Jomo: Whither the Malaysian economy ?


October 17, 2017

Jomo: Whither the Malaysian economy under Najib Razak?

http://www.malaysiakini.com

Image result for Finance Minister Najib Razak and the National Debt
Malaysia’s Worst Finance Minister Najib Razak–Fiscal Mess, Heavily in Debt and Lowest Reserves in Asia.

This interview with economist Jomo Kwame Sundaram, former Assistant Secretary-General for Economic Development at the United Nations, was conducted in August for publication in the run-up to the country’s next Budget for 2018 due to be announced next Friday.

Developed country status

Question: Malaysia is close to achieving developed country status and is growing at a reasonable pace. Why are you concerned then?

Jomo: Becoming a developed country involves much more than achieving high-income status. But even by reducing ‘developed country’ status to becoming a ‘high-income’ country, we are not quite there unless we resort to statistical manipulation, e.g., by using 2013 exchange rates, or by ignoring about a third of the labour force who are ‘undocumented’ foreign workers.

For example, the ringgit declined from RM3.2 against the US dollar in 2014 to almost RM4.5 before recovering to the current RM4.2! But then we continue to use the old exchange rate or purchasing power parity (PPP) to pretend that we are almost there. The only people we are cheating is ourselves.

Also, if we continue to grossly underestimate the number of foreign workers in the country, then the denominator for calculating per capita income goes down. Similarly, by excluding the lowest paid foreign workers, income inequality has been declining when their inclusion may give a different picture. Thus, we can reach supposed high-income status more quickly if we pretend there are only one or two million foreign workers, when even the minister admitted last year to about 6.7 million!

Seven million, mainly undocumented foreign workers in Malaysia comes to over a third of the country’s total labour force. Many of them work and live in far worse conditions than the worst-off Malaysian workers. We are thus dependent on a huge underclass, largely foreign, whom we are in denial about.

New Economic Model

What do you think of Prime Minister Najib Razak’s New Economic Model?

Jomo: Let us be clear about this. The New Economic Model, or NEM, is really a wish-list of economic reforms desired from an essentially neo-liberal perspective. That does not mean it is all good or all bad. It contains some desirable reforms, long overdue due to the accumulation of excessive, sometimes contradictory regulations and policies.

 

Although the NEM made many promises and raised expectations, most observers would now agree that it has rung quite hollow in terms of implementation despite its promising rhetoric. As we all know, the NEM was dropped soon after it was announced for political reasons, and has never been the new policy framework it was expected to be.

Turning to actual policy initiatives, to the current administration’s credit, it accepted the minimum wage policy and BR1M (Bantuan Malaysia 1Malaysia) idea, both long demanded by civil society organisations, and supported by many, mainly opposition parties. The minimum wage policy has probably been far more important than BR1M in improving conditions for low-income earners.

Premature deindustrialisation

The contribution of manufacturing to growth and employment has been declining in this century. Yet, you seem to be nostalgic for industrialisation when the leadership wants to move to tertiary activities.

Jomo: Sadly, instead of acknowledging the problem, ‘premature deindustrialisation’ is being cited as proof of Malaysia being developed although services currently account for most job retrenchments.

Indeed, Malaysia has been deindustrialising far too early, even before developing diverse serious industrial capacities and capabilities beyond refining palm oil and so on. We have abandoned the past emphasis on industrialisation, but have not progressed sufficiently to more sophisticated, higher value-added industries.

In Japan, South Korea and China, policies to nurture industrialists and other entrepreneurs to become internationally competitive, enabled these countries to grow, industrialise and transform themselves very rapidly.

We are suffering great illusions if we think we can leapfrog the industrial stage and go straight to services. We should not try to emulate Hong Kong because we are a different type of economy. Even Singapore has not gone the Hong Kong way and continues to try to progress up the value chain in terms of industrial technology.

We need to stop blindly following policies espoused by international institutions. GST (Goods and Services Tax) is a variant of value-added taxation, long promoted by the IMF (International Monetary Fund). To accelerate progress, we need to develop better understanding of the Malaysian economy – of its real strengths and potential, rather than assuming that the current mantra in Washington is correct, let alone relevant.

Middle-income trap

According to the World Bank and others, Malaysia is stuck in a middle-income trap. The argument is that the NEM as well as financial services development are needed to get out of it.

Jomo: The idea of a ‘middle-income trap’ is due to Latin American and other countries uncritically following Washington Consensus prescriptions promoted by the Bank and the IMF. The promise is that following their prescriptions would lead to development.

Key elements of our own ‘middle-income trap’ are actually of our own making, e.g., by giving up so quickly on industrialisation. The prescriptions imagine we can somehow leap-frog to accelerate development without making needed reforms.

