Book Review: Dr Shankaran Nambiar –Malaysia in Troubled Times

May 11, 2017

Book Review: Dr Shankaran Nambiar –Malaysia in Troubled Times

by Tricia Teoh

“THE absence of good institutions and transparency in public undertakings, government procurement, and … the design of public policy has the potential to shake investor confidence” is how economist Shankaran Nambiar sums up the macroeconomic conditions of Malaysia.

In his latest book, Malaysia in Troubled Times, which compiles Nambiar’s articles in newspapers between 2014 and 2016, he deftly articulates his positions on issues. He grapples mainly with the question of “where is the economy headed towards”, which he asks numerous times across his pieces, an evident sign of his deep concern over the trends taking place in the country.

Nambiar articulates what many observers of Malaysian issues have struggled with: despite our economy not hitting negative growth, not being in danger of defaulting on sovereign debt and the fact that the central bank having adequate reserves to cover shortfalls, he states clearly that yes, indeed, we should still exercise great caution with respect to the Malaysian economy.

And why so? Various pieces indicate why observers should be worried – an outflow of foreign funds, the sharp decline of oil prices, which has in turn led to a growing federal fiscal deficit, and … “doubts on the efficacy of government linked companies”.

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When Malaysia is in trouble, follow Idris Jala and play the Guitar

The challenges facing Malaysia stretch beyond our borders, and here Nambiar wades through regional waters to help readers understand the dynamics behind the now-dead Trans Pacific Partnership Agreement, the Regional Cooperation Economic Partnership, and the Free Trade Area of the Asia-Pacific, which he highlights is indicative of China flexing its muscles in the region.

Malaysia, he says, “has a special, valuable relationship with China, which places it in an excellent position to help establish a stable security landscape in the region”. Of course, the “special relationship” we have with China would now be interpreted in a very different light today, given the many bilateral deals Malaysia has now signed with China. Apart from arguing for how ASEAN can build itself up as a stronger regional pact, it is also refreshing that he brings in Asean-India economic ties and goes on to push for greater Malaysia-India improvements in trade and investment, which apparently our neighbours Singapore and South Korea have put a lot more effort in than we have.

Above all, Nambiar is a faithful believer of Keynes, whom he quotes several times in the book, saying that “positive expectations and ‘animal spirits’ spur aggregate demand and economic growth”, and that “at the moment it seems that the animal within the economy is wounded”. He cleverly works his critique of the economy through metaphors such as these, but stops short of blatantly dismissing any efforts being made by policymakers to improve the economic conditions of the country. He could also have done more in providing solutions to what he considers to be ailing our economy.

Despite the nuanced tone of his writings, it is clear that he harbours silent frustration with public policies and their implementation in Malaysia. Although the book focuses mainly on technical economic matters, Nambiar also ventures into “getting the big picture right”. He questions Malaysia’s dismal performance in the Programme for International Student Assessment (PISA) and Trends in International Mathematics and Science Study (TIMSS). He emphasises the importance of good public transport, education, human resource development and healthcare. And perhaps most importantly, he questions whether our politicians and policymakers are truly connected with the economy “as experienced by traders, technicians, taxi driver and executives”.

It is now almost two years after one of Nambiar’s pieces titled “Do we need to create scenarios for a future Malaysia?” and yet it seems even more imperative to do so today. With the elections near, this is what policymakers ought to do. And if they are not, then citizens ought to instead, and demand that their representatives pave the way for the right future to actuate.

An imagined future has to be one that, Nambiar argues, goes beyond motherhood statements like “being united in diversity and sharing a common set of values and aspirations” that he considers merely “dreamy visions of the future”. One has to concretely build scenarios based on concrete issues such as income distribution, incorporating input from a “constraint approach” (what are the stumbling blocks?) as well as a “global basis approach” (how does Malaysia fit into this matrix based on global trends?).
It is on this note that the book hits the nail hard on its head. Nambiar’s voice that constantly urges and pushes for the creation of the “spirit of this big picture” reminds us that simply, there is none of this presently that so inspires. His is a thoughtful, objective and incisive perspective of a nation that could be much more – and his desires for a better, more productive, wealthy Malaysia are evident.

