More importantly, these figures conceal some forewarnings that are not highlighted.  I think the Government has been ignoring these signals towards a global economic reset, begun with the 2008 subprime crisis in the US and sovereign debt issues in the Eurozone, which is now shifting its focus to Asia with the slowing down of the Chinese economy and the Modi government’s recharging of the Indian economy. While rocking all boats, only those prepared with anticipatory reforms will be able to weather the incoming storm.
4. In terms of government fiscal management, the tipping point, induced by an external economic collapse such as a crash of the US Dollar or a debt default by 1MDB, would throw our financial sustainability into a spin. The rule of thumb for sustainability (whether it can be funded by current output together with net foreign inflow) for any given year is that the sum of government debt (in 2014 around RM41billion) plus outstanding loans of commercial banks and households (now totaling RM1,273 billion) – making up to RM1,314 billion – must NOT be more than five times the sum of government revenues (that is, 5xRM225b=RM1,125 billion).  Clearly this rule of thumb has been breached!
5. A good part of this deficit and the national debt overhang arises on the operating budget side from tax expenditures to support consumption to achieve growth, for example through the BRIM awards, and to finance the public wage, subsidies and pension obligations. This consumption-based expenditure, together with the high energy and food subsidies given to industry and the public to sustain aggregate demand, is itself not sustainable. This type of expenditure to boost the economy does not add to the capacity building through investment that is necessary to enhance future economic growth.  But the Government still persists over the last five years in driving a consumption-based pump-priming to compensate for the weakening growth fundamentals on the revenue side, including exports. I believe it is more fruitful to provide allocations for the growth of the agricultural sector to enhance food security and stop foreign exchange outflow through the import of food. This is more beneficial in the effort to support the cost of living of the masses in times of economic emergencies.
6. The problem with our public finance is not so much on the revenue side, but on the expenditure side. The increase in public sector fixed overhead costs cannot for instance be at the expense of development expenditure, especially when so much more is needed to bring up the economic status of Sabah and Sarawak in terms of social infrastructure and basic amenities compared to the Peninsular states. The share of the latter expenditure has been decreasing as the operating budget increases, from in excess of 30 per cent a decade ago to about 15 per cent of the total budget proposed for 2015. With the Auditor-General exposing wastage, profligate spending, unaccountable losses, and sheer incompetence and intransigent corruption, both petty and in high places, we are excused from any restraint to express our anger and intolerance as taxpayers and ordinary citizens at the current state of affairs.  There are efficiencies that can be had to enable cutting back on the secularly rising operating budget over the years.  I would have recommended that an Auditor-General office be established in every ministry and government agency to ensure necessary compliance and accountability in public spending. An Office of Ombudsman answerable to Parliament should also be established on the executive side besides the Public Accounts Committee of parliament. At the same time, we need to control and eliminate corruption by strengthening the Financial Procedure Act through its revision and amendment.
7. The rising cost of living is the most urgent issue in the economy.  The raft of knock-on price increases subsequently in transport, electricity and food items etc. act to increase the build-up of pressure on the cost of living now facing the people. The issue of the rising cost of living affects everybody, but impacts the middle and lower income classes more than others. The main causes of rising prices are insufficient supplies to meet rising demands. Hence more could be done to liberalize the economy. We must monitor the cost of electricity to ensure its affordability among the people. The same goes for road toll charges. It must be reviewed to ensure that unavoidable cost increases must be reasonable. If a road toll cannot be avoided, then the government must finds ways not to burden the people. More licenses, less quotas, a greater ease of doing business especially for small and medium businesses and traders, should be considered.
8. The cost of housing has been rising in major urban centres, and house prices have been accelerating due to demands engendered by foreign and local investors, not just for higher-end properties but also the lower cost categories.  Affordable housing, even with the 1Malaysia Prima Homes Plan, is currently beyond the reach of fresh graduates and the lower middle class who are facing the spectre of unemployment or low wage employment and heavy debt. In this regard, I would like to see the government, through Bank Negara, reviewing the private housing loan programme of commercial banks for houses below RM250,000 which should be based on service charge rather than on compound interest.
