Tan Sri Halim Saad set to take Sumatec up the corporate ladder


July 31, 2014

Tan Sri Halim Saad set to take Sumatec up the corporate ladder

by Sharen Kaur@www.nst.com.my – 31 July 2014 @ 1:15 AM

ASSET INJECTION: Firm targeting more than RM1b profit by 2018, say sources

FORMER Renong Bhd Executive Chairman Tan Sri Halim Saad is scaling up Sumatec Resources Bhd, which is set to make more than RM1 billion in net profit by 2018.

Halim Saad3

Halim controls 24.9 per cent of Sumatec and has been maintaining his shares since last November as he believes that the company can grow fast. “He is not selling his shares any time soon. He plans to build up the company by injecting more assets into it. He is eyeing some oil and gas (O&G) assets in Central Asia,” said a source.

Sumatec expects to produce 30,000 barrels of oil a day in Kazakhstan by 2018. Sources say the company is targeting an average net profit of US$30 (RM95.30) per barrel. “This means it will make around US$900,000 a day from 30,000 barrels, or more than US$328.5 million a year, compared with less than US$20 million currently from existing operations,” said the source.

For the financial year ending December 31 2014, Sumatec is projecting RM69 million in profits. The firm is producing oil at the Rakuschechnoye field with Markmore Energy (Labuan) Ltd, which is 99 per cent-owned by Halim.

Sumatec expects to produce 5,000 barrels of oil and gas a day from this field in the next three years. It is also acquiring Borneo Energy Oil and Gas Ltd, which owns 100 per cent of Buzachi Neft LLP, for US$250 million in cash and shares.

Buzachi has two 25-year contracts  to explore and produce oil and gas in the Karaturun Vostochnyi and Karaturun Morskoi fields, also known as Buzachi Fields.

At a recent media briefing, Sumatec Chief Executive Officer Chris Dalton said he expects the acquisition to be completed by October. He said the two assets will contribute US$1.62 million to Sumatec’s profits in the fourth quarter.

Sumatec is targeting to produce 25,000 barrels of oil and gas a day from the Buzachi Fields.  Meanwhile, Sumatec is expected to move out of its  PN17 status by next month and will submit its application to the Securities Commission soon.

ASEAN political-security community challenges


July 13, 2014

ASEAN political-security community challenges

Munir Majidby Tan Sri Dr. Munir Majid@www.thestar.com.my (07-12-14)

 THE People’s ASEAN would not be a reality if the politics is not right – both the domestic political systems in which the people live and the wider regional order that underpins the peace, stability and prosperity of their lives.

Economic Growth and Political Rights

As ASEAN member states are increasingly discovering, the previous contention that economic growth andASEAN_logo_1 benefit will satisfy citizens without need to be over-excited about political rights, is wearing thin. That model does not work any more, if it ever did. Certainly, if nothing else, the ICT revolution and social media have provided a shared marketplace of experiences in political societies across the globe. It is no longer possible to pull the wool over people’s eyes. So state authorities have to get smart to it, whatever political system they profess.

In this connection, the notion of an ASEAN political-security community (APSC) is apposite. The APSC blueprint actually is hard to be faulted. Whoever writes these things, and those who adopt them, must really know what’s happening around them, even if they do not quite come along in action against their profession in words.

Read this: The APSC… ”will ensure that the peoples and member states of ASEAN live in peace with one another and with the world at large in a just, democratic and harmonious environment.” Some more: “The ASEAN states will offer democracy, rule of law and good governance, and will ensure respect for the promotion and protection of human rights and fundamental freedom”.

All good intention. However, even if this is all aspiration, it stretches credulity when it is observed how some states in ASEAN have stagnated as communist regimes, others have regressed into persecution and murder of minorities and workers, and yet another has introduced draconian religious laws.

APSC and Human Rights

Little wonder then that there is so much cynicism about, for example, the ASEAN Inter-Governmental Commission on Human Rights (AICHR) set up in 2009 under the auspices of the APSC “to promote and protect human rights.” Where in ASEAN, through the AICHR, are human rights being protected on their violation?

It is in their promotion that refuge is taken. Even so, the promotion is gentle. Go to the AICHR web-site and you will see many pictures celebrating numerous workshops to promote human rights. More ASEAN meetings while religious minorities are being persecuted and put to the sword in enough ASEAN member states.

These are all difficult situations to handle no doubt. ASEAN Foreign Ministers try to discuss the Rohingyas issue but Myanmar would not have it, and will only do so on a bilateral basis with states facing refugee problems as a consequence of its human rights violations. And it comes to pass.

Well, the UN Universal Declaration of Human Rights was adopted in 1948, and where has the world been? Rwanda-Burundi, Bosnia, Syria, Palestine… the list is endless and the suffering never-ending. So why pick on ASEAN? But, shall we say, ASEAN is talking about community-building and higher standards of commitments to good governance? Therefore, there is every reason to hold ASEAN to a better protection on human rights and treatment of citizens.

The laudable objectives of the APSC, and in the setting up of the AICHR, should not be left on the shelf as we approach the end of 2014. The blueprint itself provides for biennial review. This review process should be reported and be held in a more open fashion, with the participation of representatives of civil society, who must however appreciate the issues of state sovereignty and ASEAN cohesion.

The hard question is not how to put aspiration down in words but how to implement it in difficult situations and circumstances. That review process should come up with creative ideas of making the words turn into at least some action, at least in respect of protection of human rights, and not just kick the matter to long grass by having more workshops and meetings to study it.

ASEAN, China and South China Sea

South China Sea

When it comes to international relations and the wider regional order, the gap between verbal exhortation and actual action is just as wide. For the longest time, ASEAN behaved as if there was no serious situation arising from the South China Sea disputes. And when ASEAN got real about it, emboldened China would suggest, it was only after US intercession. This was not good for relations with China or for the resolution of the dispute.

While no doubt there is a grave threat of the outbreak of conflict, especially from various stand-offs between China and Vietnam, China with the Philippines, the damage already done is to China-ASEAN relations. These have been extremely beneficial economically for the region. Their further development could be retarded by this “spoiler”, not to mention the threat it poses to existing economic links.

Of course, if there was actual conflict, it is something else again. We will be in new territory of uncertainty, suspicion and fear which, as we know, are bad bedfellows for investment and economic activity.

Against these near existential threats, ASEAN has been reticent and not united in addressing the South China Sea disputes. Whereas, in the APSC blueprint, it is clearly stated ASEAN will seek full implementation of the Declaration of Conduct (DOC) of States of 2002 and the establishment of a binding code of conduct under the declaration in the South China Sea.

Has there been any urgency to achieve all this before matters came to a head, before America got more involved again in regional affairs and, yes, before China got more assertive with its claims? It could be charged that ASEAN’s desultory approach has carried a cost to the stability of the regional order.

ASEAN is, of course, not one unit, it is only inter-governmental, but it makes claims for itself and gives false hope of its effectiveness by proclaiming all sorts of things in so many words, including this blessed thing about ASEAN centrality in the regional architecture. These last six exact words are to be found word for word in the blueprint and, indeed, have been repeated countless times at diplomatic convocations where those who know very well this is not the case repeat it for ASEAN’s happiness.

The APSC blueprint has been too extravagant, especially measured against ASEAN inaction. Not just on the South China Sea, but also in other pronounced areas such as conflict resolution mechanisms and the pacific settlement of disputes in the broader context.

ASEAN-a great economic prospect but...

ASEAN is a great prospect, especially its economies. But the market does not buy on prospective earnings indefinitely. If that was the case, it would be buying Latin America which, in terms of total economic size (against ASEAN’s combined much touted 7th largest in the world) is three times the Indian or Russian economy, and almost as large as China or Japan.

The point is ASEAN does have great prospect, but it will not come of itself. There has to be a more realistic mission statement, better structure and management – and better managers. Then the prospective earnings ratio might even rise.

So there has to be a reset and a rethink about how ASEAN can improve performance against all its limitations. But not just among government leaders and officials. And not to be assigned to some council of elders who would come back some years later with a document even older. It has to be fresh and dynamic involving people with ideas from all levels of society.

Yes, ultimately the political leaders of the region would decide – based however on a good and realistic plan for the future of the People’s ASEAN.

 Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB ASEAN Research Institute. The views expressed are entirely the writer’s own.

