New Economic Policy–Malaysia’s Deformative Action Progamme


May 20, 2017

Malaysia’s Deformative Action–Doing the Malays a Disfavour

Income-based benefits would work much better.

Najib Razak –A Spoilt Aristocrat and the Embodiment of Malaysia’s New Economic Policy introduced by his Father, Tun Abdul Razak and exploited by Tun Dr. Mahathir Mohammad to  retard and subjugate the Malays. Incentives Matter. Reward Performance and Discipline.–Din Merican

WHAT government would not like to reduce racial disparities and promote ethnic harmony? The tricky part is knowing how. One country that claims to have found a way is Malaysia. Since 1971 it has given preferential treatment in everything from education to investing to bumiputeras—people of indigenous descent, who are two-thirds of the population but poorer than their ethnic-Chinese and -Indian compatriots.

On the face of things, this system of affirmative action has been a success (see article). The gap in income between Malays (the biggest bumiputera group) and Chinese- and Indian-Malaysians has narrowed dramatically. Just as important, there has been no repeat of the bloody race riots of 1969, when Malay mobs burned Chinese shops in Kuala Lumpur, prompting the adoption of the policy. And the economy—typically an instant victim of heavy-handed government attempts at redistribution—has grown healthily.

Small wonder that some see Malaysia as a model. South African politicians cited it when adopting their plan for “Black Economic Empowerment” in the early 2000s. More recently Indonesian activists have been talking about instituting something similar there. Malaysia, meanwhile, keeps renewing the policy, which was originally supposed to end in 1991. Just last month Najib Razak, the prime minister (pictured), launched the latest iteration: the catchily named Bumiputera Economic Transformation Roadmap (BETR) 2.0, which, among other things, will steer a greater share of government contracts to bumiputera businesses.

Money for old rope

Yet the results of Malaysia’s affirmative-action schemes are not quite what they seem. Malays in neighbouring Singapore, which abjures racial preferences, have seen their incomes grow just as fast as those of Malays in Malaysia. That is largely because the Singaporean economy has grown faster than Malaysia’s, which may in turn be a product of its more efficient and less meddling bureaucracy. Singapore, too, has been free from race riots since 1969.

If the benefits of cosseting bumiputeras are not as clear as they first appear, the costs, alas, are all too obvious. As schools, universities and the bureaucracy have become less meritocratic, Chinese and Indians have abandoned them, studying in private institutions and working in the private sector instead. Many have left the country altogether, in a brain drain that saps economic growth.

Steering so many benefits to Malays—developers are even obliged to give them discounts on new houses—has created a culture of entitlement and dependency. Malays have stopped thinking of affirmative action as a temporary device to diminish inequality. As descendants of Malaysia’s first settlers, they now consider it a right.

The result is that a system intended to quell ethnic tensions has entrenched them. Many poorer Malays vote reflexively for UMNO, the Malay party that introduced affirmative action in the 1970s and has dominated government since then, for fear that another party might take away their privileges. With these votes in the bag, UMNO’s leaders can get away with jaw-dropping abuses, such as the continuing scandal at 1MDB, a development agency that mislaid several billion dollars, much of which ended up in officials’ pockets, according to American investigators. Minorities, in turn, overwhelmingly support parties that advocate less discrimination against them.

READ THIS:

http://www.economist.com/news/asia/21722208-government-reserves-even-mobile-phone-stalls-people-indigenous-descent-race-based

THERE is something odd about MARA Digital, a cluster of stalls selling laptops, mobiles and other gizmos on the second floor of a shopping centre in Kuala Lumpur, Malaysia’s multicultural capital. No ethnic-Chinese or -Indian entrepreneurs are allowed to do business here. Spots in the market are reserved for Malays, the country’s majority race. The year-old venue was set up with subsidies from the government, which insists that its experiment in segregated shop-holding has been a big success. It has already launched an offshoot in Shah Alam, a nearby city, and talks of opening at least five more branches this year.

This project is just one recent outcome of racially discriminatory policies which have shaped Malaysian society for more than 50 years. Schemes favouring Malays were once deemed essential to improve the lot of Malaysia’s least wealthy racial group; these days they are widely thought to help mostly the well-off within that group, while failing the poor and aggravating ethnic tensions. Yet affirmative action persists because it is a reliable vote-winner for the United Malays National Organisation (UMNO), the Malay party that has dominated government since independence. Malays are more than half of the population, so their views carry weight.