Policymakers and politicians serious about addressing challenges to the Malaysian economy would benefit from a thorough reading of Nambiar’s book. They should also take heed of his advice that in thinking of the long-term, they must be “realistic about the present state of affairs”. This would be a good first starting point.


The ASEAN Community: A Lofty Historical Challenge

May 11, 2017

The ASEAN Community: A Lofty Historical Challenge

by Michael Heng

“As an economic power, ASEAN is small by international standards. Given the level of development and technological base, ASEAN is unlikely to make a big impact on the global economy.” Do you agree with Professor Heng’s observation)?

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The Association of Southeast Asian Nations (ASEAN) was founded in 1967. Its 50th anniversary this year is a good time to take stock and to look ahead. ASEAN was established with the goal of preserving long-term peace in region at a time when the First Indochina War was raging, even though its explicitly stated goals were economic growth, social progress, and cultural development. One of its guiding principles is to abide strictly by the modern international system of sovereign states where countries do not interfere in each other’s internal affairs. ASEAN’s leaders have chosen to make decisions by consensus, and to avoid airing their differences in the public.

ASEAN has scored significant success as an economic community, due largely to the activities of global production networks in the region. In the assessment of a senior Chinese official speaking at a workshop in 2009, ASEAN is the healthiest and most integrated regional organization in Asia and it should be the center and platform to promote Asia’s economic integration.

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However, one cannot ignore the failure of ASEAN to resolve significant intra-ASEAN problems such as the Thai-Cambodian border dispute, the annual haze originating from Indonesia, and the blatant violation of human rights in Myanmar. Such problems cannot be resolved within ASEAN because of the strict non-interference policy in each other’s internal affairs. But conditions in the international arena today are different from when ASEAN was formed half a century ago. Environmental pollution, climate change, epidemics, terrorism, and transnational crime cannot be solved without close international cooperation. In the event of large scale violations of human rights, sovereignty cannot be used as a cover for the state to fan off interference by the international community. With the doctrine of Responsibility to Protect, the concept of state sovereignty in the past few decades has acquired subtle but important new interpretations. ASEAN’s strict insistence on non-interference is out of sync with prevailing international norms.

Before the 1997 Asian financial crisis, global capital had focused on gaining market access and investment in Southeast Asia. In the wake of the crisis, it began to be disenchanted with the region’s failure to respond effectively to the crisis. Meanwhile, critical examination of the financial meltdown revealed some serious flaws among the political leadership in most ASEAN member states. This period also saw the rise of China and India as new economic powers next door. Between them, these events prompted soul-searching within ASEAN.

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Driven by internal and more so by external developments, ASEAN has strived to deepen and widen its integration and has set its sights on becoming a community of nations. To do so, it has to look beyond the geopolitical and economic dimensions, and widen its scope to include the social and cultural dimensions. Though some progress has been made in this direction, especially in their agreement to the terms of the ASEAN Charter, it remains to be seen whether the member states will be able to live up to the ideals as enshrined in this document. Even if they do so, they need to go further than this document in order to be in tune with prevailing international norms as adopted by the United Nations.

Unity in Diversity

One of ASEAN’s achievements has been its ability to group together ten member states with different political systems, population sizes, geographical sizes, languages, religions, historical backgrounds, and stages of economic development. It should come as no surprise that the ASEAN Charter has adopted as its principle the concept of “unity in diversity.”

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Unity in diversity is the concept of “unity without uniformity and diversity without fragmentation” — thereby moving and raising the focus from unity based on mere tolerance of physical, cultural, linguistic, social, religious, political, ideological and/or psychological differences towards a more complex unity based on an understanding that differences enrich human interactions. One should add that this understanding should go beyond the utilitarian aspect to one founded on the basis of appreciating and cherishing differences. No wonder that unity in diversity is said to be the highest possible attainment of a civilization, a testimony to the noblest potential of the human race.

