The World Bank: Right Part of the Time and Wrong On Occasion on Malaysia


October 18, 2016

The World Bank: Right Part of the Time and Wrong On Occasion on Malaysia

by Dr Lim Teck Ghee

The World Bank’s occasional economic reports on Malaysia can generally be relied upon to offer sound analysis on the country’s economic development that is different from those emanating from our national sources. They provide a more critical perspective on entrenched policies or proposed new ones by stake players who should be independent and should not be beholden to the Malaysian government or any interest or lobby group.

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Two recent reports should be of interest to our policy makers. The first which came out in June this year affirmed the importance of leveraging on trade agreements and partnerships for the nation’s continuing economic prosperity.

The Economic Monitor report noted that

  • Malaysia is one of the most open economies in the world, with a trade to GDP ratio of 148% (from 2010 to 2014) compared to 58% in developing countries in East Asia and Pacific.
  • About 40% of jobs in Malaysia are linked with export activities.

Most Malaysians are aware of the importance of trade. But we have also seen the rise of uninformed and often xenophobic sentiments targeting the Trans-Pacific Partnership when it was being negotiated by the government. The Bank’s opinion on this and other similar agreements needs to be reflected upon.

In essence the Bank argues that implementation of new regional trade agreements can help Malaysia carry out key economic reforms and accelerate the country’s transition to high-income status. It notes that the new generation of regional trade agreements – including the Regional Cooperation Economic Partnership, Trans-Pacific Partnership and European Union Free Trade Agreement – will shape trade and investment over the next decade.

It also calls for commitment to these agreements which goes beyond tariff reduction This is because not only will they have a significant impact on attracting investment, and further open up market access for the country’s exports of goods and services; they can also be used to push for deeper reform in competition policy, services trade and support to SMEs that would otherwise be difficult to initiate.

The Bank rightly warns that the transition will not be easy and proactive measures will be needed to ensure wider benefits under the new regional trade agreements.

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Notwithstanding the problems and difficulties, it is important for our policy and decision makers to get the Bank’s message and stay the course of this road of reform if we want our economy to grow and become more resilient.

Reducing Vulnerabilities the Wrong Way

The latest Bank report – a newly released East Asia and Pacific Economic Update entitled “Reducing Vulnerabilities” – focuses on current global economic uncertainties; the risks that come from external developments as well as touches in its country chapter on Malaysia on our own home grown financial crisis arising from 1MDB which “could impact investors’ sentiments and divert the Government’s focus from needed reform, while an unanticipated sharp adjustment among households to a higher cost of living or a more pronounced softening in labour market conditions could also affect private consumption”.

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To alleviate the impact on the bottom 40% population, the Bank is recommending targeted measures “to support the most vulnerable households”. This, in its view, could include the introduction of “unemployment benefits [which] could help to improve matching in the labour market and provide support as the labour market softens” (https://openknowledge.worldbank.org/bitstream/handle/10986/25088/9781464809910.pdf; p.128).

Bank guidance on this issue is clearly off the mark if not plain wrong. Firstly, the nation’s finances are in no position to support a social welfare system providing benefits to the section of the population that is registered as unemployed or do not currently have a job. For now and the foreseeable future, the nation needs to exercise financial prudence and discipline in spending. In fact, the Bank itself has noted in the same report that recent increases in the minimum wage and public sector salaries would be difficult to sustain as the necessary fiscal consolidation continues.

Any social welfare or social protection system that is being proposed needs to be sustainable, financially viable and well targeted. In Malaysia it is especially important to ensure that the new proposed system does not become a political football and/or is open to wide scale fraud and abuse. Both negative possibilities are very likely given the present state of politics and governance in the nation.

A stronger and more rigorous defence of the proposal for the introduction of unemployment benefits by the World Bank with empirical data proving its case is necessary if it wants this policy recommendation to be taken seriously. For now, the advocates of this policy in the Bank may be comforted by the fact that a de facto unemployment benefits system already exists in Malaysia through the use of the civil service to employ hundreds of thousands of otherwise unemployed and unemployable school leavers, graduates and others primarily from the  Bumiputra community.  Poor Indians have been left out leaving them marginalized from the mainstream.