9. Next year’s implementation of the Goods and Services Tax (GST), although having a one-time impact and is then dissipated through the rest of the economy, is bound to add to this pressure on living costs.  In order to ease the rising burden on the rakyat, I would like to propose that the implementation of the GST be postponed until the economy is consolidated and strengthened. It is hoped that our economy would enjoy a rapid and a long-term high growth. Should there still be a need to implement the GST, it is hoped that the rates will be recalculated.
10. Beyond that macro-picture, I am seriously concerned about the high personal and household debts that are reaching critical levels, now in excess of 87 per cent of GDP, due to housing mortgages and car loans, study loans, credit card and personal (through Ar-Rahnu or Ah-Long) consumption charges that are pushing debt repayment ratios close to 30 – 40 per cent of household incomes. This situation has led to the acceleration of personal bankruptcies and mental pressures on families, and is not sustainable in the best of times, what more in an economic crisis. Yet, while it is most needed now, along with unemployment insurance, the government has been tardy in amending the bankruptcy laws and provisions, and the enhancement of other safety nets such as for medical expenses.
11. In as far as bankruptcies are concerned, it is worthwhile for the government to limit the bankruptcy period to, say, 12 months. This will ease the pressure against the bankrupt apart from sparing him the embarrassment of his situation. In striving for equity, the loan providing institution should provide a breather through moratoriums meant to postpone the application of the provision of the bankruptcy law while the borrower makes the effort to repay the loan. This would certainly be helpful to families with limited excess savings when they face unexpected emergencies. It should be noted that many government pensioners and private sector retirees are hard put in making ends meet now in the effort to face the ever-rising cost of living on their limited pensions and EPF savings.
12. Corruption itself adds to the cost of living and is a burden to all. When development projects, big or small, have a political mark-up imposed on contract awards and taken up front, little much is left to contractor profit margins that can only be charged to end-users, that is the taxpayers and consumers. To quote a columnist recently, the insufficient checks and balances continue to dog the country’s economy, thus leading to increasing concentration of power within the executive branch and persistence in rent-seeking behaviour, patronage politics, opaque governance practices and pervasive corruption.  Is it any wonder then that Malaysia is perceived as among the world’s worst countries on integrity?
13. Besides corruption, we also need to be vigilant against the occurrence of any and all forms of economic sabotage to the detriment of our national resources and wealth to benefit our future generations. It is for this reason of instituting checks and balance that reforms of the Official Secrets Act and the Universities and University Colleges Act, a freer press, and a freedom of information legislation are required. The restoration of the reputation of the courts and the enforcement agencies, including independence and enhanced power of the anti-corruption agency, SPRM, must be set in train if we are serious about tackling this cancer in our political system, bureaucracy and society in general.  Even the Standing Orders of Parliament and the structure of the Senate may have to be reformed in order to respectively allow for private members bills and greater independent representation of the states in our system of fiscal federalism.
14. Worse, whether it is a consequence of government policies or not, the distribution of wealth in the country, as expected, is extremely skewed. The wealth of Malaysia’s top 10 per cent exceeds those of the bottom 70per cent, and about 12 per cent of Malaysian households have no wealth at all. In fact, the wealth of the top one per cent, in 2012, is much higher than the whole of the bottom 40 per cent combined.
15. The government’s position as reflected in the Budget address is to divide the country into two economies: the capital economy and the people economy.  The latter refers to the world of capital, enterprise and big investment, while the latter consistent with the New Economic Model refers to the bottom 40% of households in terms of income distribution.  This is an unfortunate even dangerous classification.  To solve the issue of inequality and achieve social justice in a rich and favoured nation such as ours requires treatment of all classes of stakeholders in the nation.  Economic growth must involve and benefit all, not through distinctions of capital and work.