 

“Friendly” Advice to Najib on Leadership


July 12, 2014

“Friendly” Advice to Najib on Leadership

by Nigel Aw@www.malaysiakini.com (07-11-14)

Taking a shot at Prime Minister Najib Abdul Razak’s comparison between Brazil’s devastating defeat in the World Cup semifinals and the need for strong leadership, Tun Dr Mahathir Mohamad offered some pointers.The former premier said a strong leader would reject the Trans-Pacific Partnership Agreement (TPPA).

“I think it is Najib himself who said we need strong leaders. What is the qualification of a strong leader? It is the ability and willingness to stand up against foreign pressure and protect the interest of this country. If you don’t do that then you cannot be considered a strong leader,” he told a press conference in Shah Alam.

Tun Dr. MahathirMahathir was speaking to reporters after launching a book entitled ‘TPPA: Malaysia is not for sale’ by the Malay Economic Action Council (Mtem). Asked if he thought Najib was a strong leader, Mahathir, who celebrated his 89th birthday yesterday, replied: “I don’t know.” “Because it all depends on the test or challenges he faces and how he handles it,” he said.

Asked if Najib’s stance last Friday that Putrajaya intends to go ahead with the TPPA but on Malaysia’s terms was assurance enough, Mahathir insisted the agreement should be scrapped altogether.

“In the first place, why is it (TPPA) done in secret if it is not to cheat people? I think the mark of a goodThe Silent One leader is the ability to reject what is not good for this country,” he said.

Earlier in his speech, Mahathir repeatedly made references to Najib’s statement on the need of strong leaders in making his case against the TPPA. He added that the country had been able to develop well even without free trade agreements in the past.

Mahathir was also asked about Pakatan Rakyat’s leadership in Selangor but he appeared to have mis-heard the question and instead commented on BN’s leadership in the state.

“I’m sorry to say, we should have done better in the last election but we did worse in 2008.There is a lack of leadership there or the system we used was all wrong and we should not continue to do wrong things,” he said.

Abide by the Constitution

On another matter, Mahathir said the country should abide by the constitution which provides for a constitutional monarchy and parliamentary democracy.

“If you break that, people will break other parts of the constitution then there will be chaos,” he added. He was asked to respond to readers’ comments in his latest blog posting which raised concerns about the Johor royal family’s involvement in the Iskandar region.

In the blog posting, Mahathir had weighed into the rapid development in southern Johor but expressed concern that it might become a region of foreigners like Singapore.

Asked what he thought about the comments to his posting on the royalty’s involvement in business, he replied: “If people feel we are a free country, we are very liberal, people can speak their mind, no more ISA so people can say what they like.

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.

Mustapa Mohamed:Malaysia’s Productivity grew by 2.3% in 2013


June 26, 2014

Mustapa Mohamed: Malaysia’s Productivity  grew by 2.3% in 2013

Report by BERNAMA dated June 25, 2014

Malaysia Productivity Report 2013-2014Malaysia registered a productivity growth of 2.3% last year to a productivity level of RM60,437 from RM59,064 in 2012

Based on the Productivity Report 2013/2014 which was launched today by the Minister of International Trade and Industry (Miti), Mustapa Mohamed, the growth has helped Malaysia’s Gross Domestic Product (GDP) to expand 4.7% to RM786.69 billion in 2013, supported by a growth in employment of 2.3%.

MUSTAPA MOHAMAD 02In his speech at the launch, Mustapa (left) said the 2.3% growth in labour productivity compared to two per cent in 2012 could be attributed to the performance of key sectors of the economy, as well as technological progress, capital deepening and widening and the quality of labour.

“The launching of the Productivity Report for 2013/2014, in its 21 years running, strengthens the government’s agenda to enhancing the nation’s productivity. In this report, Malaysia Productivity Corporation (MPC) has emphasised the productivity framework which is based on shared Malaysian values of collaboration, coordination, communication and competency that drives national development agendas such as the Economic Transformation Programme, the Government Transformation Plan and the Malaysia Plans,” he said.

According to the Productivity Report, the services and construction sectors performed well in 2013, with labour productivity growing by 4.8% and 5.2% respectively. However, labour productivity in the agriculture sector declined by 3.5%.

The reported added that MPC made a few recommendations to address the issues facing Malaysia’s productivity goals such as how to nurture a competitive and productive mindset, promote incentives within targeted industries and strengthen regulatory review to boost national productivity.

Mustapa said Malaysia’s productivity growth surpassed that of many advanced economies, including Australia (1.4%), Japan (1.3%), Singapore (1.6%), South Korea (1.7%) and the United States (0.9%).

On another note, Mustapa said in the first three years of the Tenth Malaysia Plan (10MP) implementation, the average contribution of Total Factor Productivity (TFP) to the country’s GDP was 19.7%. He said in terms of labour’s contribution, the country needed to improve the quality of labour by strengthening policies and offer firms the right incentives to create modern jobs that will attract higher wages and increase productivity through the application of technology.

“Thus, all of us, including those in the government and representatives in trade unions and associations, must make a concerted effort to ensure higher growth with improvements in technology, research and development as well as investment in human capital,” he added.

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

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.

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.

Malaysia–A Paradise Lost


June 7, 2014

Malaysia–A Paradise Lost

by Cogito Ergo Sum@http://www.malaysiakini.com

COMMENT: Superficially, Malaysia, for all and sundry, is a nation that is not onlyhype_najib1 doing well, but even thriving in all its endeavours. Foreigners and locals are told that we are a model of tolerance and harmony in a plural society and that others must emulate our ways if they want to succeed.

Unfortunately, even a cursory look at the state of things will give away this lie, so lyrically waxed in the mainstream media. And unless one has access to news portals like Malaysiakini, we would be blissfully ignorant under the onslaught and media blitz of the government controlled media machinery.

For one, we seem to be on a runaway train towards an Islamic state, when the Federal Constitution has overtly stated that we are secular nation.

So-called defenders of the faith and race like ISMA and PDRKASA have become not only very vocal, but also dangerously influential. They promote laws and legal systems that are in opposition to a multi-ethnic and plural society, and is deemed inappropriate for a modern economic system that can compete on an equal footing with our neighbours.

These so-called NGOs, considered to be on the fringes, seem to be getting theirIsma President funding and encore from a benign government that that is even seen as fanning these inciting and seditious pronouncement by its very silence and inaction.

And yet, we have an official propaganda that is portraying our ‘moderation’ and moderate ways to foreigners and foreign investors. But walking the talk is futile as the antics of such official ‘guardians of the faith’ like JAIS, are a stumbling block to this false mirage we are trying to project in a desert of what used to be an oasis of goodwill.

And as if to prepare us for the inevitable, the government has even set up a ‘hudud implementation committee’ for the day when the shariah system becomes law of the land. And if this carries on, we are well on track to go the way of Brunei, Sudan and several other failed states which have adopted hudud laws. And we are a ‘moderate’ nation with moderate policies and people?

Intruders beware

But we are indeed a nation of tolerance. Pushed to the limits of accommodating preferential treatment and affirmative action, Chinese and Indians are declared ‘intruders’ who have no business to have any business or rights as equal human beings.

And despite these provocative and obviously false, seditious accusations by radicals and self-proclaimed ‘fundamentalists’, we have either a mute BN which distinguishes itself  as a multi-racial coalition, or one that is too stupefied to respond decisively.

Newspapers that are unofficial mouthpieces of the authorities like Utusan Malaysia have a penchant of publishing rubbish and peddling it as sacrosanct news. Racial and religious slurs are printed and sold as if it is bread butter of the nation. Yet, the authorities are impotent or choose to be, against such slurs and often given official sanction by remaining dumb and unresponsive to such blatant lies. The tolerance and moderation, unfortunately is from the victims of such hate-filled messages.

Our Education system sucks

Bakri Musa's BookA serious flaw in the fundamentals of this nation is the education system. Our school system and education promotes learning by rote and regurgitating facts for examinations. No attempt is made to foster critical thinking and questioning of subject matter. Facts of history, and now even geography, are being manipulated to fit a distinct political agenda.Well accepted historical facts have been altered and even changed to leave out pertinent points of history that made this nation once great.

The roles of our forefathers like the late Tan Cheng Lock and VT Sambanthan are either missing or dealt with in passing. These men (and many women) played an integral part in getting the British to give us independence.And it was the Malay, Chinese and Indian Police officers whot beat the communists in a urban and guerrilla warfare.