Last month UMNO launched a fresh batch of race-based giveaways. Harried by claims that it allowed billions to be looted from 1MDB, a state investment firm, and preparing for an election that may be called this year, the party looks disinclined to consider reform.

Affirmative action in Malaysia began shortly after the departure in the 1950s of British colonial administrators, who had opened the cities to immigrant merchants and labourers from India and China but largely preferred to keep Malays toiling in the fields. The practice accelerated after 1969, when a race riot in the capital killed scores. (Most of the victims were Chinese.) The New Economic Policy (NEP) of 1971 had two goals: to reduce absolute poverty across all races, and to boost in particular the prospects of Malays, whose average income at the time was roughly half that of their Chinese compatriots.

A temporary eternity

Although the NEP’s authors believed affirmative action would be needed for only 20 years, the practice has continued ever since, as such “temporary” policies typically have in other countries. Malaysia’s bumiputeras, which means “sons of the soil” and which refers both to Malays and to a number of indigenous groups deemed deserving of a leg-up, have accumulated a panoply of privileges. Some of these are enshrined in legislation; others are left unwritten. These include quotas for places at public universities; preferment for government jobs; discounts on property purchases and access to a reserved slice of public share offerings.

Since the NEP’s inception Malaysia’s economy has grown enormously. Its people are now the third-richest in South-East Asia, behind only Singapore and oil-soaked Brunei. Affirmative action has helped to narrow the difference between the incomes of Malays and other races. But pro-bumiputera schemes are almost never means-tested, so their benefits have accrued disproportionately to already wealthy urbanites, allowing poverty among the neediest Malays to persist.

Meanwhile the lure of the public sector—which was expanded to create more posts for bumiputeras, and in which Malays are now vastly over-represented—has sapped entrepreneurial vigour among Malays, as has a welter of grants and soft loans for bumiputera firms. Race-based entry criteria have lowered standards at Malaysia’s public universities; so has the flight of non-bumiputera academics who sense that promotions are no longer linked to merit. These days Chinese and Indians largely end up studying in private institutions or abroad, in effect segregating tertiary education. Many of those who leave the country do not return.

None of this is lost on the ruling party. For some years UMNO was split between hardline supporters of affirmative action (like the demonstrators pictured above) and moderates dismayed by the distortions it has brought. In an unusually candid paper published in 2010, the new government of Najib Razak, the prime minister, admitted that affirmative action had created an “entitlement culture and rentier behaviour”. It mooted swapping race-based policies for action intended to lift the incomes of Malaysia’s poorest 40%, regardless of ethnicity. Yet within months that suggestion was quietly abandoned.

Since then the party’s thinkers have grown more risk-averse. UMNO almost fell from power at a general election in 2013, when minority voters abandoned its coalition partners. Since early 2015 it has been trying to distract attention from the theft of billions of dollars from 1MDB (American investigators allege that $681m of the state firm’s money was paid to the prime minister, a charge Mr Najib denies). Neither of these near-death experiences appears to have prompted much soul-searching. Instead the party is trying to preserve support among Malay voters by reinforcing pro-Malay policies and by building bridges with PAS, an Islamist opposition party that is growing more extreme.

Optimists argue that the government has not completely abandoned reform. An efficiency drive has called attention to the public sector’s bloated state, even if the material gains from the effort are unclear. And whereas UMNO’s leaders once boasted of their desire to create Malay millionaires, recent schemes are more likely to aid small and medium-sized firms. But this is all rather modest—particularly when ugly racial rhetoric is on the rise.

Malaysia’s failing system of race-based preferences will probably not attract the criticism it deserves in the run-up to the next general election, which Mr Najib may call later this year and which he is likely to win. Opposition parties are keen to show poor rural Malays that UMNO’s policies have shortchanged them, but tend not to openly bash the notion of race-based affirmative action. Egged on by bigots, some Malays have come to see their economic privileges as a right earned by their ancestors when they first settled the territory, not as a temporary leg-up. Meritocracy and the distribution of benefits based on need remain distant prospects.