16. The status of inequality and imbalance, and the issue of fairness in economic benefit remain the main faultline in our society.  These economic cleavages tend and can lead to dissatisfactions among the communities and the breakdown of social cohesion built over the decades of our now maturing nation.  They take on emotional overtones and extremism, and have led to racial envy and biases and prejudice that undermine the underlying and potentially unifying values of our ethnic diversity. In view of the issue being closely linked to economic activities, I would like to suggest that the government and relevant agencies draw up policies favouring local contractors and suppliers, including those from Sabah and Sarawak, in the awards of contracts, both major and minor.
17. Going forward, the challenge of achieving a high-income economy is our ability to create quality and high-paying jobs, especially for new entrants into the labour force who have higher post-secondary and tertiary qualifications; not the low paying jobs that are now being filled by foreign workers in plantations, construction business and assembly-based manufacturing. Shifting to a service-oriented economy may be part of the answer to this economic restructuring, but we cannot abandon higher-valued manufacturing altogether while maintaining our industrial competitiveness by importing such foreign labour to keep our unit labour costs down. Longer term sustainability of economic growth requires the enhancement of the knowledge content of our manufacturing and service industries, which require innovation, technology and new entrepreneurship. This will increase productivity which, in turn, will raise wages and salaries. This involves not just the upskilling of our labour force, but also the provision of correct incentives and institutions to support such value-added growth. I wonder whether the New Economic Model is sufficiently geared towards the above tasks.
18. Achieving social justice and fairness is where the work of economic reform is most important and most urgent.  These involve reform of the tax system in its separate treatment of capital and labour, the handling of labour market discrimination in the public and private sector, policies that improve the wage share of gross national income, and practices that achieve equality of opportunities and outcomes. Moving to a higher wage regime and away from a cheap labour policy involving guest workers in order to maintain our competitiveness is not an insurmountable task. This is so because data show that productivity, especially in the manufacturing sector, has been rising steadily over the years, but the wage-productivity gap has also been widening. As an immediate remedy, on top of the minimum wage law, I would suggest that a productivity-indexed bonus system be implemented by both the government and private sector employers. This is one of the more critical issues if the goal of inclusive development for Malaysia is to be achieved.
19. In spite of criticisms in the House, civil society and the media, especially social media, the Government leadership has continued to ride over these critical faultlines in our economy in the proverbial “three-monkeys” fashion, pushing through a “roll-over” budget that routinely moves the tough questions that need to be addressed immediately further down the road to the next budget and five-year plan.  The critical issues involved are of a structural nature not easily tackled via routine annual provisions.
20. I would submit that the national task to address the economic fault lines above will require new and bold ideas. These ideas need to be implemented over the next five to 10 years with supporting institutional reforms to reset the nation on the right path as promised by our founding fathers. These reforms require considerable political will to put them into effect; they cannot be undertaken piecemeal.
21. I am afraid for our economic situation. In truth we urgently need comprehensive economic reforms and institutional adjustment for resetting the economy in order to put our people out of harm’s way.
22. The people expect bold changes and even bolder leadership. We certainly cannot deny them the answers to their concerns and aspirations. Leaders should be more sensitive to the demands and feeling of grass roots. We must always be concerned about their worries and aspirations. The reality is that there is a need for change now; otherwise, as a nation, we are doomed to the status of a failed state.  This is what we have to answer for to our future generations.
23. You may think that I am a pessimist. No, I am not. I am a passionate believer in the capacity and capability of our people and especially of our youth who are going to inherit this beloved country, lead it to the global stage and sit hand in glove with countries of the first world. This, then, is the challenge before us and I know we can rise to it tackle it with our collective wisdom.
Thank you.
Yours truly,
(Tengku Razaleigh Hamzah)–November 3, 2014

