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

Jomo Kwame Sundaram–Need to Speak Truth to Power


October 16, 2017

Jomo Kwame Sundaram–Need to Speak Truth to Power

by Malaysiakini Team

http://www.malaysiakini.com

Tomorrow: Jomo on why Malaysians are worse off today

INTERVIEW | Jomo Kwame Sundaram, former Assistant Secretary-General for Economic Development at the United Nations, talks about the need to “speak truth to power,” among others.

Image result for dr jomo kwame sundaram

 

Question: In a recent speech, Prime Minister Najib Razak accused you of taking “every opportunity to attack me and my policies, from our participation in the TPPA, to the administration of welfare payments, to foreign investment in Malaysia.” What do you have to say?

Jomo: What can I say? One should not read him out of context. He said this as proof of freedom of speech and democracy in the country. Obviously, I appreciate his commitment to freedom of speech, and presumably, freedom after speech [laughs]. In fact, some people now tease me as the PM’s “poster boy” for free speech in Malaysia.

But unfortunately, his fact-checkers did not do their homework, or perhaps facts don’t matter in this age of fake news. As many know, I have also been criticised by the PM’s critics for supporting several of his policy initiatives, most notably BR1M (Bantuan Rakyat 1Malaysia) and the minimum wage policy.

BR1M goes directly to beneficiaries and is hence much appreciated by recipients. Understandably, as with the mid-year deal for Felda settlers, opposition politicians see BR1M as bribing the electorate, but one should not condemn BR1M itself.

Image result for najib razak

However, labour market interventions, such as the minimum wage policy, have been far more significant for improving a lot of low-income earners although the public may not realise it.

I recently lauded the Health Ministry initiative to get an affordable Hepatitis C treatment, for a small fraction of the US price, for the almost half million Malaysians who suffer from it.

So factually, his speechwriters were wrong. But he was right to say that I do not blindly support everything his government has done, and have been critical of specific policies, which I have done for decades, long before he became PM.

Najib said you have been critical of the Trans-Pacific Partnership Agreement (TPPA).

Jomo: He is correct that I have long been critical of the TPPA. Before I came back to Malaysia last year, I joined some UN colleagues to critically assess the TPPA. The report was launched in Washington DC in early 2016, soon after I left the UN.

That work was not focused on Malaysia, and simply pointed out that the methodology used simply assumed away the problems the TPPA would generate, including for the US. In the US, both Democrats and Republicans cited our work to oppose the TPPA.

After returning to Malaysia, I felt obliged to point out that the gains promised by the TPPA, even by its most fervent US advocates, were actually very modest and exaggerated by its Malaysian proponents.

Image result for Trump withdraws from TPPA

 

I also pointed out that most of the gains to the US were at our expense. Strengthened intellectual property rights (IPRs) would raise the costs of medicines, for example.

The TPPA’s investor-state dispute settlement (ISDS) provisions would allow private tribunals to make rulings in favour of powerful foreign corporations at potentially great expense to the Malaysian government.

Even now, although the TPPA is dead in law because President (Donald) Trump rejected it, there are those trying to push TPP 11 through while the government and public are distracted by other matters.

This would be worse as it would sell out the national and public interest for next to no gain. My concern throughout has been the Malaysian public interest, including the government interest.

What about foreign investments?

Jomo: As for foreign investment, again he is correct that I am concerned about how the government is encouraging foreign portfolio investment, as in the period before the 1997-98 crisis.

Unlike Thailand and Indonesia then, the government and Malaysian corporations had not borrowed very heavily from abroad. But we were vulnerable because of the sudden exit of mainly foreign holdings from the Malaysian stock market.

Such investments have grown so much in the last decade that some estimates suggest that they exceed foreign share ownership in the mid-1970s, more than four decades ago. It is also misleading to think that because Malaysians have been encouraged to invest abroad, we should encourage foreign portfolio investments here.

 

Greenfield foreign direct investments are a different story as they may bring in new productive capacities and capabilities, including technology, management and market access. But my concern remains that Malaysian industrial capacities and capabilities remain modest, and we still have relatively few internationally competitive industrial firms.

My concerns have been expressed with the country’s interests and future progress foremost. I pray that the space for such discussion and debate will be expanded, not diminished. The PM’s affirmation of freedom of speech should, therefore, be welcomed, not feared.

So, what inspires you to do what you do?

Jomo: Many people have inspired me. Those who fought to free us from imperialism, oppression and exploitation. While in school, especially at the Royal Military College, I was inspired by Malcolm X, Martin Luther King, Yasser Arafat, Kwame Nkrumah, Ho Chi Minh and Nelson Mandela.