This article appeared in the Asia section of the print edition under the headline “Malays on the march”–The Economist
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The ambition to improve the lot of Malaysia’s neediest citizens is a worthy one. But defining them by race is a mistake. It allows a disproportionate amount of the benefits of affirmative action to accrue to well-off Malays, who can afford to buy the shares set aside for them at IPOs, for example, or to bid for the government contracts Mr Najib is reserving for them. It would be much more efficient, and less poisonous to race relations, to provide benefits based on income. Most recipients would still be Malays. And defusing the issue should pave the way for more nuanced and constructive politics. Perhaps that is why UMNO has resisted the idea for so long.

This article appeared in the Leaders section of the print edition under the headline “Deformative action”

Malaysian Indians deserve Recognition, Respect and Reward, not Fawning MIC Politicians


May 12, 2017

Malaysian Indians deserve Recognition, Respect and Reward, not Fawning MIC Politician

by P. Gunasegaram@www.malaysiakini.com

“Prejudice is a burden that confuses the past, threatens the future and renders the present inaccessible.”

– Maya Angelou

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If the government is truly serious about helping the Indian or any other minority oppressed group, then this is what it has to do. It has to come down hard on anyone who does otherwise and perpetuates the continued oppression of the minority community. It is never all about handouts. It requires genuine effort at inclusion – nothing else works.–P. Gunasegaram

QUESTION TIME | Perhaps the title should have been just “Apa India mahu?” because the word “lagi” implies that you have too much. The fact is that Indians in the country have too little of everything except for their relative shares in such things as the extent of gangsterism, number of people in jails, number of people killed in custody, unemployment and so on.

Although the per capita income of Indians in Malaysia is higher than that of the bumiputeras (includes Malays and others), they are the most disadvantaged group in the country as shown by other social indicators. In fact, even in terms of per capita income, Indians, who are now largely in the urban areas as opposed to bumiputeras in the rural areas, face higher living expenses. If this is adjusted for, they might become the most disadvantaged even in terms of income.

But who are the Indians?

Indians form about two million people accounting for some seven percent of the population in Malaysia with Malays about 50 percent, Chinese about 25 percent and other bumiputeras about 11 percent. But they are not a uniform community – many subgroups being far better off than the average in terms of income and social well-being.

Tamils from India (see table) form by far the vast majority, accounting for some 75 percent of those considered Indians and this is the group which has been the most disadvantaged largely because of historical and social reasons. They were exploited successively by the British, the Malayan and the Malaysian governments who gave and are giving scant attention to their predicament. This is the group that we are referring to here when we talk about disadvantaged Indians.

While Indians have a long presence in Malaysia, dating back over 2,000 years ago, most of them were brought in to work as indentured labour – a form of bonded labour which replaced slavery after it was abolished in the late 19th century. Bonded labour involved working to pay off a debt which is often not clearly specified with workers paid extremely low wages for very hard work.

Most of them worked in the rubber plantations and in labour intensive tasks such as building roads and railways. In fact, it would be true to say that in the years of British occupation and the early years of Malaysia’s independence, the Indians built not only the roads and railways, making Malaysian infrastructure among the best in developing countries, but made rubber the main export earner.

But their efforts were not rewarded despite them being organised in the plantation sector in 1954 under the National Union of Plantation Workers or NUPW, at one point one of the largest unions in the world. While their union leaders were chauffeured around in Mercedes Benzes and they did manage to bring some benefits to members, plantation workers remained mired in extreme poverty.

Eventually, the Indians, the majority of whom were then in estates, were dealt a severe blow when in the 80s, the government encouraged cheap illicit labour in the hundreds of thousands into plantations and other industries, halting any chance of higher income there.

A former finance minister and plantation owner, Tan Siew Sin, even said then that if illegal labour was removed from plantations, they would collapse. The NUPW, the MIC and the government stood by and watched this happen – a move that further impoverished an already impoverished community.

In fact, some in the government and in politics may even have clapped their hands perversely to watch this perceived Indian dominance of the plantation industry albeit at the labour level whittled away through the import of cheap, exploited Indonesian labour.

From the green ghettos, the Indians moved into towns and cities to earn a living, creating slums. Unemployment among them increased, they lived in squalor, they took whatever work they could get and as with any disadvantaged minority they took to crime as a means of living. They resorted to gangs for social inclusion and self-respect.

The MIB

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The Indians don’t deserve this extremist naturalised Malaysian Indian. He has become the Pope of UMNO Muslims

Now, on the back of an impending election, the government very publicly came up with a Malaysian Indian Blueprint, or MIB. The prime minister himself unveiled it. Considering that the government and the MIC have done precious little for the Indians, will the MIB make a difference?