No one race could have achieved this as Malaysia became the only nation to beat the BRAIN DRAINmovement in open combat. No other country has achieved this in the history of warfare.By the time students reach universities, their language skills in English can only be described as atrocious. Research papers and standard texts are written in the English language.

An erstwhile student in at a university is required to not only know the current trends in whatever fields he or she is pursing, but also critically evaluate such studies. That ability to valuate studies by others is a critical component in the pursuit of higher learning. Learning by rote and spewing out wrong facts at public exams are of no use in evaluating research papers because it does not require thinking. And the vicious cycle goes on when these graduates become teachers themselves. Results have shown that our students performance in science and mathematics is among the poorest in Asia.

We need a revolutionary education system to set thing right. A system that will ‘uneducate’ our children from the current ‘copy and paste’ mentality so prevalent that the word plagiarism is as alien as the concept of unity in diversity.

Economic descent

From a house of plenty, we have now become a nation of borrowers. Our household debt is at its peak at 80 percent. Families in urban areas find it impossible to meet ends and unless you are a favoured despot, you will find yourself drowning in a sea of personal debt.

Poverty cuts across racial and religious barriers. Despite government efforts to prop up the rural population, the urban Malays are finding it hard to meet the expenses of daily city life.

The sheer weight of managing and balancing a domestic budget is actually a microcosm of the national economy.Our current account (money received from imports minus the money that goes out for exports) has fallen.

Malaysia's Current Acc to GDP RatioAnd the figure has been steadily falling according to numbers released by the Department of Statistics, Malaysia since the year 2004 (see chart above).

John Milton’s ‘Paradise Lost’, is an epic poem of the fall of man. Like the Garden of Eden, Malaysia was once an advanced and prosperous nation in not just Southeast Asia, but Asia. But sin crept into Paradise and it all was lost. And like Eden, we have allowed corruption, decay and prejudice to destroy the once paradisiacal state we were in.

In his poem, Milton painted the devil in such colourful language, that some haveMilton's epic poems even argued that Satan was the hero in ‘Paradise Lost’! And, much like Milton’s Eden, we seem to have fallen to the devilish ways of religious and racial bigotry that is transforming us, from the proverbial paradise, to a living hell on earth … for the average person.

One is left to contemplate if there is a way out of this runaway train that we have seemingly boarded. Will sanity, in the end prevail and will there be economic, social and political salvation? Milton pointed to a new future with his second epic poem entitled ‘Paradise Regained’.

As Malaysians, we have a duty to regain that lost paradise. We owe it to the next generation and the generations to come so that the story of Malaysia will be remembered as one of victory over darkness, of good over evil, of sanity over insanity and of one of moderation over extremism.

Let us not end up as an epic tragedy.

Malaysia truly Asia’s weakest link


June 7, 2014

Malaysia truly Asia’s weakest link thanks to Putrajaya, says Bloomberg

Published: 5 June 2014 | Updated: 5 June 2014 10:33  PM

http://www.themalaysianinsider.com

kuala-lumpur-skylineKuala Lumpur: Beautiful  outside but Rotten Inside

Putrajaya’s one-party policy and its 40-year-old pro-Malay affirmative action programme will spell trouble for the country’s economy, effectively turning Malaysia into the weakest link in Asia, a Bloomberg columnist said today.

http://www.bloombergview.com/articles/2014-06-05/is-malaysia-asia-s-weakest-link

William P2William Pesek is a Bloomberg View columnist based in Tokyo and writes on economics, markets and politics throughout the Asia-Pacific region. His journalism awards include the 2010 Society of American Business Editors and Writers prize for commentary. Since joining Bloomberg in 2000, Pesek’s columns have appeared in the International Herald Tribune, the Sydney Morning Herald, the New York Post, the Straits Times, the Japan Times and many other publications around the world. Pesek began his journalism career writing for the American Banker and Bond Buyer newspapers.

He also worked for Dow Jones Newswires, where he wrote the daily credit markets column for the Wall Street Journal. Pesek earned a bachelor’s degree in business journalism from Bernard M. Baruch College-City University of New York

Citing Putrajaya’s poor handling of opposition politicians and the search for MH370, William Pesek said Malaysia will continue to hog headlines for all the wrong reasons if Putrajaya continues to be complacent in economic matters.

“Its 40-year-old, pro-Malay affirmative-action program chips away at the country’s competitiveness more and more each passing year. The scheme, which disenfranchises Malaysia’s Chinese and Indian minorities, is a productivity and innovation killer. It also has a corrupting influence on the political and business culture,” Pesek said.

Pesek based his observations on a new report from Sarah Fowler of UK-based Oxford Economics, which ranks Malaysia the “riskiest country in Asia of those we consider,” more so than India, Indonesia and even coup-ridden Thailand.

In the report, Fowler said: “Prompted by its high levels of public debt, rising external debt and shrinking current account surplus, there has been a shift in the perception of risks towards Malaysia and away from Indonesia”

Pesek added that current-account surplus is dwindling, from 16% of GDP in 2008 to 3.7% last year, while household debt, according to Fowler, is “worryingly high” at more than 80% of GDP compared to less than 60% in 2008.

Fowler also wrote that Putrajaya’s “climate of entitlement amongst the Malay community limits entrepreneurialism and vested interests within UMNO still resist change.”

Pesek said that the only thing holding Malaysia back is its insular political culture.“The government’s handling of Malaysia Airlines flight 370 said it all. Its deer-in-the-headlights response to the plane’s disappearance was the product of an insular political culture.

“The trouble is, that insularity is holding back a resource-rich economy that should be among Asia’s superstars, not its weakest links.” – June 5, 2014.

 

Dissonance in Malaysia-Japan Relations


June 4, 2014

Dissonance in Malaysia-Japan Relations

Abe-NajibBamboo Diplomacy–Look East Again?

Malaysia’s Prime Minister Najib Razak recently met with Japanese Premier Shinzo Abe in Tokyo in conjunction with the annual symposium organised by the Nikkei, one of Japan’s leading newspaper. The summit meeting covered various topics including Japanese security policy, coastal protection, the missing MH370, the South China Sea (SCS) dispute, and Malaysia’s goal to be a high-income nation by 2020. Enhancing the cooperation for a ‘Second Wave of Look East Policy’ (LEP) was also agreed as a framework to deepen bilateral relations. The meeting nevertheless appeared lacklustre with the two Premiers appearing in the same press conference but talking about totally different agendas: Japan underscoring the importance of security while Malaysia stressed on the economic cooperation.

Wither “Second Wave of LEP”?

Malaysia-Japan relations have always been depicted as special by academics and diplomats who frequently refer to the LEP as a symbol of cultural, economic and ethical ties. When talking about the LEP, it is important to remember that this policy was the product of a congruence of strategic thought among the key players in the two countries more than three decades ago. In 1982, the LEP was launched by Mahathir Mohamad in response to a proposal by the Japan Malaysia Economic Association and Malaysia Japan Economic Association. The LEP would mean many things: the emulation of the Japanese model; a way to attract Japanese capital; to put Malaysia on the track to heavy industrialisation; but would also uplift the economic status of Bumiputeras.

Japan in the 1980s, on the other hand, was in the process of expanding its identity from just a member of the West to that of the growing Asia Pacific region as developed countries faced economic stagnation after the second Oil Shock, and as Japan confronted a protracted trade conflict with the US. Thus, the LEP was formulated between a developed country looking for new investment opportunity to decrease its trade surplus with the US and reduce production cost on one hand, and a developing country trying to court much-needed foreign investment. Bolstered by an appreciated Yen – following the Plaza Accord – the LEP eased the inflow of Japanese capital, with the amount of direct investment from Japan to Malaysia increasing by more than seven times for the next decade.

Three decades later, Najib calls for upgrading the LEP. The intent was clearly stated when he asserted that the LEP can address new priority industries such as energy-saving and green technology, healthcare and education— key areas of development included in Najib’s Economic Transformation Program (ETP). However, it is unclear if the ‘Second Wave of LEP’ gives a new thrust to the bilateral relations. In the 1980s to 1990s, “Look East Policy”, “Mahathir” and/or “developmental state” were catch-phrases attached to Malaysia among the Japanese business class and policy-makers. Today, neither “Second Wave of LEP” nor “Najib” are buzz words among the same circle in Tokyo. Rather, it is “middle-income trap”, “weak government” or “dragging its feet in the negotiation of the Trans-Pacific Partnership Agreement (TPP)” that the Japanese audience is talking about.

