US Justice Department Probe of 1MDB in Danger?


March 15, 2017

US Justice Department Probe of 1MDB in Danger?

by John Berthelsen @www.asiasentinel.com

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U.S Attorney Preet Bharara

There is concern in Kuala Lumpur that the United States Justice Department’s investigation into the state-owned 1Malaysia Development Bhd., which is ensnared in one of the world’s biggest financial scandals, could be stymied in the wake of the March 10 firing by President Donald Trump of the country’s 46 US attorneys.

The Trump administration announced it had ordered all Obama administration prosecutors to tender their resignations immediately, including Preet Bharara, the most aggressive of the US prosecutors, who said he had met with Trump in November, telling reporters that both Trump and Jeff Sessions, now the Attorney General, had asked him about staying on, which Bharara said he would do, according to the New York Times.

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Trump is not interested in Malaya. To him Najib Razak is not a small potato

“We fear (Prime Minister Najib Razak) has Trumped us,” said a member of the political opposition in Kuala Lumpur. “Bharara’s firing has discouraged all the reformers in KL. They think the 1MDB investigation will die.”

That may be too pessimistic. Nonetheless, the concerns over the departure of federal attorneys handling the 1MDB case were compounded by the fact that the case also involves an investigation into the activities of the investment bank Goldman Sachs and its role in underwriting and steering US$6.5 billion in bond sales for 1MDB. Gary Cohn, the current president and chief operating officer of Goldman, has been appointed the head of Trump’s Council of Economic Advisors.  Treasury Secretary Steve Mnuchin, Securities and Exchange Commission head Jay Clayton and Steve Bannon, Trump’s chief adviser, have all been connected to Goldman as well.

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In addition, Trump himself called Prime Minister Najib in the middle of the night in mid-November for an amicable conversation at the behest of businessman Syed Azman of Weststar Group, a sprawling Malaysia-based conglomerate with interests in cars, aviation, construction, defense and engineering. Azman’s 40 helicopters shuttle people and goods to offshore oil platforms.

 Azman, according to sources in Kuala Lumpur, knows Trump relatively well and plays golf with the President, a real estate tycoon before his election. Some years ago Azman bought two of Trump’s ornate branded jets for use by his own businesses. During the presidential campaign, he re-loaned one of the jets back for use by Trump’s aides. It was repainted in the Trump livery and used during the campaign, a source in Kuala Lumpur told Asia Sentinel.

According to details of the conversation by Najib’s wife Rosmah Mansor, Trump, also asked Najib when the latter planned to visit the US, to which the Prime Minister replied, “Wait until you settle in and I will come. I would like to discuss a few things with you.”

The US Justice Department last July announced a sweeping investigation into the activities of 1MDB, with US Attorney General Loretta E. Lynch alleging “an international conspiracy to launder funds misappropriated from a Malaysian sovereign wealth fund.”

Although he is identified only as “Malaysian Public Official No. 1,” it was clear that Najib was the target of what Lynch called “the largest single action ever brought” under the US’s Kleptocracy Asset Recovery Initiative.

The US Justice Department investigation is a damning indictment of the entire structure surrounding 1MDB.  It found that from 2009 through 2015, more than US$3.5 billion in funds belonging to 1MDB were misappropriated from an entity ostensibly created by the Malaysian government to promote economic development in Malaysia through global partnerships and foreign direct investment, and intended to be used for improving the well-being of the Malaysian people.

Despite the allegations, Najib appears to be secure in his job as premier, which he assumed in 2009. In fact, he believed to be solid enough to call a snap election prior to the deadline required for national elections in April of 2018.