From a brief look, the MIB is a pretty good blueprint in terms of identifying and documenting the Indian problem. It lists all the major problems backed with relevant statistics which show that Indian Malaysians are lagging behind and may slip further.

For instance, median household income for Indians per month rose 7.5 percent compounded annually (against 7.8 percent for Malaysia) for 44 years between 1970 and 2014 to reach RM4,627 compared to RM4,214 for bumiputeras and RM5,708 for Chinese.

Recall that Malays form about 50 percent of the population and that other bumiputeras form some 11 percent – the latter group includes indigenous people, and those from Sabah and Sarawak, are among the poorest in Malaysia. This could mean that Indian income is already lower than that of Malay income. I could not find standalone figures for Malay income.

The MIB also recognises that Indians in the top 60 percent of income bracket account for 83 percent of the Indian income. In the bottom 40 are 227,600 households or 1.14 million people; assuming five to a household – over half of Indians earn live with only 17 percent of the Indian share of income!

Here are some direct quotes from the MIB which starkly reflect the Indian predicament:

“In 2014, Indian families accounted for 21 percent of the total number of reported domestic violence cases. In that same year, a total of 518 Indian children or 12 percent of all reported cases were classified as children who are in need of care and protection. These statistics indicate a prevalent problem of dysfunctional family dynamics and broken family bonds.”

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The sacrifices of their hardworking ancestors mean nothing to these poorest among the poor in Malaysia

“It is estimated that about 70 percent of gang members in the country are Indians. Although some leave behind gang activities after their schooling years, field experts suggest that a number of them, particularly those from underprivileged and broken families, stay on in gangs and progress to more serious crimes. According to PDRM 2014 statistics, of all violent crime arrests, Malaysian Indians comprise 31 percent (against national population of 7 percent) compared to Malay and Chinese counterparts at 51 percent and 11 percent respectively.”

“The Malaysian Indian community has the challenge of ensuring its religious rights are preserved while working with the regulatory requirements and sensitivities of the majority group. At the same time, Indian religious institutions such as temples need to increase their contribution to their communities in areas such as education, values and welfare.”

“…while there are points of pride in being of Indian ethnicity, some aspects of Indian representation in Malaysian public life – such as associations to crime, gangs, alcohol abuse, violence, low education and poverty – impart a negative slant to the community’s overall image.”

And finally, for me the most important point the MIB makes: “If left unchecked, the economic, educational and social challenges highlighted above will solidify the existence of an Indian sub-class that is continually marginalised and excluded from the Malaysian mainstream. Not only is this a waste of human potential, it is a cost to the country’s economy and a threat to national inter-ethnic harmony.” Well said.

The 3Rs

But going beyond the thoughtful recommendations by the MIB, the Indian community has a far better chance of progressing if the government and the politicians are serious about helping them.

What is it that the Indians want and need? Apa lagi India mahu? Indians want to claim their right to this country through what I shall call the 3Rs – recognition, respect and reward.

Recognition means acknowledging the immense contribution of Indians to the development of the nation which was out of all proportion to their numbers through the growth and development of the rubber industry and infrastructure projects amongst others. This also means acknowledging that they worked under terribly unfair conditions and paid a major price for their systematic exploitation. It includes as well dealing once and for all with the issue of stateless Indians even as Muslim Indonesians, Bangladeshis and Filipinos are routinely given citizenship with few questions asked.

Trust this Prime Minister to faithfully implement MIB (Malaysian Indian Blueprint). I won’t even trust him with my cat. But I expect the Malaysian Indians to vote for him in GE-14. You want respect, start with self respect first. How about that. Remember the words, SELF RESPECT. Do not be like the UMNO Malays who are dependent on handouts.–Din Merican

Respect means to give them due consideration to practice their way of life without being ridiculed and discriminated against because of their colour, manner, background or way of life. It means honouring their religious tradition without being constantly harassed by fanatics who heap scorn on their beliefs and destroy their temples and places of worship. It means no stereotyping and attributing unfair cliches to Indians. Respect also means not being arrested at the drop of a hat, or being arrested, beaten up in the lock-up and sometimes killed.