 

The NEM and current official development discourse emphasise modern services, especially financial services, for future growth. But why would investors want to come here rather than, say, Singapore? If they want lower costs, there are other locations.

To offer tax breaks or loopholes, or to make Malaysia a tax haven, the question again is why come here rather than Singapore.

And how much has the national economy really benefited from the Labuan International Offshore Financial Centre? Do we need to keep making the same errors?

Looking at other international financial centres, it is not clear that it will be a net plus for the country, and provide the basis for sustainable development suitable for an economy like ours. Remember, we are no Hong Kong.

Historically, we have been heavily dependent on foreign direct investment, not for want of capital, but for access to markets, technology and expertise. To make matters worse, over the last decade, foreign investors have taken a growing share in publicly listed companies, helped by the falling ringgit in recent years.

Arguably, foreign ownership of the Malaysian economy has never been as high since the 1970s. As large corporations are increasingly dominant, they have often crowded out small and medium-sized enterprises (SMEs) and other Malaysian firms.

Macroeconomic management

In his recent book, Dr Bruce Gale (author of ‘Economic Reform In Malaysia: The Contribution Of Najibnomics’) has praised current macroeconomic management.

Jomo: Well, Gale is a political consultant and needs to ‘cari makan’. He is not a serious macroeconomist the last time I checked, but should nonetheless be taken seriously because he reminds us that well-managed ‘public relations’ influence market and public sentiment, including credit and other ratings. He heaps praise on ‘conventional wisdom’ which remains very influential, even if wrong.

Gale’s book reminds us that ‘creative accounting’, involving the transfer of debt and liabilities to state-owned enterprises or government-linked companies, has enabled the government to limit the growth of mainly ringgit-denominated federal government debt by rapidly expanding federal government-guaranteed ‘contingent liabilities’.

His defence and justification for GST ring quite hollow as his premise is that the middle class has been evading income tax, whereas it is mainly the rich who have successfully done so, whether legally or otherwise.

Although he has been writing on Malaysia for over three decades, he appears to have selective amnesia, only giving credit to the prime minister and his late father, whom no one would grudge, while ignoring other prime ministers and finance ministers, in line with the new official narrative.

Malaysians worse off?

Earlier, you acknowledged that Malaysian economic growth has continued, albeit at a lower rate, over the last two decades. Yet, you also argue that Malaysians may have become worse off in recent years. That sounds contradictory.

Jomo: Moderate economic growth has continued since the 1997-1998 financial crisis. More recently, this has been partly due to foreign financial inflows, helped by unconventional monetary policies in OECD economies.

Between 2012 and 2014, most people, especially low-income earners, became better off, thanks to the introduction of the minimum wage, continued ‘full employment’ and higher commodity prices.

Since then, commodity prices have fallen, unemployment has been rising (especially for youth), the GST was introduced, and consumer confidence has fallen lower than during the 1997-1998 or 2008-2009 financial crises.

However, consumer sentiment in Malaysia has been negative for some time according to CLSA and MIER (Malaysian Institute of Economic Research). Indeed, according to Nielsen, the international polling company, it has been poor since 2013, and is now the lowest in Southeast Asia.

Food prices have generally continued rising, as transport charges – for tolls, trains, etc. – have been increasing again, with floating petrol prices. Meanwhile, lower commodity prices and climate change have reduced many farm incomes.

Official unemployment has gone up from 2.9% in 2014 to 3.5% in 2016, still commendably low, although there are concerns about high youth unemployment, especially among the tertiary educated.

Retrenchments have been worst for services, casting doubt on future employment prospects as the authorities rely increasingly on services for growth and jobs. With unemployment low, but rising, wage growth has slowed after the initial introduction of the minimum wage, while real incomes have been hit by higher prices and taxes.

Wage depression

You seem to imply that Malaysian wages have been artificially lowered.

Jomo: Malaysians, in general, have higher incomes now than before. However, official numbers are misleading as we do not account for the massive presence and contribution of foreign labour, especially undocumented immigrant workers.

Their status has also served to depress wages for low-income Malaysian workers. Not surprisingly then, labour’s share of national income has gone down relatively.

This decline is not due to declining labour productivity, even if that may be the case. After all, higher labour productivity does not automatically raise workers’ incomes. Prevailing low wages retard technical change which would, in turn, raise productivity.

Thus, the unofficial low wage policy stands in the way of labour-saving innovation, such as mechanical harvesting, so necessary for development. We need a medium-term development strategy far less reliant on cheap foreign labour.

Consequently, wages and living conditions are too low, especially in agriculture. And even smallholder agriculture has been neglected by officialdom in Malaysia for some time, especially after Pak Lah’s (Abdullah Ahmad Badawi’s administration.