Goldman Sachs came into the picture in July last year with the allegations that billions of dollars were diverted from 1MDB for personal use by Public Official No. 1, his stepson and others.  It was Goldman that helped 1MDB raise US$6.5 billion in three bond sales   to invest in energy projects and real estate. Goldman earned nearly US$600 million to underwrite the sale of the bonds. The lawsuits alleged investors weren’t properly informed about the use and nature of the bonds and that the offering circulars for two of the bonds issued in 2012 allegedly contained “material misrepresentations and omissions” over what the proceeds of the bonds would be used for and the nature of the relationship between 1MDB and International Petroleum Investment Company (IPIC), an entity owned by the Abu Dhabi government.

Goldman has denied all wrongdoing, saying it had no visibility into whether some of the funds were subsequently diverted into things like the purchase of expensive art work and the funding of the blockbuster movie Wolf of Wall Street, produced by Najib’s stepson and others.

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High Flying Investment Banker Leissner

Nonetheless, Tim Leissner, once Goldman’s star banker in Southeast Asia, stepped down from his position last March, either voluntarily or because he was suspended, as investigations widened in Singapore, Switzerland, Hong Kong, Abu Dhabi, France and other countries in addition to the US.

There is no indication that the investigations into 1MDB and Goldman have been stopped.  Justice Department officials in New York and Los Angeles are said to be continuing to search for additional assets connected to 1MDB and the Najib family to sequester under the kleptocracy statute.

In addition, all presidents have had the authority to dismiss regional US attorneys, who are political appointees and serve at the pleasure of the President. However, unlike Ambassadors, for instance, the prosecutors are almost always professionals widely respected in their field.

Bharara, who rules over Manhattan, was appointed in 2009 by President Obama. He has earned a reputation as an aggressive prosecutor who has taken on a wide range of white-collar crimes and won a flock of convictions.

Playing Malaysia’s Number Game


March 13, 2017

Manjit Bhatia’s article’s article is on my blog.

https://dinmerican.wordpress.com/2017/03/08/najibs-criminal-state-of-mind/

Image result for Najib Razak and the Malaysian economyThe Malaysian Treasury is all but full

What follows is my friend Nurhisham Hussein’s response.

My own reaction is that I do not trust Malaysian government statistics since they are subject to manipulation by politicians in power. I do respect Nurhisham’s views and commend him for attempting to defend  “economic data from Malaysia”.

The sad truth is that there is so much fake news from Najib Razak and his cohorts in recent years that I have difficulty in knowing what is fact and what is fiction. It is something I experienced in attempting to figure out Donald Trump. But when it comes to Malaysia it is pretty straight forward since in the Malaysian context, fiction is fact.

By the way, what China has to do with the issues raised in Manjit’s article. This statement which I quote from Nurhisham’s article –“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”–is irrelevant.

Allow me to quote a comment from Greg Balkin who regards Nurhisham’s article as: “A very strong rebuttal to Manjit Bhatia’s shoddy arguments.

Unlike MB who simply fights against the wind and even with his own shadow, at least Nurhisham Hussein provided actual facts and statistics for readers to contemplate on and question if necessary.

As a long-time Southeast Asia watcher, I have been very concerned about Malaysia which is increasingly beset with contradictory developments. Economically, it continues to grow faster than some neighbouring countries such as Thailand and Cambodia (That is bull Greg, check your facts on Cambodia from the Asian Development Bank before making your comment. In its most recent assessment,the Bank described Cambodia as an emerging tiger economy), yet it is mired in a series of financial scandals over the past three years, not to mention the worrying political scene.

The problem is many Malaysians have lost faith in the Najib Administration to the extent that any article that chastises Putrajaya is welcome even if it is not backed up with facts and statistics. One can read many of them on Malaysiakini or Free Malaysia Today. But it does not help Malaysians to develop a more critical mind when it comes to holding the powers-that-be to account.

This explains why many opposition leaders, blinded by popular support and swayed by populist sentiment, simply make one unsubstantiated allegation after another, only to find their position untenable and forced to retract thereafter.

No worries, for they have the people behind them whose negative perceptions of the government are already cast in stone and it matters not if these allegations hold water. If this vicious circle persists, I would not surprise to see Malaysia vote out UMNO and replace it with another set of arrogant politicians armed with half-baked policies to administer the country.