Hot (Headed) Yoga


October 14, 2014

Hot (Headed) Yoga

by
on October 13, 2014

 (The conclusion of a two-part series)

Note to readers: Yesterday, in an article headlined “Fed Up,” I reported that many members of the World Trade Organization have reached the end of their patience with a handful of members — India, and a few African and Latin Americans who love to nurture their grudges against the “rich” countries. Frustrations that such countries have poisoned the WTO’s negotiation atmosphere have been gradually building since the WTO was launched in 1995. The tipping point came in July, when India’s new Prime Minister, Narendra Modi, vetoed the only successful multilateral trade negotiation the WTO has ever conducted.

As the future viability of this vital international trade rule-making institution is now on the line, it’s important to take a closer look at how the present fight started, and why. Today’s report offers more details on: where Modi is coming from, exactly what he wants, and who his sympathizers are. While India claims to speak for the world’s poor, that certainly is not the view of an increasing number of developing countries around the world. India’s trade distorting agriculture subsidies have caused food riots in parts of Asia, Africa, and Latin America. These days, complaints of the harm that India is inflicting upon other poor countries are surfacing again, particularly in Rwanda and other African countries. Concluding, the report highlights how leading WTO member countries plan to move on, with or without the cooperation of India and the other laggard countries.

So where is Modi coming from?

Narendra Modi

Narendra Modi of India at UNGA

Modi, proudly, is a hardline Hindu right-winger, an economic nationalist who boasts of a 56-inch chest. He is a tough guy, a man who loves a brawl. His top political aide is dodging a prosecution for various murders. Modi himself has denied (unconvincingly) his role in the killings of some 2,000 Muslims in organized riots in his home state of Gujarat, back in 2002.

And in the past week, Modi has rather exuberantly been raining mortars and machine-gun fire across a populated India-Pakistan border area of Kashmir. The fighting, which has broken a tenuous truce reached in 2003, has so far killed nearly 20 civilians and displaced nearly 20,000 civilians, according to news reports. “The prime minister’s office has instructed us to ensure that Pakistan suffers deep and heavy losses,” a senior Indian Home Ministry official has told Reuters reporters Rupam Jain Nair and Mehreen Zara-Malik. Modi himself has boasted that “it is the enemy that is screaming.” Kashmir, with the possible exception of the Korean DMZ, is perhaps the world’s most dangerous border. A border where Hot Heads on both sides brandish their nuclear weapons.

Some of the other opinions that Modi brandishes are less scary, but well, unusual. Speaking to the United Nations General Assembly in New York on September 27, Modi called for an “International Yoga Day.” He asserted that “yoga,” “spiritualism” and clean living could contribute to a better global environment. “By changing our lifestyle and creating consciousness, it can help us deal with climate change,” he explained to the diplomatic dignitaries. Meanwhile, back in New Delhi, the clean-living prime minister has authorized “hundreds of projects” to clear pristine forests, making way for mega power plants and other industrial projects that previous Indian governments had rejected on environmental grounds, Tommy Wilkes has reported for Reuters.

Modi held the WTO’s trade-facilitation package hostage to India’s demands to be allowed — permanently — to violate existing WTO restrictions on the subsidies it is allowed to dole out to uncompetitive Indian subsistence farmers. Adding to the indignity: previous Indian governments had agreed to those WTO rules in the 1980s. And the Indian government that Modi replaced in May had duly signed onto the Bali Package last December. As U.S. Trade Representative Michael Froman said last week, India has now “reneged” on its signed obligations.

Moreover, Modi’s demands have left WTO diplomats scratching their heads, wondering what he might have been smoking.

Food Insecurity

Since obtaining independence from Great Britain in 1947, India’s leaders have never figured out how to feed their people. In the name of “food security,” Indian governments have been buying food from the country’s farmers, paying above-market prices. The grains are then stockpiled. Perhaps half of the mountains of grain rot away, or are eaten by rats. Much of the rest is siphoned off by corrupt (politically connected) operators for sale on the black market.

What doesn’t rot or is not stolen is then doled out to feed India’s infamously malnourished urban population — especially when elections loom, which in India is often.

Perhaps because politics trumps economics, Indian politicians — no matter which party is in power —  have been increasing the subsidies, making bigger stockpiles.  And they have been demanding permission from the WTO to keep jacking up the subsidies as much as they want, even higher than the allowable limits that Indian governments have pledged to honor.

In Bali last December, the Indian negotiators won a generous four-year “peace clause.” That gave New Delhi four years to go ahead and violate existing WTO limitations by increasing agriculture subsidies, without fear of being held legally accountable. As the purpose of the WTO’s trade negotiations is to reduce trade barriers, not allow additional protectionism, this was arguably overly generous.

Yet the four-year grace period still wasn’t enough for Modi, when he came into office in May. He demanded that India be given the “permanent” right to break the existing rules — and right away, by the end of this year, thank you. Many diplomats, in many ways, have told the new Indian leader that this would never happen. Undeterred, Modi, somewhat joyously, brought down the Bali Package, thus shaking the foundations of trust that the WTO must have to remain viable.

At least, the ploy has generally played well at home. Indian officials have launched a whispering campaign, some of which has made its way into various Indian news accounts, falsely accusing the WTO’s top leadership of favoring the rich countries.