Dominant party systems in decay: experience of LDP and BN

The notion of a “weak Malaysian government” is depicted by the declining power of the Barisan Nasional (BN). For some Japanese commentators, the developments surrounding the 13th Malaysian General Election was reminiscent of Japan in the late 1980s to early 1990s when Japan’s own dominant party, the Liberal Democratic Party (LDP), saw its control over government diminishing and eventually lost.

At that time, financial deficit had become normalcy and government debt kept on soaring as LDP expanded expenditure for public works and social spending for the elderly to consolidate its support. One of the decisive moments of LDP losing its dominance was the introduction of 3% of Consumption Tax in 1989 as a means to broaden revenue base, after years of hesitation in fear of losing voters. Indeed, this decision – to introduce the consumption tax – was derided by voters who were already angered by the LDP-led government’s profligate public spending. Another and bigger cause of LDP’s decay was the corruption scandals involving top party leaders including then Prime Minister Noboru Takeshita. These scandals revealed the pervasiveness of money politics within the party and the government. The recurring scandals prompted voters, especially those who resided in urban areas, to discard the LDP. Not surprisingly, the party lost the majority of the Upper House in 1989. In 1993 the LDP lost power for the first time since 1955 to a coalition of small parties that consisted of former LDP members and socialists in the Lower House elections of that year. The “1955 system” ended.

Like the LDP dominated Japanese government, the dominant party government in Malaysia has behaved in the similar way for decades, and especially since the 1997 Asian Financial Crisis. BN has tried to boost or maintain support for the party, especially under the Najib administration, through expansionary fiscal policies. To draw support from the business sector, the government has increased expenditure for infrastructure projects. To gather support from lower income groups, BN has disbursed cash benefits under the 1Malaysia People’s Aid (BR1M). Moreover, an increase in the Goods and Services Tax (GST) was put on hold in the run-up for the last general election.

The similarity between the LDP and BN does not end there. Prolonged control of government by the BN has blurred the boundary between public and private interest, resulting in the series of high profile corruption allegations involving top party leaders. Even the result of GE13 – in which BN managed to secure a simple majority of the Dewan Rakyat (Lower House) through heavily-weighted rural votes – reminded many Japanese of the strategy of the LDP in Japan to maintain its dominance in equally testy times in the past.

Though the BN managed to retain majority control of the Dewan Rakyat despite losing the popular vote against the opposition Pakatan Rakyat, not a few Japanese observers have reflected on whether a change in the federal government in the near future will ensure better or a more effective government. This question is relevant in the Japanese context given the fact that post-1993 governments have been short-lived, unable to push forward their reform agenda, and in the case of the Democratic Party of Japan that was in power from 2009 to 2012, bungled on key concerns that include Japan-US relations and the management of the 3.11 disaster (referring to the triple earthquake, tsunami and Fukushima disaster).

Stalled structural reform

While the effectiveness of the future Malaysian government is yet to be known, what is clearly understood by the Malaysia-attentive Japanese audience is that the BN government is weak and can barely maintain its autonomy given heightened social pressure. This is made evident most clearly in the TPP negotiations.

While the TPP draws controversy in Japan, especially with its impact on the agricultural sector, Malaysia’s demands on the TPP is also often highlighted in the Japanese media. For example, Malaysia is known to oppose the institution of investor-state dispute settlement and intellectual property rights that affects access to generic medicines. But much more highlighted in the Japanese media is Malaysia’s demand to exempt Government-Linked Companies (GLCs) and government procurement from TPP coverage. For those who are familiar with Malaysian domestic affairs, this is understandable.

GLCs play too big a-role in the Malaysian economy, and also as the major investor in Najib’s flagship Economic Transformation Programme (ETP). Further, government procurement is an essential means to distribute resources to GLCs and eventually to Bumiputera SMEs. Given the result of GE13 where Bumiputera votes somewhat enabled BN-UMNO to remain in power, the already limited room for the Government to make concessions to external negotiating parties in these areas has narrowed even further.

Malaysia’s rather defensive posture in the TPP negotiation is seen, especially by the Japanese business sector, as a reflection of the weak power of the government vis-à-vis pressure groups and a stalled reform agenda. For this group, liberalisation under the TPP is one of the primary means to further advance structural reform and increase the competitiveness of Japanese economy. This same group knows that Malaysia remains – now for almost two-decades – caught in a “middle-income trap”. Many also argue that a failed conclusion of TPP, with the creation of ASEAN Economic Community just around the corner, would negatively affect Malaysia’s path to become a high-income nation.

The misgivings of the Japanese business sector is also anchored on the belief that the BN cannot be expected to exercise strong leadership given its increasing dependence on the Bumiputera constituency and the relative increase in the power of UMNO within the governing coalition. They somehow expect that it will take an even bigger electoral jolt, similar to what the LDP experienced in 1993, before the Malaysian government takes a more serious effort in pushing required reforms through. Looking back, it was only after LDP lost its power that Japan embarked on a series of important reforms. For instance, administrative and fiscal reform was pursued since the mid-1990s, and more seriously since 1996 when the LDP came back to power as a major coalitional partner.

Based on the lessons learned, LDP-led governments shifted to a more liberal orientation where the government drastically decreased government spending, rationalised government financial institutions, and embarked upon series of privatisation including Japan Post, Highway Public Corporation and other financial institutions. In light of these Japanese experiences, a number of Japanese naturally expect that a reform that pushes Malaysia out of the trap would come only after change in the federal government.

Japan’s security agenda and Malaysia’s ambiguity

While Japanese business players have not been impressed with scenes from the Malaysian political economy, the current Japanese government puts much value on Malaysia. This is demonstrated by the frequent official visits of Ministers between the two countries. In particular, Prime Minister Abe’s renewed interest in Malaysia, as well as ASEAN, comes with a clear agenda: regional security.

Abe grabbed a landslide victory and brought the LDP back to power again in the 2012 Lower House election touting a “Take Back Japan” that focused on “intrusion into Japanese territory by foreign forces” as one of his main campaign slogan. Since then, Abe has had official visits to ASEAN countries and even hosted the Japan-ASEAN Commemorative Summit in 2013. All this in the hope of cementing Japan’s relationship with Southeast Asian countries in various areas including regional security given China’s growing naval power and its increasing assertiveness over territorial disputes in the East and South China Seas. In the summit meetings with Malaysian counterpart, Abe highlighted the issues such as maritime security and the newly introduced Air Defense Identification Zone declared by Chinese government in November 2013 as common concerns between the two countries.

The Japanese Premier’s effort is also directed toward securing support from ASEAN countries for his long-cherished goal of a “departure from the post-war regime,” enabling Japan to play a bigger role in regional security among others. His security policy self-labelled as “proactive pacifism” includes changing the interpretation of Article 9 of the Japanese Constitution to allow the country to exercise the right to collective self-defense. This agenda has always been included in the summit meetings with ASEAN countries including Malaysia.

TDM--21 MarchHowever, the timing and context do not seem right. In the mid-1990s, it was Malaysia’s Prime Minister Mahathir that often urged Japan to loosen the legal constraints on the use of force to play a significant role in regional and global security. The Socialist Party dominated coalition government, however, did not positively receive this prodding. Now, as the Abe government pushes for a reinterpretation of Article 9, the conditions that will generate support for such change from countries like Malaysia has changed. China has grown powerful, economically and militarily, and disputes over territories have become more intense with increasing competition over natural resources and nationalistic sentiments among the general public in the conflicting countries. In this new regional context, Malaysia has shown a somewhat reserved reaction to Abe’s agenda.

Although Malaysia has expressed concern over the overlapping territorial claims in the SCS and the absence of an effective regional Code of Conduct, the fact that China is its largest trading partner has led Malaysia to stick to its traditional position: not to regard China as a threat. This explains Najib’s rather indifferent attitude towards Abe’s expressed concern on China’s aggressive actions in disputed territories. In one meeting, Najib was reported to have indicated that the SCS issue should be dealt by ASEAN through a multilateral approach, indicating his weariness to link disputes in SCS and East China Sea.