But it is a politician’s job to make sensational yet unsubstantiated claims, and an economist’s one to right them. Precisely why MB’s latest article is not only a huge letdown, but one that is unbecoming of his credentials, if any.”

Let me present an alternative reaction to Nurhisham’s article. It is from someone who calls himself Bumiputera Graduate as follows:

“I am unsure if Nurhisham is trying to shore up confidence in the Malaysian economy or defend the credibility of social and economic data produced in Malaysia.

I think Nurhisham is an expert at  the sleight of hand.  He has shifted the focus in the article from the main points that Manjit is making to those where Manjit is inaccurate.

Among the inaccuracies Nurhisham pointed out is that Malaysia does publish its labour force participation numbers, and that its budget deficit is going down. But Nurhisham doesn’t deny that perceived inflation figures are higher than reported figures; he only says it’s also the case with the US, which is not an answer at all.

He doesn’t touch on Manjit’s point on Bank Negara Malaysia manipulating the currency. Is Manjit right? Or is he wrong? Nurhisham says that his friends and associates at IMF and the World Bank have full confidence in Malaysia’s statistics.

Who knows if Manjit’s friends at the Fund and the Bank don’t have any confidence in Malaysia’s statistics. Hardly an argument worth a pinch of salt coming from the general manager, economics and capital markets of a government agency – the Employers Provident Fund – whose investment decisions are themselves questionable.

Again, when there are conservative estimates of 2 million undocumented migrant workers, with what confidence will you say that the minimum wage is implemented?

The labour market, going by his 3.6% indicator, may be at full employment, but he’s sweeping away the big problem of graduate unemployment (predominantly a Malay problem), the huge migrant labour problem, and the low productivity.

But if Manjit does a bit more of research and does a full article on the Malaysian economy, he may come up with a longer menu of issues that plague the economy than Nurhisham will be able to defend.

Manjit Bhatia, the byline says, is with a risk analysis company. If people like Manjit have views like this, that says a lot for the confidence that foreign analysts have in the Malaysian economy.

I think Nurhisham fails miserably in trying to shore up optimism in the economy, if that was his intention, even as he defends the credibility of data coming from Malaysia. With rebuttals such as his, what little confidence the public has, will further slide down.”

I leave you, my blog readers, to decide between the two views (Greg Balkin and Bumiputera Graduate). As far as I am concerned, and if I have surplus cash to invest, I will stay out the Malaysian stock exchange, the bond market and the Malaysian ringgit for a while, since I have no confidence in the Najib Administration’s management of the Malaysian economy. –Din Merican

 Playing Malaysia’s number game

by Nurhisham Hussein

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.

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Between Idris Jala and Najib Razak–A Deformed Malaysia

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.

A blinkered Fiscal Vision-There is no such thing as a free lunch, Mr. Trump


Match 7, 2017

Donald Trump may have veered from self-inflicted crisis to self-inflicted crisis over the course of his young presidency, but he has kept one policy goal steadily before him: tax cuts for the wealthy. A case in point is his recent proposal to find $54 billion more for military spending by slashing Head Start, food aid for low-income pregnant women, environmental protection and other programs. Those trade-offs are bad enough in themselves. But they also reveal a ruinous worldview in which nondefense spending is always excessive and tax cuts are necessary for growth. This sort of thinking will only weaken the economy and betray the people who put their hopes in Mr. Trump.

Spending on the nonmilitary discretionary programs that have been targeted by Mr. Trump comes to 3.2 percent of the economy — well below the average of 3.8 percent going back to 1962. By calling for cuts that would average about 15 percent in almost every category other than defense and “mandatory” programs like Social Security and Medicare, Mr. Trump would undermine his promises to make sure “every child in America has access to a good education,” to help the “poorest and most vulnerable” and to rebuild infrastructure. Other categories at risk of being cut include scientific and medical research, job training, national parks, air traffic control and maintenance of dams.