Claiming the Moral High Ground

Modi, like all of his predecessors dating to Jawaharlal Nehru (who ran India from 1947 to 1964, useful information for readers who are crossword puzzle addicts), has claimed that he holds the high moral ground. We are simply demanding the rights to feed our own poor, and we are the champion the world’s poor, so goes the refrain.

Some champion.

India is the world’s largest exporter of (subsidized) rice. The subsidies distort food markets in other countries by driving down prices. That’s bad enough in normal years for farmers in African and other nations who have to compete with the cheap Indian rice. Of course, the Europeans and Americans aren’t exactly innocents in such matters. But at least they have long ago moved away from stockpiling surpluses that cause real damage in world markets, preferring to pay their farmers cash subsidies that are considered less trade-distorting.

But India seems stuck on stockpiling and other protectionist schemes that cause real harm to trading partners. Remember the 2008 food riots in Haiti, Cameroon, Senegal and other countries? Global rice prices had skyrocketed after India put a damper on supplies by slapping on export controls during the previous year’s election season. Not only has no Indian politician ever apologized for the damage those export controls inflicted — after coming to power this May, Modi quickly imposed new price controls on onions and potatoes.

More recently, Rwanda’s trade minister, Francois Kanimba, explained to Shawn Donnan, the world trade editor of the Financial Times, how India’s present agriculture subsidies are hurting his country’s farmers. Rice and sugar from India had been reaching Rwanda “at such low prices [that] you are left wondering if these are really global market prices, simply explained by the competitiveness of the Indian economy,” Kanimba said. Donnan noted that the same concerns are being expressed in Nigeria, Benin, and other African food importers. This is “why the solution India is seeking at the WTO, which celebrates its 20th birthday in January, is unlikely to be palatable to many of its members,” Donnan concluded.

India’s claims to speak for the world’s poor used to be accepted automatically in the Third World. Signs that that’s been changing surfaced at the WTO’s Bali meetings last December. At a press conference, India’s then top trade official, Anand Sharma, asserted that India was only seeking “food security” for poor people everywhere. Sharma was humiliated by a furious journalist from Benin, one of the world’s poorest countries. “You don’t speak for us,” the Benin journalist angrily shouted. Those of us who were in the room will never forget the emotions on display at that press conference. (For further details, see “India’s Bali Debacle,” which I authored for the Wall Street Journal Asia. The piece, along with two other investigative reports into India’s WTO stance in recent years, is posted on the Wall Street Journal section of www.rushfordreport.com.)

India’s Admirers

These days, Modi’s been enjoying his success in having placed himself on the WTO’s center stage, even though he is playing the role of a pariah. Modi knows he enjoys the tacit backing of envious fellow economic nationalists in places like Venezuela, Bolivia, Zimbabwe, Ecuador and Cuba. Such leaders love to nurture their grudges against the rich countries, seeing the WTO as a tool of the rich. President Jacob Zuma of South Africa runs with this crowd. These days, Zuma must be especially envious of Narendra Modi’s nerve.

Zuma is another economic nationalist who is skeptical that the WTO’s multilateral trade liberalizing negotiations will benefit South Africa. But he might be better advised to seek some sound economic advice as to why South Africa’s economy has been losing its dynamism.

Two very savvy Pretoria-based authorities on what used to be called “political economy” — Mzukisi Qobo of the University of Pretoria and Peter Draper, of Tutwa Consulting — recently succinctly explained Zuma’s attitude on economics in a May 27 article in South Africa’s Business Day. Under Zama’s economic guidance, South Africa’s economic growth has been on a steady decline, Qobo and Draper noted. Nor does Zuma seem to grasp the “gravity” of the economic challenges that are holding his country back, they added. “He also seems to have given up on leaving a great economic legacy, and instead prefers to manage a balancing act of contending factions within the African National Congress (ANC).”

Zuma’s trade minister, Rob Davies, is a member of the Politburo of South Africa’s Communist Party. That fact speaks well of Davies’ personal courage in having opposed apartheid in the days when to do so was to risk one’s life. But it doesn’t necessarily suggest that Davies’ economic credentials are sterling. Many African observers worry that South Africa, traditionally the most solid African economy that still regards itself as the “gateway” to the rest of Africa, will inevitably be left behind. Watch the East Africans — especially the emerging ties and improved infrastructure linking Rwanda, Tanzania, Uganda and Kenya — many African watchers say. Yes, these countries also have their own economic weaknesses. And in the WTO, the East Africans seem to be split on whether to speak out in favor of India, or against. Still, one has a growing sense that their future could be brighter than South Africa’s, depending upon how well they manage to integrate themselves into the global economy. At some point, the South Africans will likely kick themselves for their lack of economic foresight.