ASEAN Socio-Cultural Community Blueprint

Just like unity in diversity, the concept of social justice is found in many ASEAN documents. For example, the ASEAN Socio-Cultural Community Blueprint of 2009 claims that “ASEAN is committed to promoting social justice and mainstreaming people’s rights into its policies and all spheres of life, including the rights and welfare of disadvantaged, vulnerable and marginalized groups such as women, children, the elderly, persons with disabilities and migrant workers.” The reality in the ASEAN countries however shows clearly that there is a wide mismatch between such lofty statements and what the people experience.

A close reading of the ASEAN Charter will reveal that it has some lofty and high sounding concepts. For example, ASEAN and its Member States shall act in accordance with, among others, the principle of “adherence to the rule of law, good governance, the principles of democracy and constitutional government.” This sounds hollow when its member states undermine the independence of their judiciaries, allow corruption to run wild, pay scant attention to protect their environment, indulge in gerrymandering, and harass their political opposition.

Same Journey but at Different Speeds

ASEAN may be seen as a fine example of unity in diversity. But to strive towards the goal of a community of nations, they must live up to the goals and aspirations as written in their own official declarations. One way to do so is to emulate the best among them in a given area. For example, Indonesia has made significant progress in democratic transformations, and can fairly be said to be the most democratic of the ten. While Indonesia should continue to make progress, the other nine should be inspired by the success of Indonesia and follow its example. Similarly, Singapore’s achievement in economic development and clean government should spur the other nine to do the same.

The common struggles of the ASEAN peoples across the region will be a firm foundation for the growth of ASEAN solidarity, shared consciousness, sense of common interests, and an ASEAN identity.

It is of special importance that Indonesia can carry out democratic reforms, and Singapore can practice clean government. It means that these institutions and practices are not alien to Southeast Asia or in a wider context to the non-Western world.

Unity in diversity here may take on additional meanings: united in pursuing the goals of social justice, economic prosperity, clean government, human rights, democracy, etc. but with different member nations proceeding at different speeds. Those moving ahead should nudge and help those trailing behind.

Promoting Knowledge at the People-to-People Level

According to the Charter, community building is to be intensified through enhanced regional cooperation and integration via the means of the security community, economic community, and socio-cultural community. The first two have enjoyed the lion’s share of official attention. The third deserves to be given its due attention.

A recent study reveals that the general public in cities in Indonesia, Malaysia, and Singapore perceive the formation of the ASEAN Community as beneficial, but they see the formation as elitist and state-centric as it did not involve the people. This is a disturbing finding. City residents are generally more well-informed and involved in the political life of their countries. If they do not feel so involved in the formation of the ASEAN Community, one can imagine how low the sense of involvement can be in the rural areas. Much more must be done therefore to create and nurture a sense of participation by the citizens.

There is a useful role to be played by ASEAN’s professional bodies, like the ASEAN Associations of Lawyers, Engineers, Doctors, Accountants, Architects, Journalists, Writers, Teachers, etc. Through their regular contacts and sharing, we have new channels for evolving ASEAN styles of landscaping, architecture, paintings, music, and so on. The Association of Doctors could also be a good forum for them to develop a teaching program on traditional medicine based on research and as practiced by their ancestors.

In additional to the above are regular exchanges of cultural troupes. Their works should be featured on national television channels, and tickets should be subsidized by sponsors. For those more inclined to intellectual discussions, their interests can be served by local think tanks hosting talks and seminars by public intellectuals and thinkers on topics concerning the broader and long-term future of the region.

Looking Ahead

From its humble beginning, ASEAN has grown into a regional body that is courted by major world powers. Given the different historical backgrounds, cultures, political systems, and their lack of complementary economic activities, its endurance and success might come as a surprise. Credit must be given to its political leaders for being able to respond well to the emerging challenges and opportunities.

The success of ASEAN can also be seen as a clever response to the challenges posed by globalization. This is clearly seen in how the Asian financial crisis prompted ASEAN to speed up and deepen its integration. The same was again seen in the aftermath of the 2008 financial crisis. The latest is how global production networks have integrated the ASEAN economies with that of China, forming the basis for the ASEAN-China Free Trade Agreement.