And yes, I do not identify with the other man I was named after – Jomo Kenyatta, father of Kenya’s current president, who was unfairly jailed by the British from 1952 until 1959, but became increasingly corrupt and tribalistic after becoming president in 1963.

Chinua Achebe’s writings turned from the disruptive colonial impact to the gangrene of corruption. Then, in 1983, I was shaken by the brutal torture and murder of my senior in school, the late Jalil Ibrahim, in Hong Kong.

We are all enjoined to “speak truth to power.” Initially, when I was at UKM (Universiti Kebangsaan Malaysia) with the late Ishak Shari, Osman Rani and Ismail Muhd Salleh, and later with others after I moved to Universiti Malaya.

Image result for dr.mahathir

During Dr Mahathir (Mohamad)’s long tenure, I was also known as a critic, even though I appreciated many aspects of particular policy initiatives. Although I was quite outspoken in those days, BN politicians did not harass me.

 

Rather, petty university administrators who had ambitions or agendas of their own were the vindictive ones. But most left me alone as I had no ambitions in terms of university positions.

Also, there is no personal animus on my part towards the Prime Minister. As is well-known, I greatly admire his late father (Tun Abdul Razak )for many reasons. In fact, I wrote an article early last year, just after leaving the UN, on the occasion of the 40th anniversary of his untimely passing.

As a student then, in the cold winter of early 1976, we organised a memorial meeting at MIT (Massachusetts Institute of Technology) to honour his contributions soon after he passed.

Tomorrow: Jomo on why Malaysians are worse off today

I am Sarawakian. I am a Paloi (Fool)?


October 15, 2017

I am Sarawakian. I am a Paloi (Fool)?

by Francis Paul Siah

http://www.malaysiakini.com

Image result for Francis Paul Siah of Sarawak

 

COMMENT | “Orang Sarawak bukan bodoh, kata ketua menterinya” (The people of Sarawak are not fools, says Sarawak Chief Minister) was the header in many Bahasa Malaysia newspapers and news portals a week ago.

This proud and oft-repeated remark came from Chief Minister Abang Johari Abang Openg at a town hall session with some 5,000 Sarawakian diasporas in the Peninsula, as he took a swipe at former Prime Minister Dr Mahathir Mohamad who is now chairperson of the opposition Pakatan Harapan.

Oh really, Sarawakians are not fools? Well, maybe not most of the time. But I will be honest. As a Sarawakian, I have to admit, almost grudgingly, that I have been a fool at times – made some stupid decisions not beneficial to my home state and fellow Sarawakians and am now living in remorse and regret over them.

 

Of course, for Abang Jo (photo), who is in power and feeling on top of the world as the state’s chief executive, it would be pretty dumb of him to say that Sarawakians, the people whom he is supposed to lead, are fools.

Abang Jo is such a nice and decent guy, to the extent that many find him boringly nice. He does not beat around the bush and tells you as it is – you already know what his next sentence is even before he says it. In a nutshell – he is very plain. (Think nasi lemak, without the ikan bilis and sambal).

Sarawakians miss Adenan Satem. I do too. He was a breath of fresh air, after 33 years of the “White Hair”. Sadly, he came on board to helm Sarawak too late in his life and didn’t have the time to do more.

So, what did Abang Jo actually say when he met Sarawakians in Kuala Lumpur recently? According to a Malaysiakini report, the Chief Minister reminded Mahathir that Sarawakians are not fools who can be lied to.

He cited the Pan Borneo Highway as one example of Prime Minister Najib Abdul Razak’s contributions to the state, a request which has been made since the time of Mahathir’s 22-year rule.

“Sarawakians are people with principles… We want politics that can deliver,” said Abang Johari, who claimed that Mahathir has since sacrificed his own principles by working together with DAP stalwart Lim Kit Siang, whom he had demonised in the past.

“Let us determine our own destiny. Orang Sarawak bukan paloi (Sarawakians are no fools)… Don’t bluff us,” he said in pledging to continue negotiations with Putrajaya to reclaim Sarawak’s rights as provided under the Federal Constitution and Malaysia Agreement 1963.

Abang Johari earlier recalled his time serving as a state minister and difficulties to obtain funds for development, while Mahathir was still Prime Minister.

“At the time I was a minister in the (state) cabinet. We had asked if the (federal government under Mahathir) can build coastal roads,” he said, adding that the promises made were never fulfilled due to alleged short of funds.

“But when Najib came (into power), they (promised to) build roads like in the peninsula… So smooth!,” he said at the annual event dubbed Lan Berambeh Anak Sarawak, now in its 10th year, held at the Putra World Trade Centre in Kuala Lumpur.

