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.

International Finance Ministers Discuss Growth Strategies at The George Washington University


April 26, 2017

International Finance Ministers Discuss Growth Strategies

GW-hosted event, “Growth Strategies in a De-Globalizing World,” brought finance ministers from Colombia, Indonesia and Paraguay.

Finance ministers Mauricio Cárdenas, Sri Mulyani Indrawati and Santiago Peña

Finance Ministers Mauricio Cárdenas, Sri Mulyani Indrawati and Santiago Peña discussed their countries’ growth strategies, including focusing domestically in an uncertain global market. (Logan Werlinger/GW Today)
April 20, 2017

 

https://gwtoday.gwu.edu/international-finance-ministers-discuss-growth-strategies

As the International Monetary Fund and World Bank Group spring meetings loomed, the George Washington University on Wednesday hosted international finance ministers and other experts to discuss the global economic landscape and implications for countries trying to grow in a “de-globalizing” world.

The event—hosted by GW’s Institute for International Economic Policy, GW School of Business and the Growth Dialogue—brought together the current finance ministers from Colombia, Indonesia and Paraguay and was moderated by Danny Leipziger, GW professor of practice of international business and managing director of the Growth Dialogue.

“The world is not in a good place,” Dr. Leipziger said in framing the discussion, adding many “warning signs” show countries’ difficulties with growing their economies, particularly at a time when others, including the U.S., are questioning globalization.

Does that mean that countries’ development strategies need to shift? And if so, how? Many agreed that looking inward is important during times of global uncertainty.

“We have to rely on domestic forces,” said Mauricio Cárdenas, Colombia’s minister of finance and public credit, adding infrastructure and brokering national peace and stability are important factors in growing his country’s economy.

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Sri Mulyani Indrawati of Indonesia

Sri Mulyani Indrawati, Indonesia’s Minister of Finance, added that while increasing revenues is important for a country, so is a good spending plan when every dollar counts. “How you spend it, and how you spend it better, is going to also be very critical,” she said.

Looking at trade inter-regionally could also be an important tactic if engaging with the broader globe is difficult, said Santiago Peña, Paraguay’s minister of finance. Many countries in Asia have been able to do this and have coped better with global changes, he said.

Panelists also said growth worries are compounded by uncertainty surrounding some of the rhetoric and policy actions of the Trump administration with respect to globalization and declarations that certain countries have a trade surplus with the United States.

“I hope that GW is also playing an important role in this location because you have a moral responsibility to continue pushing back the policy trend which is worrying for many countries in the world,” Ms. Indrawati said.

Adam Posen, president of the Peterson Institute for International Economics, had some advice for the finance ministers with respect to engaging with the United States.

“One just has to assume for the next couple of years at a minimum that the U.S. is going to be, at best, a bad actor,” when it comes to trade and other international partnerships, he said.

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Malaysia-China Relations: Not China but we are the financially irresponsible and reckless nation


April 4, 2017

Malaysia-China Relations: Not China but we are the financially irresponsible and reckless nation

by P. Gunasegaram@www.malaysiakini.com

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Malaysia’s sudden, new-found amour with China in a plethora of business deals worth hundreds of billions, coming in the wake of the 1Malaysia Development Bhd (1MDB) scandal where RM40 billion is already at risk or  wasted, is tremendously worrying.

The huge amount of China borrowings that will accompany such deals, with delayed payment for up to seven years in some cases, will put the country in grave economic danger in the future as many of the infrastructure projects are not viable.

If some of the projects do not raise enough cash flow to start repaying the massive borrowings by the time payments are due, a great strain will be imposed on the country’s financial position and may even result in it becoming unable to meet its obligations, leading to default.

Already, the involvement of China state-owned firms in 1MDB-related projects such as buying power assets and taking stakes in property development ventures have raised legitimate fears that some of these may involve quid pro quo arrangements in other deals which may benefit Chinese firms.

In other words, putting it bluntly, Malaysia may be giving China plum deals in return for help in covering the hole of over RM30 billion in 1MDB. More on that later but first, here’s a list of some mega deals made.

1. Purchase of 1MDB’s power assets for RM9.83 billion cash in November 2015.

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The purchase was made by China General Nuclear or CGN, putting power assets which were purchased from Malaysian private hands into a China state company. That rubbishes any claim that 1MDB was a strategic development company. The price was considered inflated, leading to speculation that other projects will go to China to compensate for this.