But the imperatives for regional integration need to be combined with an awareness of the limitations arising from inter-state competition and divergent domestic capabilities within its member states. Here there is a need to work for the greater common good and with a long-term perspective. There are at least four areas where this approach is needed. The first concerns industrial policy. The member states need to sit down and formulate industrial policies which are complementary to each other. Doing so will increase intra-ASEAN trade, which currently constitutes only 25 percent of ASEAN’s trade. The second concerns protection of the environment, a point that was touched on earlier. The third concerns supporting local cultures and intellectual activities, so that Southeast Asia can boast its own world-class writers, painters, thinkers, musicians, and architects. The fourth and arguably the most difficult, is to translate into real practice the paper commitment of ASEAN member states to democracy and social justice. It includes protecting and respecting the rights of minorities, appreciating the political opposition as assets of the countries, and guaranteeing freedom of the press and association.

As an economic power, ASEAN is small by international standards. Given the level of development and technological base, ASEAN is unlikely to make a big impact on the global economy.

Perhaps the most important area which ASEAN can contribute to the world is to bring about the ASEAN Community with cultures and historical backgrounds different from those of the European Union. The new global conditions present Southeast Asia with opportunities and challenges. The greatest opportunities are the big avenues for economic growth in the region, and long-lasting peace. Territorial contestation leading to war is for most countries a thing of the past. Some challenges are persistent — nationalism, ethno-religious parochialism, discrimination against women, massive natural disasters, diseases, and poverty. Some challenges are new — climate change, environmental degradation, depleting natural resources, transnational crime, and terrorism. The challenges call for political, religious, opinion, and business leaders to re-orientate their courses of action toward the greater common good of the people in the region.

What is more crucial and effective is for the citizens of ASEAN countries to render support to each other in their struggle to realize the ideals of the ASEAN Charter such as environmental protection, rights of migrant workers, human rights, and social justice. It would be difficult for the governments to suppress these struggles because these are struggles inspired by a document crafted and endorsed by the government leaders themselves. The common struggles of the ASEAN peoples across the region will be a firm foundation for the growth of ASEAN solidarity, shared consciousness, sense of common interests, and an ASEAN identity.

Like other historical processes, the journey to the formation of the ASEAN Community will take time and will not be easy. There is still a wide gap between the deeds and words of the government leaders of ASEAN. If and when the realities on the ground are in line with the lofty proclamations of the ASEAN documents, then and only then will the ASEAN Community be no longer a dream but a reality. It will be an ASEAN with a new identity, for it will represent a new moral and political order, able to articulate global issues in international forums with moral authority and coherence.

Nurhisham is Back– Batting for Najib’s Malaysia

May 9, 2017

Nurhisham is Back– Batting for Najib’s Malaysia

Nurhisham Hussein outlines why it’s disingenuous and dangerous to dismiss economic data from Malaysia.

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Playing Malaysia’s number game

by Nurhisham Hussein

I read with some interest a recent article on New Mandala by Manjit Bhatia on the effect of the assassination of Kim Jong-nam on the political fortunes of Malaysian PM Najib Razak. That the assassination has distracted attention from Malaysia’s domestic political scene is not in doubt. However, the author makes some strong allegations regarding the veracity of Malaysian economic statistics, as well as making some misleading and outright untrue statements on the state of the Malaysian economy.

Let me deal with each of the statements I found problematic in turn. The article makes the bold claim that, “Most credible economists, even the market type, know Malaysia’s official numbers are as rubbery as North Korea’s or China’s.” In my role as Chief Economist of the Employees Provident Fund (EPF), I meet nearly every market economist who covers Malaysia, as well as those in policy circles such as from the World Bank and IMF. I don’t know of any who have hesitated to take Malaysia’s official statistics at face value. One of the key tests to determine whether economic data is falsified is internal consistency and statistical irregularity. China for example fails on both counts. Malaysia does not.