Worse yet, some Republicans may call for limiting Mr. Trump’s proposed reductions by cutting instead from Social Security and Medicare, which Mr. Trump has pledged to protect. That would be needlessly tightfisted. A rich nation with a resilient economy can afford to care for both the poor and the elderly. Besides, support for the elderly is already becoming stingier as a result of changes instituted years ago, including an increase in the Social Security retirement age from 65 in 2002 to 67 by 2027.

That is not to imply that all spending cuts are off limits. But it’s sensible to mix them with tax increases. The approach of Mr. Trump and congressional Republicans would deeply cut taxes even as spending is slashed.

Mr. Trump has essentially called for three tax cuts: a personal income tax cut, a corporate income tax cut and a cut achieved by repealing the Affordable Care Act. Specifics are scant, but one thing is clear: All three would overwhelmingly benefit the wealthiest Americans. A campaign draft of the income tax plan indicated that at least half of the proposed multitrillion-dollar tax cut would flow to the top 1 percent of earners in 2025, according to the nonpartisan Tax Policy Center. Repealing the A.C.A. would end the additional 0.9 percent Medicare Hospital Tax on incomes above $200,000 ($250,000 for married couples).

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Donald Trump is a bold conservative. But he’s not just a conservative on fiscal issues… He is a foreign policy conservative, too! That’s why  on MSNBC’s Morning Joe, Donald Trump explained his plan to do what President Barack Obama is unable to do: Destroy the Islamic State (ISIS). But make sure that these mentally deranged Islamic fanatics don’t screw  you first like they did to George W. Bush on September 9, 2011

Mr. Trump and Republican lawmakers say tax cuts spread prosperity by generating economic growth and thus increasing federal revenue — a thoroughly debunked claim. Experience shows that large tax cuts either deepen the nation’s debt or necessitate spending cuts. Forecasts from the Congressional Budget Office indicate that if tax revenue is not increased in the coming decade, spending cuts of $3 trillion — or about 25 percent outside of Social Security and Medicare — will be required to keep the debt at its current level of 77.5 percent of the economy. Clearly, if defense spending rises in the coming decade, as Mr. Trump has called for, while tax revenue declines, either the debt will rise or spending cuts will need to be even deeper.

Both outcomes can be avoided by abandoning deep tax cuts. It would be wise to take on new debt for stimulus during economic downturns or for infrastructure investments, but not to finance tax cuts during a military buildup. Economic activity could be encouraged by bolstering wages, including federal overtime protections. Tax revenue could be raised in constructive ways, including a carbon tax.

Giving the wealthy never-ending tax cuts while gutting programs for the middle class would create more of the resentment and inequality Mr. Trump has promised to address.

Economists in Denial


February 27, 2017

Economists in Denial

By Lord Skidelsky*

https://www.project-syndicate.org/columnist/robert-skidelsky

*Robert (Lord) Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

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View from above of the Bank of England. The central bank of the UK manages the sterling currency and regulates financial transactions. Banker to Central Banks.

Early last month, Andy Haldane, Chief Economist at the Bank of England, blamed “irrational behavior” for the failure of the BoE’s recent forecasting models. The failure to spot this irrationality had led policymakers to forecast that the British economy would slow in the wake of last June’s Brexit referendum. Instead, British consumers have been on a heedless spending spree since the vote to leave the European Union; and, no less illogically, construction, manufacturing, and services have recovered.

Haldane offers no explanation for this burst of irrational behavior. Nor can he: to him, irrationality simply means behavior that is inconsistent with the forecasts derived from the BoE’s model.

It’s not just Haldane or the BoE. What mainstream economists mean by rational behavior is not what you or I mean. In ordinary language, rational behavior is that which is reasonable under the circumstances. But in the rarefied world of neoclassical forecasting models, it means that people, equipped with detailed knowledge of themselves, their surroundings, and the future they face, act optimally to achieve their goals. That is, to act rationally is to act in a manner consistent with economists’ models of rational behavior. Faced with contrary behavior, the economist reacts like the tailor who blames the customer for not fitting their newly tailored suit.