Fighting a jihad against middlemen was not only thinly disguised misinformed and misguided stunt intended to score ‘ethno-populist’ points, but also irrelevant to addressing contemporary challenges.

Shifting tax burden

How have recent tax reforms affected Malaysian households?

Jomo: Following the introduction of the GST in April 2015, tax revenue from households increased from RM42 billion in 2014 to RM67 billion in 2016, with GST more than doubling the contribution of indirect tax from RM17 billion to RM39 billion.

At the same time, income tax revenue has risen modestly from RM24 billion in 2014 to RM28 billion in 2016. On average, Malaysian households paid taxes of RM5,600 each, more than ever before.

Meanwhile, government subsidies and assistance have declined, falling from RM43 billion in 2013 to RM25 billion in 2016, with most food price subsidies removed between 2013 and 2016.

Inflation numbers

Official inflation numbers are low. Why does the public doubt official inflation numbers?

Jomo: There are many reasons why the public doubts official inflation numbers, but perhaps most importantly for the country’s open economy, the ringgit exchange rate dropped from RM3.2/USD to RM4.5/USD before recovering to RM4.2 recently.

People presume that a decline in the international value of the ringgit by about a quarter must surely have inflationary consequences.

The GST of 6% has been imposed since April 2015, directly affecting about half of household spending, with up to a fifth more indirectly affected. Again, this is expected to have affected the cost of living.

Price subsidies for sugar, rice, flour and cooking oil have been removed since 2013, raising prices by 14% to 31%. Meanwhile, transport – including fuel and toll – prices have risen on several fronts.

Hence, you can understand why people are sceptical.

Transformasi Nasional 2050 (TN50)

After announcing and then abandoning the New Economic Model, there is now much ado about an economic transformation agenda for 2050.

Jomo: The TN50 exercise has been broadly consultative, involving young people, which surely is a good thing. Unfortunately, as with BR1M, it has been used to mobilise political support for the regime before the forthcoming elections rather than open up a more inclusive debate about where the country is headed.

The conversation should be about where the country should go and how to get there. It is still unclear to what extent we are going beyond the usual feel-good, futuristic sounding clichés, but this should open up an important debate to give serious consideration to actually achieving the transformation.

 

The country is presently mired in a political crisis that has paralysed effective economic policymaking. Malaysia desperately needs a legitimate and consultative leadership to implement bold measures to take the country forward.

Many people in the country know what ails the economy, but we do not have the open discussion needed to really tackle the challenges the nation faces. For example, a free and independent media will not only improve the quality of public discourse, but also the legitimacy and acceptability of resulting public policy.

Yesterday: Jomo in defence of honest, constructive criticism

China’s Xi Jinping–The World’s Most Powerful Man


October 17, 2017

THE ECONOMIST

China’s Xi Jinping–The World’s Most Powerful Man

Xi Jinping has more clout than Donald Trump. The world should be wary

Do not expect Mr Xi to change China, or the world, for the better

Print edition | Leaders

Oct 14th 2017

One-man rule is ultimately a recipe for instability in China, as it has been in the past—think of Mao and his Cultural Revolution. It is also a recipe for arbitrary behaviour abroad, which is especially worrying at a time when Mr Trump’s America is pulling back and creating a power vacuum. The world does not want an isolationist United States or a dictatorship in China. Alas, it may get both.

Image result for The New China

Two Giants of Asia–Xi and Modi–Friends or Foes

AMERICAN Presidents have a habit of describing their Chinese counterparts in terms of awe. A fawning Richard Nixon said to Mao Zedong that the chairman’s writings had “changed the world”. To Jimmy Carter, Deng Xiaoping was a string of flattering adjectives: “smart, tough, intelligent, frank, courageous, personable, self-assured, friendly”. Bill Clinton described China’s then president, Jiang Zemin, as a “visionary” and “a man of extraordinary intellect”. Donald Trump is no less wowed. The Washington Post quotes him as saying that China’s current leader, Xi Jinping, is “probably the most powerful” China has had in a century.

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Mr Trump may be right. And were it not political suicide for an American president to say so, he might plausibly have added: “Xi Jinping is the world’s most powerful leader.” To be sure, China’s economy is still second in size to America’s and its army, though rapidly gaining muscle, pales in comparison. But economic heft and military hardware are not everything. The leader of the free world has a narrow, transactional approach to foreigners and seems unable to enact his agenda at home. The United States is still the world’s most powerful country, but its leader is weaker at home and less effective abroad than any of his recent predecessors, not least because he scorns the values and alliances that underpin American influence.