Reward means to give them their due for the effort that they have put in by themselves to improve themselves. This means stopping racist administrators dispersed throughout the civil service who make it a point to make life difficult for some and routinely practice discrimination against other races and religions, and especially Indians. Reward means giving them their due without they having to constantly ask and fight for it in every sphere.

If the government is truly serious about helping the Indian or any other minority oppressed group, then this is what it has to do. It has to come down hard on anyone who does otherwise and perpetuates the continued oppression of the minority community. It is never all about handouts. It requires genuine effort at inclusion – nothing else works.

The Indian helped build this country, with his two bare hands. He wants to be recognised and respected for that. He wants to be given the opportunity for his children to progress beyond what he has been able to.

His ancestors and he himself have paid for that with their blood, sweat and tears. He is as good as any other Malaysian can be. If you deny him that, he will fight for it any which way he can for he has little left to lose.

Lessons from the Anti-Globalists


May 6, 2017

Lessons from the Anti-Globalists

by Joseph E. Stiglitz@www.project-syndicate.org

The likely victory of Emmanuel Macron in the French presidential election has elicited a global sigh of relief. At least Europe is not going down the protectionist path that President Donald Trump is forcing the United States to take.

Image result for joseph e. stiglitz

But advocates of globalization should keep the champagne on ice: protectionists and advocates of “illiberal democracy” are on the rise in many other countries. And the fact that an open bigot and habitual liar could get as many votes as Trump did in the US, and that the far-right Marine Le Pen will be in the run-off vote with Macron on May 7, should be deeply worrying.

Some assume that Trump’s poor management and obvious incompetence should be enough to dent enthusiasm for populist nostrums elsewhere. Likewise, the US Rust Belt voters who supported Trump will almost certainly be worse off in four years, and rational voters surely will understand this.

But it would be a mistake to conclude that discontent with the global economy – at least how it treats large numbers of those in (or formerly in) the middle class – has crested. If the developed liberal democracies maintain status quo policies, displaced workers will continue to be alienated. Many will feel that at least Trump, Le Pen, and their ilk profess to feel their pain. The idea that voters will turn against protectionism and populism of their own accord may be no more than cosmopolitan wishful thinking.

Advocates of liberal market economies need to grasp that many reforms and technological advances may leave some groups – possibly large groups – worse off. In principle, these changes increase economic efficiency, enabling the winners to compensate the losers. But if the losers remain worse off, why should they support globalization and pro-market policies? Indeed, it is in their self-interest to turn to politicians who oppose these changes.

Image result for Trump the anti-Globalist

So the lesson should be obvious: In the absence of progressive policies, including strong social-welfare programs, job retraining, and other forms of assistance for individuals and communities left behind by globalization, Trumpian politicians may become a permanent feature of the landscape.

The costs imposed by such politicians are high for all of us, even if they do not fully achieve their protectionist and nativist ambitions, because they prey on fear, inflame bigotry, and thrive on a dangerously polarized us-versus-them approach to governance. Trump has leveled his Twitter attacks against Mexico, China, Germany, Canada, and many others – and the list is sure to grow the longer he is in office. Le Pen has targeted Muslims, but her recent comments denying French responsibility for rounding up Jews during World War II revealed her lingering anti-Semitism.

Deep and perhaps irreparable national cleavages may be the result. In the US, Trump has already diminished respect for the presidency and will most likely leave behind a more divided country.

We must not forget that before the dawn of the Enlightenment, with its embrace of science and freedom, incomes and living standards were stagnant for centuries. But Trump, Le Pen, and the other populists represent the antithesis of Enlightenment values. Without blushing, Trump cites “alternative facts,” denies the scientific method, and proposes massive budget cuts for public research, including on climate change, which he believes is a hoax.

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Can Emmanuel Macron stop Marine Le Pen and keep France in the EU?

The protectionism advocated by Trump, Le Pen, and others poses a similar threat to the world economy. For three-quarters of a century, there has been an attempt to create a rules-based global economic order, in which goods, services, people, and ideas could move more freely across borders. To the applause from his fellow populists, Trump has thrown a hand grenade into that structure.

Given the insistence of Trump and his acolytes that borders do matter, businesses will think twice as they construct global supply chains. The resulting uncertainty will discourage investment, especially cross-border investment, which will diminish the momentum for a global rules-based system. With less invested in the system, advocates for such a system will have less incentive to push for it.