The article further states that there is no data for the job participation rate in Malaysia. This is rather unconventional classification, as everyone else uses the term labour force participation rate (LFPR) instead. In any case, the article is completely mistaken. The LFPR for Malaysia has been available at monthly frequencies since 2009, quarterly since 1998, and annual frequencies going back to 1982. The annual numbers are further broken down by age, gender, education, and ethnic background. The data shows, far from a decline in labour market conditions, a steeply rising LFPR from 62.6 per cent in 2009, to a near record high of 67.6 per cent in 2016 (with a long term average of 65 per cent). It should also be noted that Malaysia’s long term average unemployment rate is just under 4 per cent. At the current rate of 3.6 per cent, the labour market would still be considered to be at full employment.

The article goes on to say that Malaysia’s minimum wage is scarcely enforced. On the contrary, data from the EPF, to which all salaried workers are required to contribute, show a massive shift in Malaysia’s salary distribution when the minimum wage was introduced in 2013. Fully 10 per cent of the workforce shifted from below the minimum wage to above it, and the wage effect was evident across the entire bottom half of the distribution.

Fourth, the article claims that, “In Kuala Lumpur alone, credible estimates put inflation at least twice the ‘official’ number”, and “inflation hits close to double-digits, in real terms, according to some investment banks’ research.” The second statement is nonsensical – there is no such thing as inflation in “real” terms, because in economics real prices of goods refer to inflation-adjusted prices. But the larger point – that inflation is perceived to be higher than official statistics – is actually well known. Well known because the same discrepancy has been documented nearly everywhere.

A recent Federal Reserve research note explicitly addressing this issue, found that US citizens perceptions of inflation were consistently twice as high as the official statistics. Why that is so is an interesting question in itself and would take far too long to explore, but the larger point is that differences between perception and official statistics cannot be taken as prima facie evidence that those statistics are false. There is plenty of evidence that the opposite is true, for example via MIT’s Billion Prices Project, that it is perceptions that are mistaken and not the statistics. Furthermore, research into the methodology and mechanics of constructing consumer price indices conclude that if anything, the CPI tends to overstate inflation, not understate it.

Fifth, the article claims Malaysia’s fiscal deficit and national debt are “ballooning”. In fact, the deficit has been halved since 2009, to just 3.1 per cent for 2016, while the debt to GDP ratio has been kept under the 55 per cent limit the government imposed on itself. Manufacturing, far from being routed, has continued to thrive, with sales breaching an all time high of ringgit 60 billion a month over the past few months. Moreover, Malaysia has been one of the very few countries in the region to record positive trade growth over the past two years.

In the Age of Trump, democratic institutions are under attack everywhere. Trust in public institutions has declined, not just in Malaysia, but globally. Globalisation itself is in retreat, and schisms and conflicts that we thought were gone, have arisen anew. Be that as it may, undermining confidence in public institutions without substantive evidence reinforces these troubling trends, and works against the very foundations of a democratic society. Without them, the very thing that Manjit Bhatia appears to be arguing for, becomes further from reality.

Nurhisham Hussein is General Manager, Economics and Capital Markets at Employees Provident Fund, Malaysia.


The Coming Technology Policy Debate

May 7, 2017

What is really needed are new and improved institutions, policies, and cooperation between law enforcement and private firms, as well as among governments. Such efforts must not just react to developments, but also anticipate them. Only then can we mitigate future risks, while continuing to tap new technologies’ potential to improve people’s lives.–Michael J. Boskin

The Coming Technology Policy Debate

by Michael J.

*Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution. He was Chairman of George H. W. Bush’s Council of Economic Advisers from 1989 to 1993, and headed the so-called Boskin Commission, a congressional advisory body that highlighted errors in official US inflation estimates.

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What do the leaks of unflattering email from the Democratic National Committee’s hacked servers during the 2016 US presidential election campaign and the deafening hour-long emergency-warning siren in Dallas, Texas, have in common? It’s the same thing that links the North Korean nuclear threat and terrorist attacks in Europe and the United States: all represent the downsides of tremendously beneficial technologies – risks that increasingly demand a robust policy response.


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It is the Fourth Revolution–The Only Certainty is Change

The growing contentiousness of technology is exemplified in debates over so-called net neutrality and disputes between Apple and the FBI over unlocking suspected terrorists’ iPhones. This is hardly surprising: as technology has become increasingly consequential – affecting everything from our security (nuclear weapons and cyberwar) to our jobs (labor-market disruptions from advanced software and robotics) – its impact has been good, bad, and potentially ugly.