While the Malaysian government carefully but steadily deepens security cooperationPM Najib with the US as a hedge against a rising China, it obviously sits on the fence with Abe’s new agenda. Such a posture by Malaysia is often taken as a reflection of the country’s “pro-China” position by some Japanese whose picture of contemporary East Asia is a region where two major countries – Japan and China – are competing for influence in the region.

The dissonance between Abe and Najib in their latest bilateral meeting is explained by the fate and current status of their long dominant parties in the context of changing regional security dynamics. Abe, the leader of Japan’s former dominant party that recently regained control of government due to the ineptness of the opposition, confidently pursued his hawkish agenda. Najib is at the helm of a dominant party whose acts are tied down by the reality that their support base has declined. Najib also has to balance his responses to regional issues as Malaysia – a middle power – is in a delicate position in the rapidly changing big power relations in the region. Thus, a significant ‘Second Wave of LEP’ underpinned by strategic congruence between the two countries will simply have to wait.

Asia’s Resilience


June 4, 2014

Asia’s Resilience

by  (Tan Sri) Dr. Zeti Akhtar Aziz, Governor, Bank Negara Malaysia

ASIA has weathered the global financial crisis and its aftermath with a resilience that it built steadily over the past decade. Today, that resilience is again being tested as a significant transition takes place in the global economic and financial landscape.

Zeti, BN GovernorAs the recovery in the major advanced economies strengthens, the end of unconventional monetary easing in these economies is inevitable. While the prospect of a return to more conventional monetary policy reflects improved economic conditions, it has been accompanied by heightened volatility, with spillovers to the emerging market economies.

Asia, with highly open economies and globally connected financial systems, is not insulated from these external developments. The region will benefit from the global recovery, and its strength and resilience will help it navigate this more volatile international financial environment.

 Managing  the  TRANSITION

Monetary policy normalisation will present a challenging transition. Following the indications of a potential US Federal Reserve scale-back in quantitative easing (its term for unconventional monetary policy) in May last year, emerging market economies experienced large reversals of capital flows.

Within eight months, about a quarter of the capital that had flowed into those economies during the preceding four years had reversed. Several economies experienced significant exchange rate depreciation and a decline in equity and bond prices.

Nonetheless, macroeconomic and financial stability in Asia was preserved. Financial intermediation — the linking of savers and borrowers — was not interrupted, and creditworthy households and businesses had continuous access to financing. Economic activity in the region remained broadly unaffected by these volatile financial conditions.

This is the result of its strong economic fundamentals and sound banking systems, reinforced by improved governance and risk-management practices, and enhanced regulatory and supervisory oversight.

Sources of financing are also more diversified following efforts to increase the size and offerings in the capital markets.

Economies in the region have generally maintained favourable external positions — with flexible exchange rates, high international reserves and less reliance on short-term external funding. Many Asian economies also have the policy space and flexibility to implement countercyclical measures.

Since 2009, several Asian economies have also introduced preemptive measures to address the buildup of financial imbalances arising from the capital inflows, which have contributed to strong credit growth, high household debt and rising property prices in the region.

Measures included limits on maximum loan duration and adjustment of loan-to-value ratios for property purchases, fiscal measures, such as higher transfer taxes and revisions to real property gains taxes.

Policymakers recognised that such measures would help address domestic vulnerabilities. Efforts have also taken to strengthen macroeconomic fundamentals, with greater focus on the current account and fiscal balances. Some economies eased export rules, such as taxes and hedging regulations, while the management of foreign exchange liquidity was improved to strengthen their external position.

Tax and subsidy reforms were also undertaken to reduce government deficits and debt, and improved governance and medium-term fiscal targets enhanced the credibility of the measures.

The policy approach in several Asian economies is gradual, sequenced and targeted. This approach promotes orderly adjustments and corrections in the affected sectors. Policymakers can also monitor the impact of these policies and preserve flexibility.

While national policies help strengthen domestic fundamentals, they are insufficient to maintain resilience in an increasingly integrated global economic and financial environment.

Regional cooperation has, therefore, been enhanced, especially in the areas of cross-border surveillance and integrated crisis management, to address risks to regional macroeconomic and financial stability preemptively.

Multilateral arrangements to support a country in a liquidity crisis, such as the Chiang Mai Initiative Multilateralisation (CMIM), as well as trade financing and settlement arrangements, will enhance the region’s ability to weather the more challenging environment. Frameworks are also in place for information sharing and collective policy response when a crisis is imminent.

Potential for GROWTH

 Since 2000, with the exception of the 2009 crisis year, Asia has grown at an annual rate of 7.5 per cent, accounting for 44 per cent of global growth. Home to 60 per cent of the world’s population, the region is a significant source of revenue for many global corporations.

In part, this was achieved through more balanced and diversified sources of growth, which essentially took place on two fronts.First, the economies increasingly grew as a result of domestic demand. Second, within that domestic demand, the growth drivers shifted from the public to the private sector.

While Asia’s trade with economies outside the region has doubled since 2000, intra-Asia trade has tripled. More than 55 percent of Asia’s exports are now to countries within the region. Similarly, intraregional investment activity has also increased significantly.

In the future, the region’s growth potential will be sustained by several fundamental factors. Asia’s demographic advantage is a key economic asset. During this decade, a young middle-class population has emerged, and it is growing in number and in affluence. The increase in consumption demand and the greater investment activity will thus anchor the growing importance of domestic demand in Asia.

In addition, Asia’s diversity will continue to support regional economic integration. The region comprises economies at different stages of development that are endowed with a range of rich natural resources. Because development needs in the region are vast, there is ample opportunity for further trade and investment linkages which will garner benefits from outside regional borders.

Importantly, financial institutions and markets will become significantly better integrated in the medium term. This will facilitate more efficient intermediation of funds within Asia through more effective recycling of surplus savings for productive investments.

With one of the highest savings rates in the world, Asia has the capacity to meet the region’s vast financing needs with the right institutional arrangements.

To further unlock the region’s growth potential, reforms to generate sustainable, quality and inclusive growth are also important. Efforts to improve social safety nets, pensions, healthcare, education and financial inclusion are being intensified. These efforts contribute to more balanced growth and maintain social cohesion.

At the same time, growing consumption will place demand pressures on limited resources. The policy agenda must, therefore, address environmental damage, pollution and climate change, for example, through sustainable financing.

Importantly, growing interdependence will present both benefits and risks. The challenge is to ensure that regional collective action, particularly the institutional arrangements for policy coordination, is evolving in line with the rapid global financial and economic integration.

 Asia’s  FUTURE

Asia’s resilience has withstood a major global financial crisis and its aftermath. As the world transitions to a new environment characterised by moderate growth, slower global trade, and greater uncertainty and volatility, Asia’s response has been preemptive, marked by increased flexibility and greater foresight.

A resilient Asia will benefit the global economy by being a vibrant growth centre and a stabilising force in the global financial system.

Equally important, Asia’s contribution can transcend economic progress and financial stability in the global policy landscape with the right representation on the global forums.

 

Hub and Spokes: How US Allies in Asia Can Contribute to the US Rebalance


Asia Pacific Bulletin
Number 265 | June 3, 2014
ANALYSIS

Hub and Spokes: How US Allies in Asia Can Contribute to the US Rebalance

By Hayley Channer

The US rebalance to Asia and the promise of renewed American attention and resources has prompted some US allies and partners in the region to expect more of their superpower ally. Many countries, including Japan, Australia, and South Korea, welcomed the rebalance, although there has been criticism from some that the rebalance is “all rhetoric and no action.” While the expectations of US allies vis-à-vis the rebalance have been well communicated, exactly what the United States expects of its allies is less clear.

Certainly, the United States faces greater constraints after two long military engagements in Iraq and Afghanistan, sequestration, and a diversified global security environment that continues to spread US resources more thinly. These constraints have influenced the United States to expect more from its allies in Asia and globally. The question remains though, what precisely does the United States expect of its allies, and in what areas?

In order to answer this question, it is important to recognize what allies are currently doing. Japan, Australia, and South Korea are three of the closest US allies in Asia and are often mentioned together in connection with the US rebalance. Japan has been contributing to the rebalance in a number of ways by attempting to reinterpret its pacifist constitution and expand the role of its self-defense forces in global security operations–especially those mandated by the United Nations–by increasing defense spending and acquisition. No doubt, these measures also work in favor of Japan’s national interests.