 

The 2,325km Pan Borneo Highway, across Sarawak and Sabah, was first announced as part of Barisan Nasional’s manifesto during the 13th general election and later formalised in Budget 2015.

When met by reporters later, Abang Johari described the questions asked during the one-hour session as an indication that Sarawakians in the Peninsula are happy with his administration of the state.

Among others, he cited questions raised on various state policies, including matters which touch on negotiations with Putrajaya for more rights to royalty from oil and gas activities.

‘Putrajaya leadership today is more open’

“During Mahathir’s time, we can’t ask these questions because we are in fear. Alhamdulillah the leadership in Putrajaya today is more open (to negotiations),” he added.

To Abang Jo, I salute you for your new-found courage in coming out to slam Mahathir now. I am with you on your many statements of disappointment and disillusionment with the Mahathir (photo) administration. I believe they are true.

Image result for dr mahathir mohamad

 

But I must also let you know why, as a Sarawakian, I am bodoh and still feel like a fool.

This is why. In 1963, when Sarawak was enticed to team up with Malaya, Sabah and Singapore to form the new nation of Malaysia, I just signed the agreement without really understanding its fine print.

I was just impressed when Tunku Abdul Rahman Putra brought me to Kuala Lumpur and showed me the development taking place. He promised me that Sarawak would progress in a similar fashion if I sign up.

Then some British fellows brought me to London in a big plane. Wow, that was the first time I had flown to a foreign land. I felt very important sitting down with the “Orang Puteh” to discuss the Malaysia Agreement 1963 (MA63). Then, I sat at the high table (a British tradition for VIPs) and tucked in heartily at the many sumptuous dinners, not forgetting the fine whisky and brandy, offered.

Upon my return, I affixed my signature on the MA63, never bothered to think nor understand why my fellow Sarawakians, Ong Kee Hui, Stephen Yong and others from the Sarawak United People’s Party (SUPP), were opposed to it.

 

 

Now 54 years later and with the growing voices of discontent among my fellow Sarawakians towards Malaya, with some even calling for secession, my conscience suddenly pricks me. Did I betray my dear homeland, Sarawak, and my people by signing the MA63 without fully understanding its implications?

I think I have to concede that it was foolish of me to sign MA63 blindly. I was bodoh.

If not, why must Abang Jo pledge to continue negotiations with Putrajaya to reclaim Sarawak’s rights as provided under the Federal Constitution and MA63?

About the Pan Borneo Highway, I am happy that, at long last, my home state will have a superhighway. I am happy too that the Barisan Nasional, under the dynamic and caring PM Najib Abdul Razak, now sees it fit to keep his pledge made during the 2013 general election.

Questions on Pan Borneo Highway

But I am also bodoh because I am afraid to ask pertinent questions surrounding the multi-billion ringgit Pan Borneo Highway project.

 

The first question I didn’t ask and, which I should is: “Why was Fadillah Yusof (photo), a relatively unknown leader of Abang Jo’s Parti Pesaka Bumiputra Bersatu (PBB) suddenly appointed to head the senior Works Ministry in the federal cabinet in 2013?”

Fadillah is only the PBB Youth leader. Never has a junior person like a PBB Youth leader ever been entrusted with a senior federal ministry. Hey, the Works Ministry was helmed by none other than the MIC supremo S Samy Vellu for years.

Even the UMNO Youth leader and chairperson of BN Youth, Khairy Jamaluddin, was only given the junior Youth and Sports Ministry. And the MCA Youth leader, Chong Sin Woon, was only appointed as a deputy education minister. Isn’t MCA the second biggest BN partner?

The next question I have not asked is: “Was Fadillah appointed as the works minister just because his brother, Bustari Yusof, is the head honcho of the Pan Borneo Highway project? And Bustari was recently described in the media as the “No 1 go-to person in the Najib administration” and “the man who quietly guides Najib’s hand”.

Oh, I am bodoh. I fail to see the link. So I kept quiet, even now.

Now, what about Abang Jo’s allegation that Mahathir has since sacrificed his own principles by working together with DAP stalwart Lim Kit Siang (photo), whom he had demonised in the past?

Oh, that Chinese chauvinist Kit Siang! He is a racist to the core! He has even received RM1 billion from Mahathir because Mahathir wants to be chairman of Pakatan Harapan. And Kit Siang also wants to be the next Prime minister of Malaysia. Yes, let’s have a good chuckle over those allegations against the DAP veteran.

But if Kit Siang is a Chinese chauvinist and a racist, I didn’t speak up against him when DAP started its foray into Sarawak in 1979. I was bodoh then.