Yet the curious fact is that forecasts based on wildly unrealistic premises and assumptions may be perfectly serviceable in many situations. The reason is that most people are creatures of habit. Because their preferences and circumstances don’t in fact shift from day to day, and because they do try to get the best bargain when they shop around, their behavior will exhibit a high degree of regularity. This makes it predictable. You don’t need much economics to know that if the price of your preferred brand of toothpaste goes up, you are more likely to switch to a cheaper brand.

Central banks’ forecasting models essentially use the same logic. For example, the BoE (correctly) predicted a fall in the sterling exchange rate following the Brexit vote. This would cause prices to rise – and therefore consumer spending to slow. Haldane still believes this will happen; the BoE’s mistake was more a matter of “timing” than of logic.

This is equivalent to saying that the Brexit vote changed nothing fundamental. People would go on behaving exactly as the model assumed, only with a different set of prices. But any prediction based on recurring patterns of behavior will fail when something genuinely new happens.

Non-routine change causes behavior to become non-routine. But non-routine does not mean irrational. It means, in economics-speak, that the parameters have shifted. The assurance that tomorrow will be much like today has vanished. Our models of quantifiable risk fail when faced with radical uncertainty.

The BoE conceded that Brexit would create a period of uncertainty, which would be bad for business. But the new situation created by Brexit was actually very different from what policymakers, their ears attuned almost entirely to the City of London, expected. Instead of feeling worse off (as “rationally” they should), most “Leave” voters believe they will be better off.

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Justified or not, the important fact about such sentiment is that it exists. In 1940, immediately after the fall of France to the Germans, the economist John Maynard Keynes wrote to a correspondent: “Speaking for myself I now feel completely confident for the first time that we will win the war.” Likewise, many Brits are now more confident about the future.

This, then, is the problem – which Haldane glimpsed but could not admit – with the BoE’s forecasting models. The important things affecting economies take place outside the self-contained limits of economic models. That is why macroeconomic forecasts end up on the rocks when the sea is not completely flat.

The challenge is to develop macroeconomic models that can work in stormy conditions: models that incorporate radical uncertainty and therefore a high degree of unpredictability in human behavior.

Keynes’s economics was about the logic of choice under uncertainty. He wanted to extend the idea of economic rationality to include behavior in the face of radical uncertainty, when we face not just unknowns, but unknowable unknowns. This of course has much severer implications for policy than a world in which we can reasonably expect the future to be much like the past.

There have been a few scattered attempts to meet the challenge. In their 2011 book Beyond Mechanical Markets, the economists Roman Frydman of New York University and Michael Goldberg of the University of New Hampshire argued powerfully that economists’ models should try to “incorporate psychological factors without presuming that market participants behave irrationally.” Proposing an alternative approach to economic modeling that they call “imperfect knowledge economics,” they urge their colleagues to refrain from offering “sharp predictions” and argue that policymakers should rely on “guidance ranges,” based on historical benchmarks, to counter “excessive” swings in asset prices.

The Russian mathematician Vladimir Masch has produced an ingenious scheme of “Risk-Constrained Optimization,” which makes explicit allowance for the existence of a “zone of uncertainty.” Economics should offer “very approximate guesstimates,” requiring “only modest amounts of modeling and computational effort.”

But such efforts to incorporate radical uncertainty into economic models, valiant though they are, suffer from the impossible dream of taming ambiguity with math and (in Masch’s case) with computer science. Haldane, too, seems to put his faith in larger data sets.

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A Towering Figure in Economics–Lord Keynes

Keynes, for his part, didn’t think this way at all. He wanted an economics that would give full scope for judgment, enriched not only by mathematics and statistics, but also by ethics, philosophy, politics, and history – subjects dropped from contemporary economists’ training, leaving a mathematical and computational skeleton. To offer meaningful descriptions of the world, economists, he often said, must be well educated.