First, the good. Technology has eliminated diseases like smallpox and has all but eradicated other, like polio; enabled space exploration; sped up transportation; and opened new vistas of opportunity for finance, entertainment, and much else. Cellular telephony alone has freed the vast majority of the world’s population from communication constraints.

Technical advances have also increased economic productivity. The invention of crop rotation and mechanized equipment dramatically increased agricultural productivity and enabled human civilization to shift from farms to cities. As recently as 1900, one-third of Americans lived on farms; today, that figure is just 2%.

Similarly, electrification, automation, software, and, most recently, robotics have all brought major gains in manufacturing productivity. My colleague Larry Lau and I estimate that technical change is responsible for roughly half the economic growth of the G7 economies in recent decades.

Pessimists worry that the productivity-enhancing benefits of technology are waning and unlikely to rebound. They claim that technologies like Internet search and social networking cannot improve productivity to the same extent that electrification and the rise of the automobile did.

Optimists, by contrast, believe that advances like Big Data, nanotechnology, and artificial intelligence herald a new era of technology-driven improvements. While it is impossible to predict the next “killer app” arising from these technologies, that is no reason, they argue, to assume there isn’t one. After all, important technologies sometimes derive their main commercial value from uses quite different from those the inventor had in mind.

Optimists, by contrast, believe that advances like Big Data, nanotechnology, and artificial intelligence herald a new era of technology-driven improvements. While it is impossible to predict the next “killer app” arising from these technologies, that is no reason, they argue, to assume there isn’t one. After all, important technologies sometimes derive their main commercial value from uses quite different from those the inventor had in mind.

For example, James Watt’s steam engine was created to pump water out of coal mines, not to power railroads or ships. Likewise, Guglielmo Marconi’s work on long-distance radio transmission was intended simply to create competition for the telegraph; Marconi never envisioned broadcast radio stations or modern wireless communication.

But technological change has also spurred considerable dislocation, harming many along the way. In the early nineteenth century, fear of such dislocation drove textile workers in Yorkshire and Lancashire – the “Luddites” – to smash new machines like automated looms and knitting frames.

The dislocation of workers continues today, with robotics displacing some manufacturing jobs in the more advanced economies. Many fear that artificial intelligence will bring further dislocation, though the situation may not be as dire as some expect. In the 1960s and early 1970s, many believed that computers and automation would lead to widespread structural unemployment. That never happened, because new kinds of jobs emerged to offset what dislocation occurred.

In any case, job displacement is not the only negative side effect of new technology. The automobile has greatly advanced mobility, but at the cost of unhealthy air pollution. Cable TV, the Internet, and social media have given people unprecedented power over the information they share and receive; but they have also contributed to the balkanization of information and social interaction, with people choosing sources and networks that reinforce their own biases.

Modern information technology, moreover, tends to be dominated by just a few firms: Google, for example, is literally synonymous with Internet search. Historically, such a concentration of economic power has been met with pushback, rooted in fears of monopoly. And, indeed, such firms are beginning to face scrutiny from antitrust officials, especially in Europe. Whether consumers’ generally tolerant attitudes toward these companies will be sufficient to offset historic concerns over size and abuse of market power remains to be seen.

But the downsides of technology have become far darker, with the enemies of a free society able to communicate, plan, and conduct destructive acts more easily. The Islamic State and al-Qaeda recruit online and provide virtual guidance on wreaking havoc; often, such groups do not even have to communicate directly with individuals to “inspire” them to perpetrate a terrorist attack. And, of course, nuclear technology provides not only emissions-free electricity, but also massively destructive weapons.

All of these threats and consequences demand clear policy responses that look not just to the past and present, but also to the future. Too often, governments become entangled in narrow and immediate disputes, like that between the FBI and Apple, and lose sight of future risks and challenges. That can create space for something really ugly to occur, such as, say, a cyber attack that knocks out an electrical grid. Beyond the immediate consequences, such an incident could spur citizens to demand excessively stringent curbs on technology, risking freedom and prosperity in the quest for security.