Australia has been hosting US Marines in the country’s Northern Territory since April 2012 and has further increased its defense cooperation with the United States on force posture, interoperability, space, cyber, and ballistic missile defense. It has also offered political support and, importantly, spoken out against China’s unilateral declaration of an Air Defense Identification Zone (ADIZ) in the East China Sea in November 2013. South Korea has also supported the rebalance militarily, by accepting another battalion of US troops and heightening military exercises with the United States in face of highly unpredictable and belligerent actions by North Korea. Thus, US allies in Asia have been contributing to the rebalance in a number of areas and in different concentrations. So, what more does the Unites States expect?

Speaking off-the-record with former US government officials, think tank experts, and academics in Washington DC over the past two months has provided this author with some fascinating insights.

Where Japan is concerned, the overwhelming view is that its greatest potential contribution to the rebalance is economic, specifically, by agreeing to the Trans-Pacific Partnership (TPP) and undertaking economic structural reforms to revitalize its economy. The TPP–a trade pact under negotiation between twelve countries–is designed to open markets and establish high-standard trade rules for the global economy.

From the perspective of the United States, TPP is the economic component of the rebalance. If successful, a TPP agreement would include member economies that represent approximately 40 percent of the world’s economy and would help shape the rules of international trade for the 21st century. As the world’s third largest economy, Japan’s inclusion would be a major contribution to ensuring TPP success. Other areas where Japan could help the rebalance are by increasing its defense spending above one percent of GDP; improve its relations with South Korea and China; and increase its engagement with Southeast Asia. The latter is something that Japan has already begun to do.

For Australia, its main strength in supporting the rebalance is seen in being a political voice for the region. The vast majority of interviewees thought that Australia could assist the United States by promoting a rules-based order and adherence to international norms and codes of conduct. In particular, Australia was considered to be somewhat passive regarding China’s actions in the South China Sea over territorial disputes.

Australia currently maintains a position of neutrality and, while it supports ASEAN’s call for a Code of Conduct in the South China Sea with China, Australia emphasizes that it has no direct interests in the dispute. The commonly held American view is that Australia should speak out more strongly against coercive action by China and voice its support for the Philippines’ move to seek international arbitration, just as the United States has done.

By having a louder voice in regional affairs, Australia could encourage other countries to follow suit and, collectively, they could influence China. In terms of a military contribution, Australia could support the rebalance by increasing its defense spending, upgrading existing military bases to host additional US forces, and increasing maritime domain surveillance.

In contrast to Japan and Australia, expectations of South Korea’s contribution to the rebalance were not as great or well defined. There is a palatable feeling of uncertainty in Washington about the extent to which Seoul is willing and able to contribute to the US rebalance. This derives from the belief that South Korea sees the rebalance as directed at China and is cautious not to be seen siding with Washington against Beijing. Seoul is careful not to upset relations with Beijing as China is crucial to the outcome of the reunification of the peninsula. Despite South Korea’s unique concerns, Washington analysts still identified areas where Seoul could be doing more to militarily support the rebalance.

In particular, South Korea could implement measures that would allow it to regain wartime operational control (OPCON) of its forces in a war time environment. The United States would like to see OPCON transfer realized in order for South Korea to take greater responsibility for its own security. South Korea could also develop a more sophisticated ballistic missile defense system–integrating ground and sea-based platforms–as well as enhance its intelligence, surveillance and reconnaissance (ISR) capabilities, and keep its military reserve forces in service until the age of fifty. In terms of political and diplomatic contributions, South Korea could make a concerted effort to improve relations with Japan.

Overall, all US allies in Asia could assist the rebalance by deepening their links with each other, increasing their interoperability, and by investing more in multilateral forums. In addition, many in Washington would like US allies to be proactive on regional issues and, rather than always look to the United States to take the lead, be more forward leaning.

From the above, it is clear that the United States expects more from its allies in Asia. Financial, political and–in some cases–social and cultural constraints will prevent allies from fulfilling US wishes in all areas. However, Japan, South Korea, and Australia are all making greater efforts to support the US rebalance and, if they can better communicate their intentions to the region and to their own domestic populations, this will go some way towards ensuring the longevity of the rebalance and the continuation of this policy beyond the current administration.

About the Author
Hayley Channer is an Analyst at the Australian Strategic Policy Institute (ASPI) and currently a Visiting Scholar at the East-West Center in Washington. She can be contacted via email at channerh@EastWestCenter.org.

___________

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

APB Series Editor: Dr. Satu Limaye, Director, East-West Center in Washington. DC
APB Series Coordinator: Damien Tomkins, Project Assistant, East-West Center in Washington. DC

The views expressed in this publication are those of the authors and do not necessarily reflect the policy or position of the East-West Center or any organization with which the author is affiliated.

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Building on the Tun Razak Legacy


June 1, 2014

Malaysia and China: Building on the Tun Razak Legacy

by Prime Minister of Malaysia Dato’ Seri Najib Tun Razak@www.nst.com.my

JOURNEY OF GOODWILL: This is the full text of Prime Minister Datuk Seri Najib Razak’s speech at the Great Hall of the People in Beijing yesterday

Tun Razak and Zhou EnlaiTun Abdul Razak and China’s Mandarin Premier Zhou En-Lai 40 Years ago

FORTY years ago, my father set out on what he called a ‘journey of goodwill, to sow the seeds of mutual understanding and trust’.

That journey led him here, to Beijing, and to this very hall. It was here that he signed an agreement with Premier Chou En-lai, formally establishing diplomatic ties between our countries.

It was here that we began a new chapter in our relations. And, it is here today that I feel not just the responsibility of government but the responsibility to my father — to continue his legacy and ensure the deepening of Malaysia-China ties.

Our nations are joined by a history that spans a thousand years. The friendship that began during the Song dynasty flourished under the Ming, as a relationship built on trade was strengthened by blood — as Chinese families made the Straits of Malacca their home. From Zheng He and the Peranakans to Sun Yat Sen in Penang, our nations’ stories share the same cast.

It should not have been a surprise, therefore, that Malaysia was the first Southeast Asian country to establish relations with China. Yet, some allies advised my father, prime minister Tun Abdul Razak, against the decision.

Alone among the members of ASEAN, he held firm, and extended a hand of friendship to the People’s Republic of China. As a university student in 1974, I asked my father why did you make that journey and establish diplomatic relations? He replied, and I quote, ‘because Chou En-lai is a man I can trust’. At a time of upheaval and uncertainty, Malaysia and China laid the foundations of trust for a relationship which has advanced and flourished.

Over the past four decades, as our nations have developed, we have grown closer together. China is Malaysia’s largest trading partner, and Malaysia is China’s largest trading partner in Asean. We formed a Comprehensive Strategic Partnership for prosperity and growth. And, last year, we signed a Five-Year Development Programme for Economic and Trade Cooperation.

najib_razak_xi_jinpingAs our economies grow, so, too, do the bonds between our people. Thousands of our students have made the journey to learn in a different culture, my own son included. The ties of family and language which were forged in the 15th century grow deeper with time. There is perhaps no better symbol of our friendship than the recent arrival from China of two giant pandas, which have become an instant hit with the Malaysian people.

Like all friendships, ours is sometimes tested. Malaysia was deeply saddened by the tragic disappearance of flight MH370, with 50 Malaysian passengers and crew, and 154 Chinese passengers on board. Facing a mystery without precedent, we were grateful for the support of the Chinese government, which has spared no expense in the search effort. We will not rest until the plane is found.

I believe that, with time, we will grow even closer together. Good relations are easy when times are good; but true friendship is forged in difficulty. In his speech four decades ago, my father stressed that ‘this goodwill that exists between us must be carefully nurtured’.

It is in this spirit that I come here to China. And, I would like to express my sincere appreciation to the government of the People’s Republic of China for the hospitality and warmth extended to us on this visit, and particularly, to Premier Li Keqiang for attending today.

The joint communiqué we have signed further broadens and deepens cooperation in all areas of mutual benefit — economic, tourism, financial services, political, cultural and military.

We have agreed to increase our level of trade and investment, enhance people-to-people relations and to preserve peace and stability in the region.

Today, we renew the bonds of friendship that were established four decades ago. And, as Asia assumes a greater role in the world, we look forward to greater cooperation in the service of common goals.