This will be troublesome for the entire world. Like it or not, humanity will remain globally connected, facing common problems like climate change and the threat of terrorism. The ability and incentive to work cooperatively to solve these problems must be strengthened, not weakened.

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Openness is the key to rapid economic growth and prosperity–Joseph E. Stiglitz

The lesson of all of this is something that Scandinavian countries learned long ago. The region’s small countries understood that openness was the key to rapid economic growth and prosperity. But if they were to remain open and democratic, their citizens had to be convinced that significant segments of society would not be left behind.

The welfare state thus became integral to the success of the Scandinavian countries. They understood that the only sustainable prosperity is shared prosperity. It is a lesson that the US and the rest of Europe must now learn.

IMF on Malaysia–Report Card


May 3, 2017

International Monetary Fund on Malaysia–Report Card

by The International Monetary Fund

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Putrajaya–The Administrative Capital of Malaysia

The IMF conducts an Annual Review of member country economic situation. At the conclusion of the consultations the Executive Board considers the findings which are also conveyed to the Government. A Press Release is issued  together with access to the full staff report on the Fund’s website. The Report  is in the nature of a “Report Card”.

The text of the Press Release is reproduced below. The full report can be accessed and downloaded from  ::

http://www.imf.org/en/Publications/CR/Issues/2017/04/28/Malaysia-2017-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-44869

On March 15, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Malaysia.

Despite a challenging global economic environment, the Malaysian economy performed well over the past few years. Notwithstanding the impact of the global commodity price and financial markets volatility, the economy remained resilient, owing to a diversified production and export base; strong balance sheet positions; a flexible exchange rate; responsive macroeconomic policies; and deep financial markets. While real GDP growth slowed down, Malaysia is still among the fastest growing economies among peers. The challenging global macroeconomic and financial environment puts premium on continued diligence and requires careful calibration of policies going forward.

Risks to the outlook are tilted to the downside, originating from both external and domestic sources. External risks include structurally weak growth in advanced and emerging market economies and retreat from cross-border integration. Although the Malaysian economy has adjusted well to lower global oil prices, sustained low commodity prices would add to the challenge of achieving medium-term fiscal targets. Heightened global financial stress and associated capital flows could affect the economy.

Domestic risks are primarily related to public sector and household debt, along with pockets of vulnerabilities in the corporate sector. Federal debt and contingent liabilities are relatively high, limiting policy space to respond to shocks. Although the household debt-to-GDP ratio is likely to decline, household debt also remains high, with debt servicing capacity growing only moderately.

Real GDP growth rate is expected to increase moderately to 4.5 percent year-on-year (y/y) in 2017 from 4.2 percent in 2016. Domestic demand, led by private consumption, continue to be the main driver of growth, while a drag from net exports, similar to 2016, will remain.

Consumer price inflation is projected to rise and average 2.7 percent y/y in 2017 on the back of higher global oil prices and the rationalization of subsidies on cooking oil. The current account surplus would be largely unchanged as impacts from an improved global outlook and higher commodity prices would be offset by the strength of imports on the back of a resilient domestic demand.

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Bank Negara Malaysia—in full control of the Pulse of the Malaysian Economy

Executive Directors commended the resilience of the Malaysian economy, which reflects sound macroeconomic policy responses in the face of significant headwinds and risks. While Malaysia’s economic growth is expected to continue in 2017, weaker-than-expected growth in key advanced and emerging economies or a global retreat from cross-border integration could weigh on the domestic economy. Against this background, Directors urged vigilance and continued efforts to strengthen policy buffers and boost long-term economic growth.

Directors agreed that the authorities’ medium-term fiscal policy is well anchored on achieving a near-balanced federal budget by 2020. The planned consolidation will help alleviate risks from elevated government debt levels and contingent liabilities and build fiscal space for future expansionary policy, as needed.

Directors recommended that the pace of consolidation reflect economic conditions and that any counter-cyclical fiscal policy measures be well-targeted and temporary. They noted that improvements to the fiscal framework, such as elaborating medium term projections and preparing and publishing an annual fiscal risks statement, would help anchor medium-term fiscal adjustment and mitigate risks.

Directors agreed that the current monetary policy stance is appropriate. Going forward, Bank Negara Malaysia (BNM) should continue to carefully calibrate monetary policy to support growth while being mindful of financial conditions.

Directors emphasized that global financial market conditions could affect the monetary policy space and should be carefully monitored.