What is really needed are new and improved institutions, policies, and cooperation between law enforcement and private firms, as well as among governments. Such efforts must not just react to developments, but also anticipate them. Only then can we mitigate future risks, while continuing to tap new technologies’ potential to improve people’s lives.

Najib Razak’s Baloney Economics

April 22, 2017

Najib  Razak’s Baloney  Economics

by TK Chua

Since when is inflation not due to bad policies, poor macroeconomics management, inefficiency, massive corruption and loss of confidence? Sorry, are there new economic theories emerging?

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A Political Baloney

Why single out some external factors igniting inflation when these factors are also applicable and affecting other economies?

Malaysia is a net oil exporting country, but global oil prices have now become a major factor accounting for our high inflation. Can we not see the baloney and the irony here? What about countries with no oil to begin with? Would they not be affected by high or low prices of oil as well?

The “Trump phenomenon” is a uniform factor likely to affect most countries. Why should Malaysia suffer more than others if indeed Trump has caused reverse capital flows and currency realignments globally?

The ringgit has depreciated not just against the US dollar, but also against the Singapore dollar, Chinese Renminbi and Thai baht, just to name a few.Malaysia’s inflation is unprecedented in recent months. When global oil prices were more than US$100 per barrel, did Malaysia’s inflation reach 8%?

I hope some of us have heard of this statement before, “Inflation is always and everywhere a monetary phenomenon.” The primary cause is always too much money chasing after too few goods.

The Shrinking Ringgit

We can argue and debate whatever we want, but inflation is invariably caused by the following factors:

First, high taxes and unproductive use of tax money. I have lived in this country long enough to know that the GST is a major culprit of inflation, causing prices to escalate higher than the GST rate due to our half-baked implementation.

 Second, when there is too much fat or unproductivity in the economy. When there are sectors that get the bulk of the income/subsidies/wages for doing nothing, they cause inflation.

Third, when we have too many over-priced projects and contracts. When contractors and promoters get too much profit, the people must pay for it through higher prices. There are no free lunches in this world.

Fourth, when government borrows and spends too much. Fiscal deficit is a given in Malaysia, regardless of the state of the economy. Borrowing to finance deficit from inflationary sources could make the situation worse.

Fifth, when policies favour the cronies. When we have massive distortions and profiteering due to collusion and complicity, prices will escalate. Prices of homes are high because developers have always got what they wanted at the expense of the buyers.

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Najib Razak’s Non-Bumiputra Crony

Sixth, when foreign monies are allowed to pour in indiscriminately. When we have too much foreign money going into our real estate and property sector, it is almost certain the locals, including the middle class, would not be able to compete. Probably, the purchasing power of 5% of rich Chinese is bigger than the whole middle class of this country.

Seventh, we have too much “bad news”. It is almost a daily affair for us, hearing of mega deals going wrong. I must say Malaysia is a strong young man but has subjected himself to constant drugging, drinking and smoking. Sooner than later, something must give.

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International Rogues Gallery

This is the essence of lack of confidence being manifested in our country today. I believe the ringgit is suffering not just because foreigners are pulling out. I think many high net worth Malaysians too are hedging to protect themselves.

We owe ourselves the responsibility to look at issues confronting us honestly and objectively. Even if there are external factors affecting inflation, we must still avail ourselves macroeconomic tools to mitigate them.

Have we resolved issues that are likely to restore confidence? Have we reduced the distortions and inefficiency prevailing in the economy? Some have argued that Pakatan Harapan-controlled states, namely Penang and Selangor, are also suffering from high inflation and hence, it is something to be accepted.

I think this is a “political” argument devoid of economic logic and reality. Penang and Selangor are subjected to the same economic and political environment as the rest of the federation. They are not exempted from the effects of bad policies or the erosion of confidence arising from bad policies.

TK Chua is an FMT reader.


Illiberal Stagnation

April 9, 2017

Illiberal Stagnation

by Joseph E. Stiglitz

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Today (April 2), a quarter-century after the Cold War’s end, the West and Russia are again at odds. This time, though, at least on one side, the dispute is more transparently about geopolitical power, not ideology. The West has supported in a variety of ways democratic movements in the post-Soviet region, hardly hiding its enthusiasm for the various “color” revolutions that have replaced long-standing dictators with more responsive leaders – though not all have turned out to be the committed democrats they pretended to be.