2. Purchase of 1MDB land for RM7.4 billion.

Less than two months later, on New Year’s Eve in 2015, 1MDB sold a 60% controlling interest in Bandar Malaysia to a consortium comprising Iskandar Waterfront Holdings and China Railway Engineering Corporation, a China state company. The latter holds a 40% stake in the venture. This is a highly questionable deal surrendering control of one of 1MDB’s two flagship projects to others, including a China company, when there is enough local property development expertise. It lends credence to there being a quid pro quo deal with China.

3. China is expected to get high-speed rail project costing RM40-80 billion.

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The high-speed rail project between Kuala Lumpur and Singapore is expected to go to a China firm despite international tenders being planned. Interestingly, the Kuala Lumpur terminus is at Bandar Malaysia.

4. The RM55 billion East Coast Rail Link (ECRL) project announced in November 2016.

China will both fund and build this project which has a seven-year delayed payment provision. Essentially a double-tracking project linking the east coast states with the west, there has been no economic viability study on it. There are genuine fears that the construction cost is terribly overstated and it is unviable.

5. A proposed RM200 billion port development in Port Klang.

China is supposedly in the running for this massive project if it does see the light of day. This is a long-term project which again may be unnecessary considering the number of ports being developed concurrently now.

6.The RM42 billion Melaka Gateway project in September 2016.

This includes four islands – three man-made, in a RM30 billion deal with China companies – a port, a bulk-and-break terminal, ship building and ship repair, mixed development, shopping complexes, ferry terminals, marina and so on. Where is the demand for these going to come from?

7. The RM400 billion gross development value Forest City off Johor.

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This massive development on four man-made islands, which may eventually house 700,000 people, is being developed by a China company, effectively in a joint venture with the Johor Sultan. Considering that it is a property development which local players could easily have undertaken, what is the rationale for bringing in yet a Chinese company into this?

Not for altruistic reasons

There are more. Prime Minister Najib Abdul Razak, after a visit to China in November, came back with memoranda of agreement for RM144 billion worth of projects. That list includes ECRL and the Melaka Gateway projects but not the others, which means there are several more projects worth tens of billions of ringgit.

What is very alarming about these projects is their dubious economic value, leading to strong suspicion that they could well be related to covering a hole of over RM30 billion in 1MDB – the Auditor-General’s Report on 1MDB reportedly says US$7 billion could not be accounted for.

In fact, the Financial Times of the UK reported in December that 1MDB is preparing to make a repayment with Chinese assistance to Abu Dhabi’s state-owned fund in settling a US$6.5 billion (RM28.6 billion) dispute over an alleged breach of contract.

The move to begin repaying what 1MDB owes Abu Dhabi’s International Petroleum Investment Company (IPIC) was confirmed by two people familiar with the matter, the FT said.

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Najib Razak and Big Momma

China has been approached as a source of funds for 1MDB, the FT said, citing three people with knowledge of the matter, one of whom said Malaysia would swap assets for financing.

China is of course not doing all of this for altruistic reasons but to further its own interests. First, it aims to get work for its companies and sometimes its own people – it sends in its own workers for many projects.

Two, if countries are unable to repay their debts, then more assets will have to be handed over to China and the affected countries become ever more indebted and linked to China in other ways, furthering China’s aim of strategic and military influence, as this article titled ‘China’s debt-trap diplomacy’ eloquently points out.

As a small country, Malaysia has been rather adept at playing the role of the nimble kijang or deer which keeps itself from getting crushed when elephants fight. But 1MDB’s problems may be leading us down a path which is even more dangerous than the garden path the so-called strategic development company led us up on earlier.

P GUNASEGARAM says throwing good money after bad is a lousy deal which only the desperate make. Email: t.p.guna@gmail.com.

From Obamacare to Ryancare to Don’t Care and maybe Trumpcare


March 15, 2017

From Obamacare to Ryancare to Don’t Care  and maybe Trumpcare

Twenty-Four Million Reasons the G.O.P. Health-Care Bill Is No Good

 By John Cassidy
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Is Ryancare the alternative to Obamacare?