 

Malaysia: Impact of defunding Public Universities


January 24, 2017

Malaysia: Impact of defunding Public Universities

by Dr. Lee Hwok Aun
Published in The Edge, January  16, 2017

Malaysia’s public universities are headed for troubled waters and it is unclear whether our policy makers and executers are even on the lookout. The university rankings business is a debatable one, but I bring it up here because it is the government’s ultimate performance benchmark, and recent developments underscore the detachment of officialdom from the institutions’ woes.–Dr. Lee Hwok-Aun

Image result for Defunding Malaysian Public UniversitiesMalaysia’s Finance Minister Najib Razak–Presiding over a soon to be financially insolvent nation

Malaysia’s public universities are headed for troubled waters and it is unclear whether our policy makers and executers are even on the lookout. The university rankings business is a debatable one, but I bring it up here because it is the government’s ultimate performance benchmark, and recent developments underscore the detachment of officialdom from the institutions’ woes.

The University of Malaya’s rise to #133 on the QS World Universities score sheet in 2016, its best position ever on this rankings scheme, was greeted on campus with surprise, nonchalance, and a dash of despair. The sentiments are distinct from previous years. When UM inched up the rankings, from #156 in 2012 to #146 in 2015, these small and steady gains brought relief, and a bigger hop from #167 in 2011 to #156 in 2012 infused a sense of accomplishment. Research grants were quite abundant, there was support for internationalization, for recruiting and retaining talent. Universities were basically supported, we seemed to be doing things better; improvement in the rankings made sense.

Then came the funding cuts. Federal budget allocations for universities were slashed by 12% in 2015, 15% in 2016, and 19% in 2017. UM took the biggest hit in 2016, when it suffered a 27% shortfall from the previous year. And here lies the trigger of despair. This defunding spree, coinciding with a major leap in the rankings, might be taken as vindication, and perhaps embolden further budgetary constriction.

The government will be perilously mistaken to do so. Continual aggressive defunding brings three significant deficits on Malaysia’s public universities.

First, a personnel deficit. Severe fund-slashing compels severe cost-cutting, shock therapy induces desperate measures. Contract staff are one of the first on the chopping block because the funds for this specific category of employees have dried up. Many contracts have not been renewed, and they are not substituted with allocations for part-time instructors or new recruits. Financial dispensability, however, does not equate with importance to core activity and service. Numerous academic departments count on contract academic staff to teach core courses and produce research and publications.

As contract staff are ushered out, the same workload gets distributed among the remaining staff, increasing their burden and contributing to the second deficit, in morale. Academics will likely see burdens increased, while concerns toward the funding cuts are typically dismissed by invoking the seemingly non-negotiable policy of reducing public subsidization of university expenditure. The Higher Education Blueprint 2015-2025 outlined new funding formulae, with performance-based allocations and per student funding as appealing new features. This formulae is to be rolled out on a “gradual”, “gate-staged” basis.

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ISEAS-Yusuf Ishak Institute Senior Fellow, Dr Lee Hwok-Aun

“Performance funding” is especially contentious. If fixated on numbers and not adequately anchored to the public interest and long-term objectives, as seems to be the case, there is every potential for the system to be gamed, for example, by lowering academic rigour to boost completion rates and student satisfaction, or pursuing quantity over quality of research. Given these complexities, one would expect the policy to be agonizingly deliberated, and gradual and systematic if implemented.

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But Universiti Malaya and Universiti Kebangsaan Malaysia have already, for 2016 and 2017 respectively, been administered huge funding cuts of 27% and 31%. Why? Enrolments have not fallen precipitously, nor have the universities massively scaled down operations. Have they performed so badly? The lack of coherence and transparency in the targeting of funding cuts, compounded by drained research grant reservoirs, are disconcerting, and cannot be good for morale in the academic community.