The President of the world’s largest authoritarian state, by contrast, walks with swagger abroad. His grip on China is tighter than any leader’s since Mao. And whereas Mao’s China was chaotic and miserably poor, Mr Xi’s is a dominant engine of global growth. His clout will soon be on full display. On October 18th China’s ruling Communist Party will convene a five-yearly congress in Beijing (see Briefing). It will be the first one presided over by Mr Xi. Its 2,300 delegates will sing his praises to the skies. More sceptical observers might ask whether Mr Xi will use his extraordinary power for good or ill.

World, take note

Image result for The New China

On his numerous foreign tours, Mr Xi presents himself as an apostle of peace and friendship, a voice of reason in a confused and troubled world. Mr Trump’s failings have made this much easier. At Davos in January Mr Xi promised the global elite that he would be a champion of globalisation, free trade and the Paris accord on climate change. Members of his audience were delighted and relieved. At least, they thought, one great power was willing to stand up for what was right, even if Mr Trump (then President-Elect) would not.

Mr Xi’s words are heeded partly because he has the world’s largest stockpile of foreign currency to back them up. His “Belt and Road Initiative” may be puzzlingly named, but its message is clear—hundreds of billions of dollars of Chinese money are to be invested abroad in railways, ports, power stations and other infrastructure that will help vast swathes of the world to prosper. That is the kind of leadership America has not shown since the post-war days of the Marshall Plan in western Europe (which was considerably smaller).

Mr Xi is also projecting what for China is unprecedented military power abroad. This year he opened the country’s first foreign military base, in Djibouti. He has sent the Chinese navy on manoeuvres ever farther afield, including in July on NATO’s doorstep in the Baltic Sea alongside Russia’s fleet. China says it would never invade other countries to impose its will (apart from Taiwan, which it does not consider a country). Its base-building efforts are to support peacekeeping, anti-piracy and humanitarian missions, it says. As for the artificial islands with military-grade runways it is building in the South China Sea, these are purely defensive.

Unlike Vladimir Putin, Russia’s President, Mr Xi is not a global troublemaker who seeks to subvert democracy and destabilise the West. Still, he is too tolerant of troublemaking by his nuke-brandishing ally, North Korea (see Schumpeter). And some of China’s military behaviour alarms its neighbours, not only in South-East Asia but also in India and Japan.

At home, Mr Xi’s instincts are at least as illiberal as those of his Russian counterpart. He believes that even a little political permissiveness could prove not only his own undoing, but that of his regime. The fate of the Soviet Union haunts him, and that insecurity has consequences. He mistrusts not only the enemies his purges have created but also China’s fast-growing, smartphone-wielding middle class, and the shoots of civil society that were sprouting when he took over. He seems determined to tighten control over Chinese society, not least by enhancing the state’s powers of surveillance, and to keep the commanding heights of the economy firmly under the party’s thumb. All this will make China less rich than it should be, and a more stifling place to live. Human-rights abuses have grown worse under Mr Xi, with barely a murmur of complaint from other world leaders.

Liberals once mourned the “ten lost years” of reform under Mr Xi’s predecessor, Hu Jintao. Those ten years have become 15, and may exceed 20. Some optimists argue that we have not yet seen the real Mr Xi—that the congress will help him consolidate his power, and after that he will begin social and economic reforms in earnest, building on his relative success in curbing corruption. If he is a closet pluralist, however, he disguises it well. And alarmingly for those who believe that all leaders have a sell-by date, Mr Xi is thought to be reluctant to step down in 2022, when precedent suggests he should.

Reasons to be fearful

Mr Xi may think that concentrating more or less unchecked power over 1.4bn Chinese in the hands of one man is, to borrow one of his favourite terms, the “new normal” of Chinese politics. But it is not normal; it is dangerous. No one should have that much power. One-man rule is ultimately a recipe for instability in China, as it has been in the past—think of Mao and his Cultural Revolution. It is also a recipe for arbitrary behaviour abroad, which is especially worrying at a time when Mr Trump’s America is pulling back and creating a power vacuum. The world does not want an isolationist United States or a dictatorship in China. Alas, it may get both.

This article appeared in the Leaders section of the print edition under the headline “The world’s most powerful man”

Aung San Suu Kyi unveils relief plans for Rohingya Muslims


October 16, 2017

Aung San Suu Kyi unveils relief plans for Rohingya Muslims

Nobel laureate aims to restore reputation by setting up civilian-led agency in Myanmar to deliver aid and resettle refugees

Aung San Suu Kyi delivers a speech to the nation over the Rakhine and Rohingya situation in Naypyitaw in September
Aung San Suu Kyi has been criticised for failing to denounce a brutal army crackdown on the Rohingya in Rakhine state. Photograph: Soe Zeya Tun/Reuters

Myanmar’s de facto leader, Aung San Suu Kyi, has announced plans to set up a civilian-led agency, with foreign assistance, to deliver aid and help resettle Rohingya Muslims in Rakhine state.