Zuma first worked earlier this year behind the scenes with the Addis Ababa-based African Union (an opaque organization which wasn’t even a participant in the Bali negotiations) to reopen the Bali deal. Conveniently, Zuma’s former wife now heads the AU. But Zuma and the AU came under intense pressure, mainly from Europeans and Americans, but also by dozens of other WTO member countries. They backed down during African Union meetings held in Malabo, Equatorial Guinea, in August. Since then the African Group of WTO members has basically been holding their tongues, trying to pretend that what India has done, hasn’t really happened. (For the background, see “Power Plays in the WTO,” www.rushfordreport.com, June 3, 2014). South African and African Union officials declined repeated requests for comment, as did a spokesman for the WTO’s Africa Group.

In sum, what the Africans started and India’s Modi finished was the tipping point. Leading circles in the WTO — the “North” definitely, and many in the “South” — believe that this time, the chronic naysayers have simply gone too far.

An Uncertain Plurilateral Future

While the WTO’s future is presently clouded, one thing appears clear: no longer will a handful of malcontents be allowed to poison the chances of dismantling as many of the world’s remaining trade barriers as possible. That means the WTO will turn away from its tradition of conducting trade-liberalizing negotiations on a multilateral basis. Instead, there will be smaller groups of like-minded countries that will work together to facilitate trade flows. This is the so-called plurilateral option.

The future likely model has precedents. The WTO’s Government Procurement Agreement has 43 member countries (counting the European Union’s 28). The GPA’s rules, which are only extended to participating countries, are aimed at improving transparency and competitive bidding when governments agree to award contracts to all bidders (as opposed to just doling out lucrative contracts to well-connected domestic cronies). China, New Zealand, and eight other countries have been negotiating to join in that plurilateral. No African country has shown interest in joining in such an experiment in open government. Nor has India.

India is, however, a member of the WTO’s Information Technology Agreement, a plurilateral WTO success story that dates to 1997. ITA signatories, including India, have slashed tariffs on imports of high-tech gadgets like computers and telecommunications equipment. But India has refused to participate in ongoing negotiations to expand the ITA’s product coverage to include new inventions — iPhones, iPods and so forth — that weren’t invented in the 1990s. In fact, Modi has already moved in the opposite direction: jacking up tariffs on imports of iPhones.

Late last week, the WTO’s director-general, Roberto Azevedo, described the uncertain future for further WTO multilateral trade negotiations, especially if “no solution” is found for the “Bali impasse.” In such a case, the director-general noted to a business audience in Toronto on Oct. 9,  “then members must ask themselves some tough questions — about how they see the future of the Bali package and the post-Bali agenda. And what this means for the WTO’s negotiating function.”

Translated from the nuanced diplomatic language, Azevedo was pointing to a plurilateral future for the WTO, at least until the benefits of multilateral trade liberalization become apparent to the laggards. It might even turn out that the Bali deal will proceed as a plurilateral arrangement. India and the backward-looking African and Latin countries will be offered the choice to be left behind, if they prefer.  Such, it appears, is their future — at least until the day comes when they will be willing to take off their economic dunce caps.

Fed Up

(First of a two-part series), October 12, 2014

Sometimes in life, there comes a tipping point when — enough is enough. And that pretty much describes the present mood in the Geneva-based World Trade Organization. The Americans, Aussies, Kiwis, Europeans, Canadians, Scandinavians, Japanese — basically, all of the most important trading centers around the world that comprise the vast majority of world trade — have had it. They are fed up. Fed up with India, especially. India’s new prime minister, the pugnacious Narendra Modi, has brought all WTO negotiations to a halt, thanks to his unprecedented recent veto of the only successful multilateral trade-liberalizing negotiation in the institution’s nearly twenty years of existence.  “Disgusted” even more, as one diplomat based in a European country un-delicately puts it, because Modi’s reasons simply defy economic logic.