Some initiatives with good potential risk derailment. At the University of Malaya, to allow for academics to play to their relative interests and strengths, different career tracks – focused on research or teaching – are also being rolled out. But in the hasty pursuit of extracting more output from less resources, research track targets have been made frighteningly difficult to hit. Few select that option, and some – the more diligent, productive, conscientious ones – have been forced to take it against their wishes, to the detriment of their morale.

What of the next generation of academics? Policy brims with rhetoric of talent development, and reference to the Higher Education Talent Roadmap, but the Malaysian approach diverges from the practices in recognized institutions. Globally leading universities excel by attracting talent, then trusting them, through their dynamism, creativity and self-motivation, to research, teach and contribute to public knowledge with light monitoring. Malaysian universities are increasingly inclined to do the opposite – micromanaging rewards for formulaic outcomes, distrusting the industry and capability of staff, monitoring for compliance and resisting change, which seriously risk repelling and losing talents that are drawn to institutions that safeguard trust, autonomy and freedom.

Which brings us to a third deficit that can grow as public financing shrinks: our international profile. Malaysia’s public universities, having made inroads in internationalization, could see these gains reversed. The public universities are subject to the public services employment scheme, including the rule that a non-citizen cannot be hired on a permanent basis. All non-Malaysian academics are on contract, predominantly short term. The more contracts are not renewed, the less international our profile. Will Malaysia’s public higher learning institutions, especially the research universities, become more domestic, less global? That might happen, and if so, our presence on the world academic stage will fade. A specific recruitment scheme for public universities, promoting secure employment of international academic staff, is worth considering.

The presumption that rebalancing of university funding sources and reducing of government subsidy necessitates budget cuts also warrants scrutiny. These can be achieved by maintaining the federal allocations, while facilitating growth in other sources. There is currently a baffling downward spiral and multiple moving targets. Both the share of government subsidies and the overall expenditure of universities are falling – why?

Suppose a university currently spends RM100 million and receives RM90 million from government, in line with the current 90% subsidization rate. Expenditure of RM120 million in ten years would be a reasonable projection. If the government share declines to 70%, then in ten years – a “gradual” rollout as the Blueprint stipulates – the government’s contribution would amount to RM84 million, or basically holding steady, not dropping steeply.

Will the government assess the impact of the funding cuts and reconsider the policy – at least its pace and severity? This will take courage, since reducing public funding has been high on the higher education agenda for a decade, and the government defends the deep cuts apparently as a mark of its resolve.

But at the rate we are cutting funds, it will be impossible to avoid deficits in personnel, morale, and international profile.

Dr. Lee Hwok Aun is Senior Fellow at ISEAS-Yusuf Ishak Institute.

 

Malaysians are concerned with the Economy


January 19, 2017

Donald Trump aside, Malaysians are concerned with the Economy

by Martin Khor@www.thestar.com.my

As the new year gets underway, ordinary citizens are concerned about the rising cost of living, the ringgit’s low level and the outflow of capital.

Image result for Felda Global Ventures a messMaking Malaysia messy is his forte

WHILE Donald Trump’s inauguration as the new United States President will hog the headlines this week, it is the bread-and-butter issues that preoccupy the man and woman in the street as the new year gets into stride.

In Malaysia, a major talking point is the state of the economy. Three issues are worrying the ordinary Malaysian – rising prices, the fall of the ringgit and the outflow of capital. Each is an issue in its own right, but they are also all interlinked.

Inflation has become a hot issue because it is accelerating and will continue to do so. There are one-off factors influencing retail prices, such as the removal of the cooking oil subsidy, the weather affecting vegetable output or the slight recovery of the world oil price.

 But prices across the board are affected by the weakening of the ringgit since this increases the prices of imports.

Malaysia is very dependent on imports for a wide range of products, from food and household utensils to machinery and components for making cars, computers and all kinds of other goods.