A close adviser, speaking with Aung San Suu Kyi’s knowledge, said the proposed body had been long planned, and was part of an attempt to show the civilian government she leads, rather than the Burmese military, can deliver humanitarian relief, resettlement and economic recovery.

The Nobel laureate has been criticised for failing to denounce a brutal army crackdown on the Rohingya in Rakhine state, which has forced hundreds of thousands to flee to neighbouring Bangladesh.

Thousands of refugees have continued to arrive in recent days from across the Naf river separating the two countries, even though Myanmar insists military operations ceased on 5 September.

Aid agencies estimate that 536,000 people have arrived in Cox’s Bazar district in Bangladesh, straining scarce resources of aid groups and local communities.

About 200,000 Rohingya were already in Bangladesh after fleeing persecution in Myanmar, where they have long been denied citizenship and faced restrictions on their movements and access to basic services.

The adviser said Aung San Suu Kyi had been deeply affected by the crisis in her country, and was determined to fix it, but needed to be careful not to inflame the situation further.

“She is appalled by what she has seen. She does care deeply about this. I know that does not always come across. But she really does,” said the adviser, who asked not to be named. “What was not clear to her [before now] was how to fix it, and how to give the civilian government the powers it needed”.

In a speech carried by state TV late on Thursday, Aung San Suu Kyi said: “There has been a lot of criticisms against our country. We need to understand international opinion. However, just as no one can fully understand the situation of our country the way we do, no one can desire peace and development for our country more than us.”

Many of Aung San Suu Kyi’s former allies have been exasperated by her failure to criticise the military, but the adviser said she was treading a fine line, knowing her government could become under threat of being overthrown by the military.

The adviser added her speech marked an attempt to wrestle Buddhism out of the hands of extremists.

Aung San Suu Kyi came to power ending years of military rule in a compromise that left the military with sweeping powers.

In her new proposal, she said she was setting up a new body to deliver relief and resettlement on the ground, as well as implement projects in all sectors of the region.

“It is going to be an implementation unit and will introduce a degree of transparency into the government that will allow the international community to participate and provide aid”, the adviser added.

The aim is for the body to be a vehicle through which recovery aid, including that delivered by the UK, can be funnelled.

Her adviser said Aung San Suu Kyi understood the moral priority of humanitarian assistance, the need to build new homes for those who had to flee as well as the need for economic development in the region.

“She has put herself front and centre of this and said ‘I will lead this’ ”. The adviser added: “She is someone who through her whole life has been committed to the values of human rights. That has not gone away, but she is very focused on fixing the problem, rather than identifying it.

“She recognises there have been particular tragedies amongst the Muslim communities, and amongst other small minority groups. But, yes, she does see this latest and most dreadful upsurge of violence as stemming from carefully timed political attacks on police stations.”

Aung San Suu Kyi’s speech made no mention of the allegations levelled against security forces, over which she has no formal control under the military-drafted constitution. State media in recent weeks, however, has offered repeated denials of the human rights allegations, often blaming misreporting by the west.

In her speech, she said: “Rather than rebutting criticisms and allegations with words, we will show the world by our actions and our deeds. In the Rakhine state, there are so many things to be done.”

Her adviser said: “She is trying to move away from inflammatory and divisive remarks towards a coherent national solution that is civilian-led. The perilous state of the democratic transition in her country is understood.”

Aung San Suu Kyi listed repatriation of those who have fled to Bangladesh as a top priority, a task that faces political and practical hurdles, notably due to the fact that tens of thousands of Muslim refugees who fled to Bangladesh do not have the documentation likely to satisfy the military that they have a right of return.

However, detailed work remains on possible forms of new registration to allow the Rohingya to return.

In another attempt to respond to western criticisms, Myanmar’s military has launched an internal investigation into the conduct of soldiers during the army’s offensive in Rakhine, which was launched after attacks by Rohingya insurgents on security posts in late August.

 

Cambodia– Responding to Rising Voter Expectations


October 16, 2017

Cambodia– Responding to Rising  Voter Expectations 

by Kongkea Chhoeun, Australian National University

http://www.eastasiaforum.org

Image result for Hun Sen at WEF

As long as the Cambodian government manages to maintain satisfactory economic performance, continues its piecemeal reforms benefitting the majority of the population, and promotes some appearance of democracy in the country, it will continue to demand difficult value judgments on the part of Cambodian citizens as to whether the CPP’s actions against the media and civil society are worth fighting back against.– Kongkea Chhoeun

 

It might be easy to forget given the events of August–September 2017, but Cambodian democracy had until a few years ago been making progress. Many key indicators of democratic quality had continued to improve since the 1998 national elections, which followed the near collapse of the system in the aftermath of the July 1997 internal fighting between armed forces loyal to Prime Minister Hun Sen and Prince Norodom Rannariddh.