Such a system has been ongoing for at least the last 20 years and makes Malaysia a role model for countries in this field of racially targeted labour market intervention.

 

7 thoughts on “The World Bank: Right Part of the Time and Wrong On Occasion on Malaysia

  1. This Bretton Woods system of the World Bank was created and controlled by Western powers, especially the United States, to use as a political tool to enhance their own political agenda under the disguise as an international financial institution.

    The United States has put Jim Yong Kim, a public health expert, to head the World Bank. That is a big departure. As president, he is fundamentally making decisions that are guided by economics. How much does Dr. Kim know about economics?

    Go figure.

  2. The United States has put Jim Yong Kim, a public health expert . . . he is fundamentally making decisions that are guided by economics. How much does Dr. Kim know about economics? ¶ Go figure.”

    Asking how much Dr Kim knows about economics is a bit like asking how much Edward Witten, with a BA in History from Brandeis University, knows about theoretical physics and mathematical physics. Admittedly, Dr Kim’s appointment is an unconventional departure from the norm. More on Dr Kim later, but at this point I wish to state that he, fortunately for human kind, like many other super achievers cannot be easily compartmentalised with respect to skills, knowledge, visions and dreams.

    I have no quarrel with “Bretton Woods system of the World Bank was created . . . by . . . the United States, to use as a political tool to enhance their own political agenda under the disguise as an international financial institution.” On the contrary, I would add that Bretton Woods, over the course of the last 72 years, and later together with the Asian Development Bank, have kept the narrative of selective development within the lenses of US-Europe-Japan geopolitical goals.

    In the initial burst of enthusiasm to refashion the world after WWII, Bretton Woods’ main pivot was not towards parallel reordering of the physical landscape of Europe, China, Japan and the rest of the world broken by the Axis powers — the bank, specifically “ . . . was meant to rebuild Europe.” Despite being excluded, Japan through its laudatory work culture (time-keeping and the uncompromising pursuit of excellence) that drove itself back to modernity and a timely cold war to help secure residual US aid in post-war governance, has with active connivance with the latter not bet an eye-lid to continue its “entanglement” with the US. It is an undeniable fact that there exist “ . . . ‘Japan Handlers’ who allegedly ‘coach’ Tokyo on how to meet Washington’s requirements . . . ” — read — how to dance to His Master’s Voice. The upshot is, Japan feeling braver by the hour, nourished by the unforgiving bushido spirit is driving itself to play a leading role in the ‘encirclement of China’ no thanks to a China on the cusp of modernity, least expected and least desirable by the US and Japan.

    The caveat to the certain and wholesale encirclement of China began to emerge under Deng’s tutelage just after 1978, with the order to shake, once and for all, the inhabitants of the Middle Kingdom that their somnambulist crawl drugged by vacuous and sometimes totally nonsensical Maoist rhetoric must end. The rest, as people say, is history. But this is evolving history, made no less trenchant to a hostile world which had wrought so much misery, death and destruction to the Chinese polity for ever so long, with the formation of a bank, the AIIB —Asian Infrastructure Investment Bank, to rival that of Bretton Woods and ADB, and to put in better perspective after all the years of adulation, respectful thanks, misappropriation and misdirected fund distribution, what it means and what it takes to secure a better and more hopeful future for the world at large, not just the world defined by the World Bank, Asian Development Bank, Wall Street, investment bankers, and assorted pseudo – do-gooders.

    The uneven voting rights allocated to China, US and Japan in the ADB up till March 2015, i.e. 5.47 percent to China, and a combined 26 percent to US and Japan partially explains why China, with its new-found wealth and plenty of financial confidence, made a critical decision to form AIIB to implement a new paradigm for distribution of funds for infrastructure development in developing nations. The size and scale of the Bank’s assets, not to mention its intended outreach programme, were enough to invite angry responses from both the US and Japan, no thanks this time, to the two financial hegemons for having taken China for granted for too long. A reflection of current geo-politics shows how much the US and Japan have lost the argument against the AIIB: Australia, the UK, South Korea, Canada have all applied to join AIIB despite the pressure exerted by the US.