As the most recent ringgit plunge started in mid November, prices of products that have high import content may not have fully risen yet because the shops are still clearing stocks bought earlier. But you can expect the new prices to kick in more and more.

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Irwan Siregar —  Fox in the  Malaysian Financial Hen House

The second issue is the ringgit decline itself, which has bad and good effects, with some sectors and people losing and others benefiting. The negative effects include:

  • Consumers having to pay higher prices for imported goods and services.
  • Traders and retail shops getting less business as the demand for the dearer imports goes down.
  •  Manufacturers and construction firms paying higher costs for parts and production inputs, which will translate into higher consumer prices and eventually higher house prices.
  • Parents with children studying abroad must fork out more ringgit even if the fees and hostel rent remain the same.
  • The Government and its enterprises and private companies that took loans in foreign currencies lose significantly as they have to spend more ringgit to service their loans.

Among the good effects:

  • Smallholders and companies exporting palm oil, rubber, petroleum and other commodities will receive more revenue in ringgit terms.
  • Local manufacturers exporting goods such as rubber gloves and furniture become more competitive as they can reduce their prices in foreign currency, or else they receive more in ringgit if they retain their international prices.
  • The tourism and hotel business should thrive since it’s cheaper for foreigners to visit Malaysia. Locals who now can’t afford to travel abroad may also spend their holidays in the country.

On balance, will the gains outweigh the losses? From a public perspective, this is unlikely as the higher cost of living will affect all Malaysians, especially the poor and middle classes, and the higher external debt repayment will affect the public and the economy overall.

The prospect of further depreciation of the ringgit also has a bearing on capital flows, the third issue. Malaysia is one of the countries most vulnerable to the shocks of foreign funds moving out, because so much capital was allowed to move in.

In recent years, a new type of vulnerability emerged when foreign funds were welcomed to invest in government bonds denominated in ringgit.

It was originally thought that foreign loans in ringgit would be safe as the borrower would avoid the foreign exchange risk, as contrasted with loans denominated in US dollars.

This is true but the sheer volume of bonds now owned by foreigners makes the economy vulnerable to large outflows in a short period.

Comparison is usually made between potential capital outflows and the level of foreign reserves. The reserves as at December 30, 2016 were US$94.6bil (RM424bil).

The total foreign debt outstanding was RM865bil at the end of September 2016.

Of this, offshore borrowing (in foreign currency) was RM472bil, and ringgit-denominated government bonds held by non-residents were worth RM211bil, according to Bank Negara data.

Some of the investors have a long-term commitment and not everyone will move in the same direction at the same time, but in recent weeks external conditions such as a rise in US interest rates (and anticipation of more rises in 2017) have prompted capital outflows from emerging economies, including Malaysia.

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The country also has high foreign participation in the stock market (22.6% in November 2016), and in recent months there has also been a net withdrawal of equities by foreigners.

November 2016 was a bad month, as foreigners withdrew from the country RM19.9bil of government securities, and RM4.2bil of equities, according to a report in The Star (January 7, 2017). The potential and probability of more capital outflows in 2017 is a factor weighing on the perception of the ringgit’s prospects.

A high trade surplus has previously acted as a strong buffer against potential large capital outflows. The trade and current account balances are still positive, but the surpluses have been declining.

Government measures could help, such as the requirement that exporters convert 75% of their ex­­port proceeds from foreign currencies to ringgit.

Other measures can be considered if the situation does not improve. For example, companies and funds, starting with government-linked ones, can be discouraged from investing abroad – for the time being at least.

Malaysia has ruled out more drastic measures such as capital controls and pegging of the ringgit.

Developments in these three economic issues will be closely watched, not least by the public whose pockets are affected, as the year progresses.

External events could improve the situation, such as if prices of Malaysia’s export commodities increase, or could worsen it, especially if the US raises its interest rates further and if Trump really pursues protectionist policies.

However, domestic policies to respond to the problems are crucial and there should be a comprehensive plan to tackle these issues, since they may persist as 2017 progresses.

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.