Too many countries of the former Soviet bloc remain under the control of authoritarian leaders, including some, like Russian President Vladimir Putin, who have learned how to maintain a more convincing façade of elections than their communist predecessors. They sell their system of “illiberal democracy” on the basis of pragmatism, not some universal theory of history. These leaders claim that they are simply more effective at getting things done.

Russia is now enabling the Taliban’s disingenuous diplomacy by pretending that ISIS is the more worrisome threat. It’s a game the Russians have been playing for more than a year.–Russia’s New Favorite Jihadis: The Taliban

That is certainly true when it comes to stirring nationalist sentiment and stifling dissent. They have been less effective, however, in nurturing long-term economic growth. Once one of the world’s two superpowers, Russia’s GDP is now about 40% of Germany’s and just over 50% of France’s. Life expectancy at birth ranks 153rd in the world, just behind Honduras and Kazakhstan.

In terms of per capita income, Russia now ranks 73rd (in terms of purchasing power parity) – well below the Soviet Union’s former satellites in Central and Eastern Europe. The country has deindustrialized: the vast majority of its exports now come from natural resources. It has not evolved into a “normal” market economy, but rather into a peculiar form of crony-state capitalism.

Yes, Russia still punches above its weight in some areas, like nuclear weapons. And it retains veto power at the United Nations. As the recent hacking of the Democratic Party in the United States shows, it has cyber capacities that enable it to be enormously meddlesome in Western elections.

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There is every reason to believe that such intrusions will continue. Given US President Donald Trump’s deep ties with unsavory Russian characters (themselves closely linked to Putin), Americans are deeply concerned about potential Russian influences in the US – matters that may be clarified by ongoing investigations.

Many had much higher hopes for Russia, and the former Soviet Union more broadly, when the Iron Curtain fell. After seven decades of Communism, the transition to a democratic market economy would not be easy. But, given the obvious advantages of democratic market capitalism to the system that had just fallen apart, it was assumed that the economy would flourish and citizens would demand a greater voice.

What went wrong? Who, if anyone, is to blame? Could Russia’s post-communist transition have been managed better?

We can never answer such questions definitively: history cannot be re-run. But I believe what we are confronting is partly the legacy of the flawed Washington Consensus that shaped Russia’s transition. This framework’s influences was reflected in the tremendous emphasis reformers placed on privatization, no matter how it was done, with speed taking precedence over everything else, including creating the institutional infrastructure needed to make a market economy work.

Fifteen years ago, when I wrote Globalization and its Discontents, I argued that this “shock therapy” approach to economic reform was a dismal failure. But defenders of that doctrine cautioned patience: one could make such judgments only with a longer-run perspective.

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Today, more than a quarter-century since the onset of transition, those earlier results have been confirmed, and those who argued that private property rights, once created, would give rise to broader demands for the rule of law have been proven wrong. Russia and many of the other transition countries are lagging further behind the advanced economies than ever. GDP in some transition countries is below its level at the beginning of the transition.

Many in Russia believe that the US Treasury pushed Washington Consensus policies to weaken their country. The deep corruption of the Harvard University team chosen to “help” Russia in its transition, described in a detailed account published in 2006 by Institutional Investor, reinforced these beliefs.

I believe the explanation was less sinister: flawed ideas, even with the best of intentions, can have serious consequences. And the opportunities for self-interested greed offered by Russia were simply too great for some to resist. Clearly, democratization in Russia required efforts aimed at ensuring shared prosperity, not policies that led to the creation of an oligarchy.

The West’s failures then should not undermine its resolve now to work to create democratic states respecting human rights and international law. The US is struggling to prevent the Trump administration’s extremism – whether it’s a travel ban aimed at Muslims, science-denying environmental policies, or threats to ignore international trade commitments – from being normalized. But other countries’ violations of international law, such as Russia’s actions in Ukraine, cannot be “normalized” either.