 

Competition among political parties increased, thanks to the unification of the opposition parties in 2012 ahead of the 2013 national election. The economy also continued to grow extraordinarily well. Growth has averaged 7 per cent per year since 1993, and poverty has fallen more than 1 per cent per year on average since 2003. Inequality has also declined. Vertical political accountability has been strengthened markedly, thanks to decentralisation and deconcentration. Cambodians are increasingly able to hold local leaders to account through local democratic processes.

Image result for Peaceful Phnom Penh

Sanderson Park, at Wat Phnom, Phnom Penh  has a sculpture of a dove with an olive branch in its beak. It is made up entirely from parts of AK-47 rifles.

But the 2013 polls were a turning point. Although they won the election, the ruling Cambodian People’s Party (CPP) lost the popular vote for the first time since 1998, seeing its popular vote plummet by more than 20 per cent. To its credit, the CPP-led government subsequently implemented various reforms aimed at winning the hearts and minds of Cambodian voters. The CPP has permitted moderate reforms, restructured the National Electoral Committee and increased public servants pay. And in August 2017, Hun Sen also promised a slew of new benefits for garment workers, including a big increase in their monthly minimum wage.

But with the carrots have come sticks.Indicators of horizontal accountability have either stalled or are in decline. Local and international NGOs and media operated with comparatively little constraint from the state before the 2013 national election period. Since then, the government has made disturbing moves that wipe out progress made in terms of political openness. Among a range of actions is the passage of legislation governing NGOs.

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Despite a boycott by the opposition, the Parliament passed the Law on Associations and Non-Governmental Organisations, which requires the nearly 5000 domestic and international NGOs that work in the country to register with the government and report their activities and finances or risk fines, criminal prosecution and being shut down. In August 2017, the government used this law to order the National Democratic Institute (NDI) to shut down its operations and repatriate its foreign staff, accusing the NDI of illegally operating in the country.

The Cambodian government has also targeted foreign and foreign-linked media. In August 2017, the government accused the Cambodia Daily of failing to pay more than US$6 million in taxes, giving the paper one month to resolve the issue or risk being shut down. The Daily is a US-owned outlet credited for its reports critical of the government. In addition, the government instructed more than a dozen radio stations across the country to cease operations, accusing them of failing to report how much and to whom they sell their airtime.

Two major factors — one internal and one external — may explain the government’s recent measures against international NGOs and media. Internally, these measures were escalated as a result of the June 2017 local government elections, the result of which represented a big boost for the opposition Cambodian National Rescue Party and a serious blow to the CPP. After the June 2017 local government elections, the CPP still controlled the majority of local governments — 1156 or 70 per cent of communes. But the opposition party’s share of local governments increased about 12 fold in comparison with the last local elections held in 2012.

The external factor is the declining role of the United States as a champion of democracy. The drastic moves targeting US-based NGOs and media occurred in the aftermath of the election of Donald Trump. His election and subsequent attacks on mainstream media have disconcerted democrats at home and abroad and certainly delegitimised US efforts to promote liberal democratic principles internationally.

Furthermore, the failure of the United States to pre-empt and manage democratic breakdown in Thailand, and to promote democracy in Laos and Vietnam, only serves to diminish the US role in promoting democracy in Cambodia, and potentially gives the Cambodian government an excuse to maintain the status quo.

Likewise, Australia and European countries have been silent on these issues so far, showing a similar unwillingness to influence internal political decisions in Cambodia. The 2014 Australia–Cambodia refugee deal tainted Australia’s reputation as an altruistic donor to Cambodia, and has certainly undermined Australian leverage in promoting reforms in Cambodian domestic affairs. And European countries have been busy cleaning up the mess in their own backyard after the Brexit vote in 2016 and the rise of populist movements across the continent.

Meanwhile, Cambodia is increasingly dependent on China, and less and less so on Western countries. China is feeding the Cambodian economy, investing US$857 million (roughly 61 per cent of total FDI) and channelling US$320 million in aid (roughly 30 per cent of total aid) to the country in 2015. By contrast, investment and aid from Western countries is either modest or on the decline.

Whatever the mix of domestic and global political influences, the consequences of the CPP’s crackdown on Cambodia’s democracy are being felt. As long as the Cambodian government manages to maintain satisfactory economic performance, continues its piecemeal reforms benefitting the majority of the population, and promotes some appearance of democracy in the country, it will continue to demand difficult value judgments on the part of Cambodian citizens as to whether the CPP’s actions against the media and civil society are worth fighting back against.