It is now an open secret that the then Sarawak Chief Minister Abdul Rahman Yakub was the one who wanted DAP in Sarawak to compete with the Chinese-based SUPP. Rahman was having problems with SUPP, its Secretary-General Stephen Yong in particular. Rahman was a shrewd politician and a master tactician. He wanted DAP to neutralise Chinese support for SUPP.

Even though I knew it was not right to back-stab a component party member, I was afraid to speak up against Rahman because he was a powerful chief minister and he usually gets what he wants.

Now, I know I was bodoh because I didn’t have the guts to put things right even though I knew it was wrong.

Today, DAP is the strongest opposition party in Sarawak. Serve me right!

Abang Jo also stated that with Najib at the helm in Putrajaya now, he would be negotiating for more rights to royalty from oil and gas activities for Sarawak.

“During Mahathir’s time, we can’t ask these questions because we are in fear”, the chief minister said.

My interpretation is this: I lived in fear of Mahathir in the past. Now with Najib, I am not afraid anymore.

You see, I was so bodoh. Even though I am in BN, I fear Mahathir and I didn’t dare to tick him off even when he did not fulfil his promises to Sarawak, for whatever reasons.

But with Najib now, I dare to do so. Come to think of it, I am still bodoh. Why must I kow-tow to Najib? Right now, he needs Sarawak more than Sarawak needs him. He is fighting for his political survival.

If I still have to beg Najib for development projects for Sarawak, I am a fool. Things are not going right for Najib. He is a desperate man. Now is the time to demand, not beg. If we, Sarawakians, do not know how to take advantage of the situation now, then let us forever be condemned as Sarawakians who are bodoh.

 

Or, in Abang Jo’s own word – “paloi


FRANCIS PAUL SIAH heads the Movement for Change, Sarawak (MoCS) and can be reached at sirsiah@gmail.com

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.

 

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

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.

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

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

Image result for samdech techo hun sen

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.

Image result for Durian and Fruits of Cambodia

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.

Image result for Beautiful Cambodian Landscape

 

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.

Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline


October 5, 2017

Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline

by T K Chua@www.freemalaysiatoday.com

Image result for Najib as Finance Minister

 

In a couple of weeks, the 2018 national budget will be revealed and a peek into the options and challenges awaiting us, is in order.

Beware of Off-Budget Agencies

FIRST, the budget is not what it used to be. Increasingly there are expenditures and commitments outside the purview of the budget but their impact may eventually impinge on government finance. These are off-budget agencies of which the revenues, expenditures and debts should be tabulated and presented as addendum to the budget.

Keep Budget Deficits under Control

SECOND, in all likelihood, the 2018 budget will be another year of deficits. This means there will be new borrowings or sales of government assets to finance the deficit. New borrowings mean more accumulated debts and more debt service charges going forward. When more is provided for debt service charges, less will be available for other operating expenditures.

THIRD, most government revenue has almost reached its limits unless income and expenditure continue to grow. In recent times, the government has been relentless in its enforcement efforts to extract the maximum from individuals and business establishments. Similarly, the implementation of the GST is in full swing. It is doubtful that the government will be able to cover more loopholes and tax leakages/avoidance cases or to increase further the GST rates at this stage.

If revenues are limited, the government will not be able to offer new expenditure programmes unless it incurs more borrowing and debt.

FOURTH, most expenditure programmes are “locked in”, stifling the government’s ability to look at the new impetus. The government’s commitments toward BR1M, civil service salaries and benefits, pensions, and debt service charges will continue to grow. This will leave little room for the budget to meet new challenges lurking in the horizon.

Watch the Expenditure Side of Things

FIFTH, the government has looked at the revenue side by introducing new taxes and by enforcing stricter compliance of existing taxes. However, this trend can’t go on forever. It is time to look at the expenditure side of things.

The annual audit report has given more than sufficient information on wastage, inefficiency and abuse of government allocations and expenditures. Sometimes corruption is due to allocations being too lavishly handed out. If government departments and agencies have too much money, the tendency is to be careless with the expenditures.

 

MALAYSIA ‘SCREWED UP’ BY WORST FINANCE MINISTER NAJIB – RESERVES THE LOWEST IN ASIA THAT MoF UNABLE TO PAY EVEN US$600 MILLION DEBT?

Who is the de facto Minister of Finance– Najib Razak or Handbag Rosmah Mansor? How did she spend the funds  allocated for her signature project Permata?

Stringent and optimal budget allocations do not have to affect output or service to the people, as was commonly claimed. We only need those responsible to work harder and be more careful with the money.

The National Budget is not a Mundane or routine exercise

I think it would be a big mistake if we continue to look at the budget formulation as a mundane or routine exercise. Some of the trends are obviously unsustainable. Even if we start to reverse or correct the trends now, it may take us many years to restore sustainability.

TK Chua is an FMT reader.