In years to come, we will remain partners for prosperity; connected by history and firm in our commitment to peace. The ties that bind us will bring stability for our region and opportunity for our citizens.

For as the Chinese proverb says: ‘If people are of one heart, even the yellow earth can become gold’.”

 

Asia’s tomorrow has come–PM Najib Tun Razak


May 24, 2014

Asia’s tomorrow has come

by Dato Seri Najib Tun Razak, Prime Minister of Malaysia

http://www.nst.com.my (05-23-14)

RISING ASIA’: This is the full text of Prime Minister Datuk Seri Najib Razak’s keynote address at the Nikkei’s 20th International Conference on The Future of Asia in Tokyo yesterday (May 22, 2014)

PM NajibPrime Minister Datuk Seri Najib Razak delivering a speech at the Nikkei’s 20th International Conference on the Future of Asia in Tokyo yesterday. Najib says theLook East policy will move into a second phase, focusing on high technology and highly skilled workers. AFP pic

I am honoured to join you today. This is the second time I have spoken at the Future of Asia conference, and it is wonderful to be back in Japan. Under Prime Minister Abe’s leadership, the Japanese economy has burst back into life, with strong early promise. Now, Japan looks set to usher in a new period of sustained growth,  and set a new standard for reform.

Abenomics–Resurgance of Japan

Japan’s reputation for economic leadership is well-known and well-deserved. In the early 1980s, under Prime Minister Mahathir’s leadership, Malaysia began a ‘Look East’ policy, turning to Japan and Korea for inspiration, helping to train the next generation of Malaysian students and businesses leaders in the East Asian way.

Not only has the Look East policy continued under my tenure, but in line with our transformation programme for Malaysia, it’s moved into a second phase, focusing on high technology and highly skilled workers — helping us move our economy up the value chain, and onto high-income status.

Back in the 1980s, things were different. Asia was rising, but the truly explosive growth was still to come. The emergence of the ‘Tiger’ economies, and the reforms in China, showed the world that something was stirring in Asia. It was the 1980s that the phrase ‘Asian Century’ was coined. But for many observers, Asia was still tomorrow’s story.

Tomorrow has come to Asia (and Malaysia)

Tomorrow has come. Economically and politically, Asia is now at the heart of world affairs. The most populous region on earth is also one of the most dynamic, and increasingly, one of the more contested.

Remarkable economic development has focused global attention on Asia’s prospects. When the recent financial crisis shook confidence in established markets, more companies, and countries, began to ‘look East’.This growing sense of economic momentum has also raised the geopolitical stakes, as emerging and established powers vie for influence in Asia.

This trend shows no sign of abating. Within 20 years, Asia is set to account for more than 40 per cent of global gross domestic product (GDP), and 60 per cent of the world’s middle class. This phase of growth will be accompanied by growing global stature, influence, and interest. We must come to terms with life in the spotlight.

Asia’s economy will remain in focus; our internal dynamics under the microscope. There will be, InsyaAllah, no return to Asia’s age of isolation. We are one of the new centres of gravity in a newly multipolar world.

For the Asians of tomorrow, what matters is how we respond to this scrutiny; whether we build strong and sustainable economies, or simply inflate more bubbles. Whether we show security leadership, or allow internal tensions to derail the peace upon which prosperity depends.

That is what I would like to talk about today — the challenges to Asia’s economy and security, and how we can respond. Let me start with the economy. There are a number of trends that will determine Asia’s continued success. The first is economic integration: the removal of trade barriers, and cooperation on monetary and fiscal policies.

According to McKinsey, in 2012, cross-border trade accounted for a third of global GDP. By 2025, that figure could reach half. In the past 20 years, emerging economies have more than doubled their share of cross-border goods, services and finance, but are still lagging far behind developed markets.

For Asian economies, integration offers significant benefits, including the ability to negotiate together. It can increase the power of middle nations, and raise living standards for all. It can help developing nations climb the ladder, and ensure fewer citizens are left behind, as common standards and entry requirements filter back into domestic policy.

I believe Asian states must look to build stronger, more lasting economic connections — both within our region, and with the outside world. That is why I strongly support the push to create a single market in Southeast Asia. The ASEAN Economic Community will support jobs and growth for more than half a billion people, and help ensure Southeast Asia’s growth spills across into all member states.

Trans-Pacific Partnership and Integration for Economic Growth

In an interdependent global economy, the benefits of greater cooperation extend far beyond Asia’s borders. Malaysia looks forward to the completion of the Trans-Pacific Partnership on terms acceptable to us. The TPP will strengthen our ties with the wider world; as will the Regional Comprehensive Economic Partnership, which will bring three of the largest economies into the world’s largest trading bloc.

For governments and businesses, trade agreements such as these often have a visible logic. We see the negotiations unfold, often over years. We see the compromises that are made, and the benefits that are secured.

The risk of public disaffection can grow. In an age of increasing integration, we must ensure we take people with us — explaining the process and describing the benefits more clearly. Education and engagement can help address public concerns, and win support for agreements that can unlock growth and create higher paying jobs.

To prevent the build-up of risk, we must also ensure reforms to our financial and regulatory regimes keep pace with innovation in the financial sector. In the next decade, Asia’s financial sector is projected to grow by 50 per cent, accounting for almost a third of global banking sector assets. Yet, as the International Monetary Fund points out, Asia’s financial integration is not keeping pace.

As Asian firms ‘build out’ beyond their borders, and Asian investors seek new opportunities, they will be bound more closely into the global economy. There will be new regulatory challenges, such as the growth of shadow banking, and new problems of scale. As Asian capital stretches into other emerging markets, financial supervisors must be ready to address a much wider range of cross-border risks.

Focus on the reforms needed at home

We must also focus on the reforms needed at home. As the Hong Kong Monetary Authority has pointed out, despite a considerable pool of savings, and strong inflows of capital, some Asian infrastructure projects struggle to attract investment due to political, legal and governance risks. Stronger credit, risk management and corporate governance norms can make it easier to secure foreign capital. These must be complemented by a commitment to institutional reform to boost business and public confidence.

These reforms must be undertaken with an eye on the big picture: Asia’s changing role in the world economy. For many years, emerging Asia’s development model was based on a trade surplus with rich-world markets. But rebalancing is under way, as our nations grow richer and our labour costs rise. Some Asian economies are focused on building domestic demand — laying the foundations for more independently sustainable growth.

Alongside macroprudential policies, this approach will help cushion us from the near-term problems, such as the ongoing effects of sluggish growth in established markets, the withdrawal of United States stimulus, whilst also preparing our economies for the next phase of development. They will pave the way for Asia to play a greater role in shaping the global financial architecture, for the ultimate benefit of our citizens. Such structural changes take time and commitment. They can be socially disruptive. But the reward is a stronger and more secure economic future.

The Challenge of Inequality

The second trend we must come to terms with is inequality.Over the past few years, the growing gap between rich and poor in developed economies has become a pressing policy issue. This is not just the battle cry of the Occupy Wall Street protesters: many research institutions have pointed to the corrosive effect of structural inequality.

A little inequality encourages individuals to work hard and innovate; but an unequal system creates hollow economies, where wealth and opportunity are kept for the few, at the expense of the many. Excessive inequality has serious, and avoidable, effects on health, education and life outcomes. When soaring GDP outstrips living standards, people feel they do not have a stake in their nation’s economic success. That, in turn, undermines social progress and threatens stability.

With rapid growth at a time of globalisation and technological change, emerging Asia is particularly exposed to widening inequality. Over the past two decades, eight out of 10 Asians found themselves living in areas where income inequality is rising, not falling. Whilst inequality has narrowed in emerging regions such as Latin America, it has widened in Asia. As the Asian Development Bank has pointed out, had inequality stayed static, an extra 240 million people would have been lifted out of poverty.

Behind the headline growth figures, it is clear that Asia’s future success depends on broader and more diverse economic development. For Asia to truly prosper, we must give our citizens greater equity, as well as greater equality. Again, this will not be easy. Even the most successful economies have struggled to tackle inequality. There is no straightforward solution. But there are a number of things we can do.

We must invest more in public goods such as education and health: increasing access to quality education and narrowing the divide between urban and rural health outcomes. It means strengthening social safety nets and deploying targeted subsidies that support the poor at the point of need. It means encouraging the private sector to do its part, with corporations providing labour with flexibility, training and support. And, it means building more balanced economies, with higher quality jobs and more even growth spread across sectors.

