April 22, 2017
Najib Razak’s Baloney Economics
by TK Chua
Since when is inflation not due to bad policies, poor macroeconomics management, inefficiency, massive corruption and loss of confidence? Sorry, are there new economic theories emerging?
A Political Baloney
Why single out some external factors igniting inflation when these factors are also applicable and affecting other economies?
Malaysia is a net oil exporting country, but global oil prices have now become a major factor accounting for our high inflation. Can we not see the baloney and the irony here? What about countries with no oil to begin with? Would they not be affected by high or low prices of oil as well?
The “Trump phenomenon” is a uniform factor likely to affect most countries. Why should Malaysia suffer more than others if indeed Trump has caused reverse capital flows and currency realignments globally?
The ringgit has depreciated not just against the US dollar, but also against the Singapore dollar, Chinese Renminbi and Thai baht, just to name a few.Malaysia’s inflation is unprecedented in recent months. When global oil prices were more than US$100 per barrel, did Malaysia’s inflation reach 8%?
I hope some of us have heard of this statement before, “Inflation is always and everywhere a monetary phenomenon.” The primary cause is always too much money chasing after too few goods.
The Shrinking Ringgit
We can argue and debate whatever we want, but inflation is invariably caused by the following factors:
First, high taxes and unproductive use of tax money. I have lived in this country long enough to know that the GST is a major culprit of inflation, causing prices to escalate higher than the GST rate due to our half-baked implementation.
Third, when we have too many over-priced projects and contracts. When contractors and promoters get too much profit, the people must pay for it through higher prices. There are no free lunches in this world.
Fourth, when government borrows and spends too much. Fiscal deficit is a given in Malaysia, regardless of the state of the economy. Borrowing to finance deficit from inflationary sources could make the situation worse.
Fifth, when policies favour the cronies. When we have massive distortions and profiteering due to collusion and complicity, prices will escalate. Prices of homes are high because developers have always got what they wanted at the expense of the buyers.
Najib Razak’s Non-Bumiputra Crony
Sixth, when foreign monies are allowed to pour in indiscriminately. When we have too much foreign money going into our real estate and property sector, it is almost certain the locals, including the middle class, would not be able to compete. Probably, the purchasing power of 5% of rich Chinese is bigger than the whole middle class of this country.
Seventh, we have too much “bad news”. It is almost a daily affair for us, hearing of mega deals going wrong. I must say Malaysia is a strong young man but has subjected himself to constant drugging, drinking and smoking. Sooner than later, something must give.
International Rogues Gallery
This is the essence of lack of confidence being manifested in our country today. I believe the ringgit is suffering not just because foreigners are pulling out. I think many high net worth Malaysians too are hedging to protect themselves.
We owe ourselves the responsibility to look at issues confronting us honestly and objectively. Even if there are external factors affecting inflation, we must still avail ourselves macroeconomic tools to mitigate them.
Have we resolved issues that are likely to restore confidence? Have we reduced the distortions and inefficiency prevailing in the economy? Some have argued that Pakatan Harapan-controlled states, namely Penang and Selangor, are also suffering from high inflation and hence, it is something to be accepted.
I think this is a “political” argument devoid of economic logic and reality. Penang and Selangor are subjected to the same economic and political environment as the rest of the federation. They are not exempted from the effects of bad policies or the erosion of confidence arising from bad policies.
TK Chua is an FMT reader.