    Now, why do I think Dr Kim, despite his background in health and medicine, and anthropology, is giving the World Bank a much-needed breath of fresh air, even as he required special tuition on financial matters from experts just before taking on the new job? I am prepared to concede at this point that it is the open-ended free space found in the West that has allowed him, an outlier, to be invited into the financial fraternity. Could Dr Kim have been invited to play a similar role in South Korea had his parent and him stayed back there, instead of moving to the US? Could a Chinese or Japanese Dr Kim do the same in China or Japan? I would think not, not if the mental and cultural operating system remain uniquely Asian, uniquely straight-jacketed into physician or shaman, philosopher or dreamer, ad nauseam. This is the palpable strength of meritocracy and facilitating openness – from each according to his ability – the defining democratic lever that separates the West from the Rest. I can only think of another outlier, at the risk of contradicting myself, who brought in monumental changes, and in my view greater changes than what Dr Kim has achieved so far, and he is the late Dr Li Kwoh-Ting, a Cambridge-trained physicist, who literally flipped Taiwan from 3rd to 1st World even ahead of Singapore with his economic development master plan.

    The link below is a lively account of Dr Kim’s career and why President Obama picked him to head the World Bank; he has since been nominated by Obama to serve his second term with the bank: How the World Bank’s biggest critic became its president – by Andrew Rice : Thursday 11 August 2016 https://www.theguardian.com/news/2016/aug/11/world-bank-jim-yong-kim

    Excerpts from the article:

    . . . Hundreds of shanty town residents met development experts and vented their anger with the World Bank. “We talked about the privatisation of everything: profits and also suffering,” Kim recalls. “The argument we were trying to make is that investment in human beings should not be cast aside in the name of GDP growth.” Over the next half-decade, he would become a vociferous critic of the World Bank, even calling for its abolition. In a 2000 book, Dying for Growth, he was lead author of an essay attacking the “capriciousness” of international development policies. “The penalties for failure,” he concluded, “have been borne by the poor, the infirm and the vulnerable in poor countries that accepted the experts’ designs.” . . . .

    . . . . To Kim and Farmer, the moral flaw in the bank’s approach was that it imposed mandates with little concern for how cutting budgets might affect people’s health. They thought that “the problem” in global health was economic inequality, and in Haiti Partners in Health pioneered a grassroots methodology to tackle it: improve the lives of communities by training locals to provide medical care (thus creating jobs) and by expanding access to food, sanitation and other basic necessities . . . .

    . . . . Embedded within the dispute over superpower prerogatives was a larger anxiety about what role the World Bank should play in the 21st century. Extreme poverty had dropped from 37% in 1990 to just under 13% in 2012, so fewer countries needed the bank’s help . . . And while the bank possessed a wealth of data, technical expertise and analytical capabilities, it was hampered by red tape. One top executive kept a chart in her office illustrating the loan process, which looked like a tangle of spaghetti . . . .

    . . . . Kim likes to cite a study co-written by a former World Bank economist, Larry Summers, that found that 24% of full-income growth in developing countries between 2000 and 2011 was attributable to improved public health. Put simply, Kim says, pandemics and other health deficits represent enormous threats to economic development, so they should be the World Bank’s business . . . .

    . . . . Besides eliminating extreme poverty, which he has now promised will be done by 2030, Kim wants to raise incomes among the bottom 40% of the population in every country. He also wants to achieve universal access to banking services by 2020. . . .

  3. aitze, no not an outlier at all but a busybody.

    There are just so many things from the past that I must question and put in context. To be able to question and put the events in contemporary context, I must first read up. And reading is much cheaper than taking up golf. But what has also deterred me from the game is having to associate with some of the pretentious twits inhabiting our club houses.

    Typing on the laptop is easy peanuts today compared to the time I had to prepare notes for my students on the typewriter.

    So let us stay on course and afloat by sharing our views in Dato Din’s blog — we must do whatever so as not to allow the sinking feeling, of late, from overwhelming us

    Good night.

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