Directors noted that the banking sector is sound overall and that financial sector risks appear contained. Nonetheless, they cautioned that potential pockets of vulnerability should be closely monitored. They noted that household debt remains relatively high, while in the corporate sector, there are emerging vulnerabilities in some sectors. Directors suggested that macroprudential measures be adjusted if needed.

Directors underscored the central role of macroeconomic policy and exchange rate flexibility in helping the economy adjust to external shocks. In this regard, they welcomed the authorities’ commitment to keeping the exchange rate as the key shock absorber. They recommended that reserves be accumulated as opportunities arise and deployed in the event of disorderly market conditions. Noting the authorities’ aim to improve the functioning of the onshore forward foreign exchange market, Directors urged the BNM to monitor the effects of the recent measures introduced in this regard, recognizing their benefits and costs.

They emphasized that close consultation and communication by BNM (Bank Negara Malaysia–Central Bank) with market participants will be essential in further developing the foreign exchange market and bolstering resilience.

Directors underscored that steadfast implementation of the authorities’ ambitious structural reform agenda is key to boosting long-term economic potential. They supported the emphasis on increasing female labor force participation, improving the quality of education, lowering skills mismatch, boosting productivity growth, encouraging research and innovation, and upholding high standards of governance.

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

Abenomics: A Success?


May 2, 2017

Abenomics: A Success?

by The Financial Times

https://www.ft.com/content/62cc7d40-2e65-11e7-9555-23ef563ecf9a

When a policy is applied for more than four years, and consistently fails to produce the intended result, it is tempting to declare it a failure. Critics of Japan’s economic stimulus declare exactly that. They are wrong. So-called Abenomics has not failed, and it should be sustained, not abandoned.

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Critics of Prime Minister Shinzo Abe’s economic policy, which aims to combine monetary and fiscal stimulus with structural economic reforms, make a simple case. Abenomics began in the spring of 2013. It was supposed to revive growth and end two decades of on-and-off deflation. Four years later, the Bank of Japan’s preferred measure of inflation is up by 0.1 per cent on a year ago. It follows, the critics say, that the medicine has not worked.

It has indeed proved hard to ignite inflation in Japan. Since the financial crisis, low inflation has been a problem everywhere, from the US to the eurozone to the UK. But the simple diagnosis of failure ignores how much Abenomics has achieved, the difficult backdrop to these achievements, and the reality that the stimulus was much smaller than its critics imagine. Growth, running at an annualised 1.2 per cent, has been well above Japan’s underlying rate every year save 2014. The unemployment level is at a 22-year low of 2.8 per cent — and that figure understates how tight Japan’s jobs market has become. Every shop and restaurant in Tokyo seems to have a “positions vacant” sign, and many are scrapping 24-hour opening to save labour. Yamato Transport, the country’s largest logistics company, is raising prices for the first time in 27 years in a deliberate attempt to cut volumes to a level its network can handle. Rather than cutting costs, chief executives spend their time working out how to hire and retain staff.

After more than two decades when labour was cheap and abundant, Japanese companies are finding ways to cut back, reducing their lavish service standards rather than raising prices. But this can only go so far. Japan is primed for inflation. The struggles of the stimulus must also be weighed against the global economic backdrop. The plunge in 2014 in commodity prices, followed by the 2015 slowdown in emerging markets, leading to a sharp appreciation of the yen, were a terrible environment in which to generate inflation. Only with the election of Donald Trump as US president, and the subsequent rally in the yen above ¥110 to the dollar, is the global economy once again a support. Of all the obstacles to success, the worst was self-inflicted: a 2014 rise in consumption tax from 5 to 8 per cent. In theory, Abenomics involved a fiscal stimulus. In reality, this only ever happened for a brief time, in 2013. Over the past four years, Japan has significantly tightened fiscal policy. The predictable result was to halt momentum towards higher prices.

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Recently, the Abe government has realised its mistake and loosened the purse strings a little. It should continue to do so, ignoring foolish and arbitrary fiscal targets, until inflation finally does pick up. There have been policy failures over the past four years, but they all involved too little Abenomics, not too much. To break Japan’s deflationary mindset for good may take several more years. Workers are slow to demand higher pay and employers are reluctant to offer it. But that does not mean the effort to restore inflation has failed. Rather, it has made significant progress, in a difficult environment, where the policy’s champions often failed to act when needed. The prize is a revived Japanese economy.