Kongkea Chhoeun is a PhD Candidate at the Crawford School of Public Policy, The Australian National University.

This article was first published here on New Mandala.

 

The Economic Case for China’s One Belt, One Road Initiative


October 14, 2017

The Economic Case for China’s One Belt, One Road Initiative

by Shang-Jin Wei*
https://www.project-syndicate.org/commentary/china-belt-and-road-economic-case-by-shang-jin-wei-2017-10

Image result for The Economic Case for China’s Belt and Road

 

In recent years, many of the world’s most influential countries have turned inward, with politicians promising protectionism, immigration restrictions, and even border walls. But, to achieve stronger economic growth and development, the world needs initiatives focused on building bridges – initiatives like China’s Belt and Road.

NEW YORK – Since 2013, China has been pursuing its “Belt and Road” initiative, which aims to develop physical infrastructure and policy linkages connecting more than 60 countries across Asia, Europe, and Africa. Critics worry that China may be so focused on expanding its geopolitical influence, in order to compete with the likes of the United States and Japan, that it may pursue projects that make little economic sense. But, if a few conditions are met, the economic case for the initiative is strong.

As a recent Asian Development Bank report confirms, many Belt and Road countries are in urgent need of large-scale infrastructure investment – precisely the type of investment that China has pledged. Some, such as Bangladesh and Kyrgyzstan, lack reliable electricity supplies, which is impeding the development of their manufacturing sectors and stifling their ability to export. Others, like Indonesia, do not have enough ports for internal economic integration or international trade.

 

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The Belt and Road initiative promises to help countries overcome these constraints, by providing external funding for ports, roads, schools, hospitals, and power plants and grids. In this sense, the initiative could function much like America’s post-1945 Marshall Plan, which is universally lauded for its contribution to the reconstruction and economic recovery of war-ravaged Europe.

Of course, external funding alone is not sufficient for success. Recipient countries must also undertake key reforms that increase policy transparency and predictability, thereby reducing investment risk. Indeed, implementation of complementary reforms will be a key determinant of the economic returns on Belt and Road investments.

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President Xi Jinping’s One Belt, One  Road Initiative  aims to knit together Asia, Europe and Africa through land and maritime corridors that collectively encompass a set of countries representing about 65 percent of the world’s population and one-third of its total economic output. China plans to spend roughly $150 billion a year to advance the initiative through infrastructure projects ranging from railways and roads, to ports and pipelines, to power plants and telecommunications networks.

For China, the Belt and Road investments are economically appealing, particularly when private Chinese firms take the lead in carrying them out. In 2013, when China first proposed the Belt and Road initiative, the country was sitting on $4 trillion in foreign-exchange reserves, which were earning a very low dollar return (less than 1% a year). In terms of China’s own currency, the returns were negative, given the expected appreciation of the renminbi against the US dollar at the time.

In this sense, Belt and Road investments are not particularly costly for China, particularly when their far-reaching potential benefits are taken into account. China’s trade-to-GDP ratio exceeds 40% – substantially higher than that of the US – owing partly to underdeveloped infrastructure and inadequate economic diversification among China’s trading partners. By addressing these weaknesses, China’s Belt and Road investments can lead to a substantial increase in participant countries’ and China’s own trade volumes, benefiting firms and workers substantially.

This is not to suggest that such investments are risk-free for China. The economic returns will depend on the quality of firms’ business decisions. In particular, because efficiency is not the primary consideration, Chinese state-owned enterprises (SOEs) might purse low-return projects. That is why China’s SOE-reform process must be watched carefully. Nonetheless, while the Belt and Road initiative is clearly driven partly by strategic objectives, a cost-benefit analysis shows that the economic case is also very strong – so strong, in fact, that one might ask why China didn’t undertake it sooner.

Even the United States and other countries may reap significant economic returns. A decade after the global financial crisis erupted, recovery remains weak and tentative in much of the world. Bold, large-scale infrastructure investments can provide much-needed short-run stimulus to global aggregate demand. The US, for one, is likely to see a surge in demand for its own exports, including cars, locomotives, planes, and high-end construction equipment, and financial, accounting, educational, and legal services.

In the longer term, the new infrastructure will ease logistical bottlenecks, reducing the costs of production inputs. The result will be higher productivity and faster global growth.

If Belt and Road projects are held to high environmental and social standards, significant progress can also be made on global challenges such as climate change and inequality. The more countries choose to participate in these projects, the better the chance of achieving these standards, and the greater the global social returns will be.