Leading WTO members have also had it with various African and Latin American leaders like those in South Africa, Zimbabwe, Venezuela, and Bolivia. The leaders of such countries have gradually eroded their credibility by making no secret of the fact they just don’t really believe in the WTO’s core mission of dismantling trade barriers on a multilateral basis. Fed up with how the economic laggards have meanwhile been holding the rest of the WTO’s 160-member countries hostage to their parochial demands.

Over the years, the WTO and its predecessor international trade rules-making organization have operated on two core beliefs. First, that trade liberalization must be done for the good of all members, on a multilateral basis. Second, that the negotiations to dismantle trade barriers will be reached by consensus — but with the expectation that member countries will conduct themselves with a certain civility, and restraint. The institution cannot function when those core beliefs are trampled upon.

True, some WTO members like Switzerland, Norway and Japan who are presently outraged at India have their own protectionist rackets that they defend vigorously in negotiations (think only of Japan’s 500-plus percent rice tariffs). But, in significant contrast with India, such respected WTO member countries always conduct themselves with civility and restraint. It is unthinkable that they would wreck the institution for domestic political gain.

The frustrations with India and the other chronic economic under-achievers who have anti-colonial chips on their shoulders hardly stop at the traditional “North-South” divide between the rich countries and their former colonial possessions. Privately, some key officials from countries that have traditionally identified themselves with the WTO member countries from the “South” — including Mexico, Brazil, Pakistan, and even some in Rwanda, Ghana, Kenya, Nigeria, and Benin — share the frustrations. True, some of these same countries can’t seem to make up their minds which side they are on — Kenya comes immediately to mind, as do Tanzania and Uganda. Africans have often joined in the constant attacks against the WTO since it succeeded the General Agreement on Tariffs and Trade in 1995. But now, there seems to be an emerging fear in Africa that things have gotten out of hand, and that vulnerable African economies will suffer the consequences of India’s irresponsibility.

And there are the more economically enlightened smaller countries in the “South” — like Panama, Costa Rica, Peru, and Chile — that have been prospering because they have wisely embraced the global trading system. These admirable symbols of what trade liberalization can accomplish have been leading by their examples. And they are growing weary of the continuing shrill attacks against the system brought by WTO members who just don’t get it.

In short, there is a growing belief in leading WTO circles that if the institution is going to survive, it can no longer continue to do business as usual. Leading trade diplomats in Geneva and other key capitals have concluded that WTO’s future ability to liberalize trade cannot be based on the traditional consensus-based multilateral approach, where any single member can enjoy veto power. Instead, the WTO’s future negotiations will focus on a so-called plurilateral approach, where smaller groups of like-minded countries that genuinely want to liberalize trade will do so. If the laggards don’t participate, fine. From now on, well-placed diplomatic insiders vow, no longer will weak countries which aren’t really important international trade players anyway, be allowed to poison progress for everyone else. India, for example has about a 1.9 percent share of global trade flows, but Indian leaders seem to think they deserve 90 percent of the attention.

U.S. President John F. Kennedy once famously said, “trade, or die.” Now, for the World Trade Organization, the new mantra is becoming “change, or die.”

Such are the impressions gleaned from nearly two-dozen confidential interviews conducted over the course of several months with key players in the USA, Europe, Africa, Asia, and Latin America. This two-part series offers details and analysis aimed at explaining in in clear language what many thoughtful trade diplomats would like to say publicly, if they were not constrained by the requirements of diplomacy.

An Institution Under Constant Attack

With apologies for the use of the personal pronoun, I have been covering the WTO and its predecessor the General Agreement on Tariffs and Trade — the GATT — for more than three decades. Launched in 1947 by the United States and 22 other countries, the GATT became the world’s most successful international economic experiment. Seven successive multilateral trade-liberalizing rounds contributed to expanding global prosperity by slashing tariffs and dismantling trade barriers. The last of those negotiating successes, called the Uruguay Round, set up the WTO in 1995.

And that’s when multilateral trade liberalizing negotiations pretty much hit the wall. One could say the GATT morphed into the General Disagreement on Tariffs and Trade.

Remember the famous 1999 anti-trade riots in the streets of Seattle? Many Third World countries inside the WTO’s ministerial meetings quietly cheered the unruly protestors who trashed that beautiful city. There would be no Seattle Round. In 2001, the WTO did manage to launch the Doha Round (for trivia fans, named for the city in Qatar where that year’s ministerial meetings were held). But the Doha Round has been in deep trouble ever since.