Fight Against Corruption

It also requires a lasting commitment to the fight against corruption. Corruption suppresses meritocratic opportunity, undermines social cohesion and eats away at people’s confidence in the state. Tackling corruption is not the work of a year, or even a decade; but it can and must be done. Government procurement should be reformed to introduce open bidding, bringing transparency to a process often blighted by graft. Strengthening independent anti-corruption institutions, and increasing prosecutions for both bribe takers and bribe givers, can help change attitudes — even when corruption is deeply rooted.

Responding to these two trends — integration and inequality — will be critical. The changes I have spoken about will not always be easy; they require the investment not just of resources, but of political will. Difficult conversations will be had; in my country, for example, where income inequality remains a concern, we are working to find the right balance between affirmative action and individual opportunity.

With courage and foresight, however, we can deliver a stronger economic future for Asia. But, this future will not be assured unless we deliver the security and stability on which economic success depends.

To do so, we must manage our own rising influence, whilst responding to more intense outside interest in Asian security matters. We must make headway on non-state threats such as terrorism and piracy, and act on the ‘new security’ issues such as climate change. And, we must prepare to play a new leadership role in global security issues.

Rise in Asian military power must deliver peace

First and foremost, we must ensure the rise in Asian military power delivers peace, not instability.Over the past decades, Asia’s strong economic growth has obscured a military build-up that is almost as strong. In 1988, Asian defence spending constituted eight per cent of global military expenditure. By 2012, that figure had risen to 20 percent. In the last 25 years, overall military expenditure has grown by 187 per cent.

Countries have every right to defend themselves. But regular arms replacement programmes aside, this trend indicates deeper concerns about security and conflict — concerns that could swiftly become self-fulfilling. To address this risk, we should reject the siren song of competitive armament, and seek wherever possible to strengthen the multilateral and diplomatic ties that check instability.

We should also redouble our commitment to negotiation. Confronted with complex disagreements between states, Asia must place its trust in diplomatic solutions. We should heed the fundamental principles on which good diplomacy is conducted: sovereign equality, respect for territorial integrity, peaceful settlement of disputes and mutual benefit in relations.

And, we must affirm our commitment to rule-based solutions to competing claims. International law, and not economic or military coercion, should guide the resolution of disputes over resources. I also believe Asia can explore ways to make a bigger contribution to global security challenges.On non-proliferation, for example, the Association of Southeast Asian Nations has adopted a comprehensive treaty, the Southeast Asian Nuclear Weapon-Free Zone.

We should also make a concerted effort to implement and enforce strategic trade controls to cut the risk of dual-use goods.Our regional agreement on piracy is cited as a strong example of regional cooperation by the International Maritime Organisation, which seeks to replicate it elsewhere. The same principles — of sharing information and building capacity – could be applied to anti-terrorism initiatives, which, despite some successes, have sometimes lacked the coordination needed to be truly regional.

Peacekeeping and Conflict Resolution

On peacekeeping and conflict resolution, Asian nations are already ramping up their involvement in the promotion of global peace. Malaysia, which has already played an active role resolving regional conflicts, is bidding for a non-permanent seat on the United Nations Security Council for 2015-2016. Japan has made peace-building one of its main diplomatic priorities, South Korea has markedly increased its peacekeeping and post-conflict work, and many ASEAN nations, such as Vietnam, which will join UN operations next year, are looking to play a more active role.

This is driven partly by pragmatism: we have seen from the rise of nations that growth in influence and hunger for resources can bring new tensions, and exacerbate old ones. But it is also about acknowledging that with rising influence comes rising responsibility; that for Asia to continue to prosper in a stable global security environment, we must play our part not just in the enforcement of international norms, but in their creation, too.

By laying the foundations for greater Asian engagement in the international security agenda, and preparing our economies for more integrated and sustainable growth, we are recognising that our position in the world is changing.

As we leave behind the era of single hyperpower dominance, as the global economy becomes more connected and as nations converge around democratic market liberalism, a broader policy approach is needed. Today, more than ever, consensus, cooperation and constructive engagement are the basis for success.

Thirty years after it was proposed, the Asian century is upon us. By reforming at home, and assuming a greater international role, we can ensure it brings stability, prosperity and growth.

Malaysia’s Economic Transformation Programme (ETP): Of Diagnosis and Prescription


May 15, 2014

Malaysia’s Economic Transformation Programme (ETP): Of Diagnosis and Prescription

http://asiapacific.anu.edu.au/newmandala/2014/05/15/malaysias-etp-of-diagnosis-and-prescription/

by Shankaran Nambiar*

One of Prime Minister Najib Razak’s key missions is for Malaysia to become a high income economy by 2020. Ambitious as he is, he wants Malaysia to achieve high income, inclusiveness and sustainability.

ETP

The first goal is clearly defined and easily achievable if it is restricted to the numerical target of US$15,000. Najib wants more than that. He wants an economy that has the characteristics of an advanced developed nation. Specifically, the transformation aims to achieve a large services sector, higher domestic demand and greater productivity levels.

On the inclusiveness front, Najib has emphatically mentioned that the growth in Malaysia will be such that it will enable all Malaysian to share in the benefits. The lowest sections of the economy will be specially targeted so as to improve their income levels.

As for sustainability, Najib envisages a growth model that is fiscally and environmentally sustainable. Malaysia’s fiscal profligacy hitherto warrants more attention. The concern over the environment is commendable.

najib-razak1Najib’s diagnosis of the problems that Malaysia should focus on is accurate. Malaysia is caught in a middle-income trap, its fiscal position cannot go on the way it has in the past. Malaysia may lose out against the intense global competition that engulfs it. The decision to embark on a major transformation programme, i.e. the Economic Transformation Programme (ETP), is a reasonable one in the face of the challenges that Najib has rightly identified.

The errors do not lie in the diagnosis. They lie elsewhere .First, to pursue the path to developed economy status is good, but a more carefully thought-out plan is necessary. That is, perhaps, lacking in Malaysia’s case. There are developed economies of various colours and stripes. The United States is a developed nation where the market reigns supreme. In Europe, welfare and distributional concerns weigh heavily, as in the Scandinavian countries. The burden of the cost of education and healthcare does not fall heavy on households in these countries. In Taiwan, the government intervenes actively to ensure that affordable healthcare is available to all. What is the Malaysian model going to be? There are no clear answers on this.

Second, the ETP clearly states that the high-income objective is not merely a quantitative target. And that is correct; it should not be. One associates a high level of well-being with developed countries. Well-being, again, needs to be clearly defined. With higher incomes, people expect more gender sensitivity at the workplace, good child care facilities, nice parks, cultural activities, access to sports facilities, protection for the aged and the like. But aside from broad statements it is not at all clear if these are concerns that will be entertained, and if so how they will be factored into policy action.

Third, the ETP includes an inclusive society as one of the three pillars of the New Economic Model (NEM). This means that all sections of society, regardless of religion and ethnicity should feel that they are valued and that they have an important role to play in the economic and cultural growth of the nation. The current state of ferment on religious and ethnic issues simply cannot be a part of the NEM. The progress report on this cannot be said to be satisfactory with the kind of debates that are going on. Undeniably, it will take considerable care to ensure that the majority are pleased without threatening the minority.

Fourth, the role of the public sector remains unclear within the ETP. While the NEM is based on the active participation of the private sector, as it stands the government-linked companies (GLCs) play a dominant role in key industries.  GLCs are a euphemism for state-owned enterprises (SOEs) and the days when SOEs can continue supporting ailing industries are numbered. SOEs cannot crowding out private investment.

Most important of all, the institutional foundations of the economy have to be reconsidered. Issues such as good governance, transparency, competition and accountability are very much a part of mainstream policy these days. Trade policy centres around questions such as these, though the exact form in which they are invoked may vary in, say, trade agreements.

Najib should be credited with honestly pinpointing the trouble spots. The road ahead has been vaguely charted.  Murky visions are, often, not the best ways of conceptualising and communicating plans. At any rate the implementation of the ETP is likely going to be very challenging let alone addressing the question of institutional reform.

Nevertheless, having committed himself to a brave agenda, Najib is going to be judged by the high standards he has implicitly set for himself.

Shankaran Nambiar, PhD, is a senior research fellow at the Malaysian Institute of Economic Research.