In an era when some of the world’s most influential countries are turning inward, talking about erecting trade barriers and constructing border walls, the world needs initiatives focused on building bridges and roads, both literal and figurative – initiatives like the Belt and Road strategy.

 

Planning for success in Cambodia


October 14, 2017

Planning for success in Cambodia

by Jayant Menon

https://blogs.adb.org/blog/planning-success-cambodia

Weak human capital is arguably the biggest challenge for Cambodia to reach middle-income status.
Weak human capital is arguably the biggest challenge for Cambodia to reach middle-income status.

Cambodia recently made the transition from a low income to a lower middle-income country, according to the World Bank’s rankings.

This is good news, but it poses a question: Does Cambodia need to rethink its model of export-driven economic growth, as preferential access for its exports to developed countries is gradually reduced or as aid flows diminish? Not necessarily, at least for now. But it should start preparing immediately.

Cambodia still has least developed country or LDC status as defined by the United Nations, and will likely retain its trade privileges for a while yet. But it will likely transition out of LDC status by around 2030 if it maintains current growth rates. With adequate advance planning, Cambodia can avoid being a victim of its own success when it does so.

That means stronger efforts to improve the tax collection mechanism, and curbing tax avoidance and evasion. Strengthening institutions to improve tax collection, and creating a culture where businesses and citizenry feel an obligation to contribute towards the provision of public goods and services, can take years, so it needs to start now.

Weak human capital is top challenge for Cambodia to reach middle-income status

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Cambodia also needs to expand the tax base, and hasten the move from direct to indirect sources of tax collection, while reducing its reliance on trade taxes. These initiatives are essential to mobilize domestic resources to fund development, given that overseas development aid and concessional financing will wane as the country gets more prosperous.

Cambodia also has several domestic obstacles to overcome, not only to prepare for a transition to upper middle income status, but to speed up that journey.

Arguably the most important challenge is weak human capital, as well as a skills mismatch. To fix this requires a much greater investment in education – not only in vocational or higher education but also at primary and secondary school. The enormity of the task that lies ahead is underscored by the World Economic Forum’s Global Human Capital Report 2017, that placed Cambodia at the bottom of the list in ASEAN.

The goal is making sure all Cambodians have at least 10 years of schooling, forming the basic building block for a much more productive workforce. Then we can talk about specialized vocational or tertiary education, and matching employee skills to employer needs.

At this stage, and based on interviews with Japanese firms operating in the Phnom Penh Special Economic Zone (PPSEZ), what employers are seeking is not necessarily “trained” labor, but “trainable” labor, as skills required are quite job-specific and usually provided on-site.

Agriculture to remain backbone of Cambodia’s economy

Other challenges include the elevated cost of electricity, one of the highest in Asia. Apart from the skills constraint, the cost and unreliable supply of power is the other key factor limiting industry’s progression up the value chain from simple assembly to production of parts and components. If the former is labor intensive, the latter is energy-intensive, and remains uneconomical at current tariffs.

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Agriculture, however, will remain the backbone of the country’s economy for years to come, and during the transition to the next income bracket. Most Cambodians continue to be employed in this sector – either directly or indirectly.

To further reduce poverty and inequality, the agriculture sector must become more productive. To do this requires better irrigation systems, more fertilizer usage, and easier access to high-yielding varieties of crops. The size of farms and variety of their produce should also be enhanced to exploit economies of scale and scope, respectively. Land reform will be essential here.

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Another option is to pursue agro-processing to raise value-addition. Agro-processing combines agriculture and manufacturing. We can see this in products like pepper, cassava or coffee, which add value along the supply chain and boost economic returns.

Cambodia is making good progress towards upper middle-income status by diversifying its economy. There is a lot of new investment from Japanese firms in the PPSEZ that is plugging it into regional supply chains for the first time.  This trend will only continue to grow in the future, creating good jobs for more of the workforce.

Cambodia must plan carefully to preserve economic gains for next generation

While agriculture will remain important for some time yet, there is no denying the long-term trend decline in its share of economic output, and the increasing shares of services and manufacturing. These structural transformations will require reskilling of the labor force to reduce adjustment costs and unemployment.

The challenges in the labor market extend further, however, and involve demographic transitions in a young population seeking productive employment; the much-vaunted demographic dividend will only be realized if the jobs are there to be filled.

These structural changes will also result in rising urbanization as rural-urban migration increases. This must be managed by better town planning to prevent urban slums and create livable cities. One only needs to look at how Phnom Penh’s infrastructure has been stretched over recent years to appreciate the magnitude and importance of this challenge.

Cambodia’s socio-economic achievements since the early 1990s peace settlement have been remarkable. But success brings with it new challenges.If Cambodia plans carefully for graduation from LDC status, it would ensure that the hard-won economic gains are preserved for the next generation.