In 2003 many African countries openly celebrated their success in killing that year’s WTO ministerial in Cancun. We came to make demands, not make concessions, the Africans boasted. Indian negotiators contributed to that failure, although to their credit, the Indian official delegation seemed crestfallen that they had gone too far. They had not meant to put the Doha negotiations in intensive care.

Then in 2008, a deal was close to being struck in Geneva that would have completed the Doha Round. Among other economic benefits, trade-distorting agriculture subsidies for both rich- and poor countries would be substantially reduced. Financial services would be allowed to flow more freely across international borders. And both rich- and poor countries would do more to open their markets to global competition. But that deal also collapsed in bitterness. While there is plenty of shared criticism for the 2008 failure, it was clearly India’s intransigent “non-negotiable” demands that did the most to poison the atmosphere. And this time the Indian negotiators, led by their abrasive trade minister, Kamal Nath, returned to New Delhi boasting of their triumph.

In those previous WTO trade spats, at least, everyone came away from the battlefield vowing, at least for public consumption, to do better the next time. Until this year, when some of the Africans and the Indians struck again. The bitter irony is that the present mood comes in the wake of the WTO’s most impressive negotiating success, where the rich- and poor countries (finally) worked together for the common good to give global trade flows a significant boost.

Meeting in Bali last December, the WTO’s then 159 member countries agreed to a so-called Trade Facilitation deal that promised, over time, a trillion-dollar economic payoff. Essentially, the wealthier WTO members have already been giving poorer countries hundreds of millions of dollars annually to help facilitate trade by fixing embarrassments that have long clogged Third World borders — corrupt customs offices and cumbersome red tape, inefficient ports, shoddy roads, and such. It doesn’t take a PhD in economics to understand why difficult borders prevent the rising economic prosperity that stems from enhanced trade flows. The Bali deal promised much more assistance to speed the movement of goods and services across borders. The deal was a win-win for everyone: both for giant multinational corporations that move goods and services across borders, and for millions of citizens of poor countries whose living standards would stand to rise along with the resulting expanded trade opportunities.

The Bali Package was the first successful multilateral trade-liberalizing deal in the nearly two decades of WTO history. Finally, the institution had shown that it could deliver something meaningful on the multilateral negotiating table. The general belief was that the success in Bali would spur the revival of the Doha Round, which now has been floundering for thirteen years.

But now those hopes have been dashed. On July 31, India’s Narendra Modi vetoed the schedule to implement the Bali deal.  Since then, all subsequent efforts to give Modi a face-saving way to back off have failed. There are some (slim) hopes that meetings in the WTO’s headquarters in Geneva scheduled later this week could put the deal back on track. But the sad truth is that the Bali deal has acquired a definite Humpty Dumpty look. The essential trust in the system — that countries will honor what they have agreed to instead of negotiating in bad faith — has been lost. It will not easily be regained. Whether it will be officially declared or not, the Doha Round is dead.

The WTO’s wealthy countries are even bitterer because they had had to work very hard, for years, just to persuade the poor countries to accept substantial financial sums to bind themselves to do things they should have long ago done themselves, in their own self-interests.

Adding to the bitterness, Modi’s demands simply made no good sense. He was fighting for policies that are clearly not in India’s best interests. “India’s economy is today the least integrated into global production chains among the world’s top-25 exporting economies,” Hosuk Lee-Makiyama, Natalia Macyra, and Erik Van Der Marel of the highly respected European Centre for International Political Economy in a recent paper: India & the WTO. “India is failing in sectors it chooses to protect, and is only competitive in sectors where it chose to liberalise, for example its IT services sector and the outsourcing business.”

Nor are the specific agriculture policies that Modi has fought for in the interests of other WTO countries that import Indian rice and other grains. In recent years, and up to the present, India’s domestic farm policies have inflicted economic damage in other poor countries. India’s grain exports have distorted food prices not only in neighboring Pakistan and Bangladesh, and on to Haiti and some African countries as well.[See Part 2, the conclusion: “Hot (Headed) Yoga”]

 

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


October 13, 2014

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

Anwar Ibrahim Ops Leader

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

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

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

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