 

The Education of Donald J. Trump (and US)


April 30, 2017

The Education of Donald J. Trump (and US)

by Fareed Zakaria@www.washingtonpost.com

https://www.washingtonpost.com/opinions/the-education-of-president-trump-and-us/2017/04/27/2da36c02-2b89-11e7-b605-33413c691853_story.html?utm_term=.944f5c4df8a7

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There are so many unusual, unprecedented aspects of President Trump’s first 100 days in office that it’s hard to know where to begin. By his own yardstick, the number of promises unfulfilled is staggering. During the campaign, Trump said he would ask for a bill repealing Obamacare “my first day in office.” He said he would deport 11 million undocumented immigrants, starting with 2 million “criminal aliens” within his “first hour in office.” The liberal blog ThinkProgress counted 36 policies that Trump promised to roll out “on Day One.” He did just two on his first day.

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But more striking than the policies unfulfilled — some of which might still be proposed or implemented — have been those reversed entirely. Never in the annals of the presidency have there been so many flip-flops so quickly, and with so little explanation. Trump had called NAFTA “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.” He promised to label China — “the greatest abuser in the history of this country” — a currency manipulator on, yes, “Day One.” He described NATO as “obsolete,” suggested that he might eliminate the Export-Import Bank and implied that he might support Syria’s Bashar al-Assad.

Within days of becoming president, Trump’s flip-flops began. He said that he had discovered, perhaps through secret intelligence briefings, that China was not actually manipulating its currency, that NATO was engaged in lots of crucial operations, that the Ex-Im Bank helped lots of small U.S. businesses and that Assad had been committing war crimes. He announced these reversals cavalierly, as if he surely could not have been expected to know these facts previously, when he was running for president. As he said in February, “Nobody knew health care could be so complicated.”

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I suspect that his next education will be in tax policy. Trump’s proposals, outlined this week, are breathtakingly irresponsible. They would add trillions of dollars to the debt and are not even designed for maximum stimulative impact. (Abolishing the estate tax, which is paid by 0.002 percent of Americans each year, would not cause a rush to the stores, but would cost $20 billion a year.) Tax negotiations will be an interesting test for Republicans. A party that claims it has deep concerns over the national debt is considering enacting what might be the biggest expansion of debt in U.S. history (in absolute dollars).

The larger education of Trump and, one would hope, his supporters, is surely that government isn’t easy. His appeal for so many was that he was an outsider, a businessman who would bring his commercial skills and management acumen to the White House and get things done. Washington’s corrupt politicians and feckless bureaucrats would see how a successful man from “the real world” cuts through the fog.

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Donald J. Trump is hard to read and predict–A Combination of Negative Dick Nixon and Conservative Reagan

Instead, we have watched the sheer incompetence of Trump’s first 100 days — orders that can’t get through courts, bills that collapse in Congress, agencies that remain understaffed, ceaseless infighting within the White House and the constant flip-flops. It turns out that running a family-owned real estate franchising operation is not really the same as presiding over the executive branch of the U.S. government. It turns out that government is hard, “complicated” stuff.

While there are plenty of problems with Washington, the real reason so little gets done there is that the American people have wildly contradictory desires. They want unlimited amounts of health care, don’t want to be denied such care because they are sick (have “preexisting conditions”) and yet expect that costs should plummet. They want government out of their lives but revolt at the prospect of any slight cuts to its largest programs (Medicare, Social Security) or the removal of tax benefits for health care and home mortgages.

This condition has been building for years. In a 1995 book, Michael Kinsley explained what he saw as the roots of the then-raging populist anger at Washington that Newt Gingrich had exploited with his “Contract with America.” Kinsley wrote, “[American voters] make flagrantly incompatible demands — cut my taxes, preserve my benefits, balance the budget — then explode in self-righteous outrage when the politicians fail to deliver.”

He titled the book “Big Babies” in honor of the American people, and he opened it by quoting Alexis de Tocqueville: “The French under the old monarchy held it for a maxim that the king could do no wrong; and if he did do wrong, the blame was imputed to his advisers. . . . The Americans entertain the same opinion with respect to the majority.” Let’s hope that the greatest education of the Trump presidency will be that Americans come to realize that Washington is dysfunctional not because of the venality of the politicians but rather because of the appetites of the people they represent.