For days, the political world had been waiting nervously for the Congressional Budget Office (CBO) ’s assessment of the House Republicans’ Trump-endorsed proposal to replace Obamacare. On Monday afternoon, when the numbers-heavy report finally appeared, one figure it contained dominated all the others: twenty-four million.

This was the C.B.O.’s estimate of how many fewer people would have health insurance if the Republican legislation—which is called the American Health Care Act—passes. In 2018, the first year that many of the bill’s changes would go into effect, fourteen million “more people would be uninsured under the legislation than under current law,” the report said. The difference “would rise to 21 million in 2020 and then to 24 million in 2026.”

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By anybody’s terms, twenty-four million is a lot of people. It is far larger than the fifteen million that two economists from the Brookings Institution had suggested last week that the C.B.O. might come up with. “To put the 24 million coverage loss in perspective, that reverses the entire coverage gain from the ACA,” one of the Brookings economists, Loren Adler, said Monday on Twitter.

As recently as January, Trump was promising that his Administration would provide “insurance for everybody.” Even for a President whose acquaintanceship with the truth is a casual one, explaining away the figures in the C.B.O. report could be tricky. It was not surprising, therefore, that the White House quickly dispatched Tom Price, the new Secretary of Health and Human Services, to rubbish the C.B.O. analysis. “We disagree strenuously” with the coverage estimates in the report, Price told reporters at the White House. Price insisted that the G.O.P. plan would “cover more individuals at a lower cost.”

Price didn’t provide any numbers to back up this claim. He hasn’t got any. (In fact, on Monday night, Politico reported that the White House’s own internal analysis of the health-care bill projected that twenty-six million fewer people would have coverage over the next decade.) The only thing that the Administration and its allies on Capitol Hill have to fall back on is the vague promise to follow up the A.H.C.A. with a second piece of legislation that would give insurers more freedom to offer cheaper, lower-quality plans, which, in turn, might persuade more young and healthy people to sign up. But that’s a pie-in-the-sky promise. Changing the rules for insurers would require sixty votes in the Senate, which the Republicans don’t have.

The C.B.O. analysis didn’t account for the possibility of insurers being able to offer cheap and lousy plans. The main thing driving its conclusions wasn’t changes to the individual market but the House Republicans’ reckless and deliberate assault on Medicaid, the federal program that provides health care for the poverty-stricken and the working poor. In estimating that twenty-four million people stand to lose their insurance coverage, the C.B.O. said that fourteen million of this total would be accounted for by reductions in Medicaid rolls.

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Any Hope for Trumpcare?

It is important to understand how this estimate was arrived at, and why it is reasonable. Under the Affordable Care Act, the federal government lifted the income threshold for Medicaid eligibility to nearly a hundred and forty per cent of the poverty line. At the same time, Washington also promised states, which administer Medicaid, that it would pay ninety per cent of any costs entailed in this expansion. Thirty-one states, including sixteen that now have Republican governors, took the feds up on this offer. The G.O.P. bill would end the Medicaid expansion in 2020—sooner, possibly, if the White House accedes to demands from ultra-conservative groups. The legislation would also change the way the rest of the Medicaid system is financed, shifting to a “block grant” model in which Washington would pay a fixed amount to the states for each recipient.

As a result of these changes, the C.B.O. report said that “some states would discontinue their expansion of eligibility, some states that would have expanded eligibility in the future would choose not to do so, and per-enrollee pending in the program would be capped.” The end result would be a big drop in enrollment and also a big drop in spending—eight hundred and eighty billion dollars over ten years. “By 2026, Medicaid spending would be about 25 percent less than what CBO projects under current law,” the report says.

The drop in spending on Medicaid helps explain why the C.B.O. estimated that the G.O.P. reform would reduce the deficit by three hundred and thirty-seven billion dollars—a fact that some Republicans seized upon. But why, you might ask, would the deficit be reduced by just three hundred and thirty-seven billion dollars over ten years when spending on Medicaid would fall by eight hundred and eighty billion dollars? The answer is that the bill would take most of the money that is saved from reducing Medicaid and hand it out to rich people in the form of tax cuts. The legislation would abolish the 3.8-per-cent Medicare tax on investment income and the 0.9-per-cent surtax on ordinary income that the A.C.A. applied to people who make more than two hundred and fifty thousand dollars a year. According to the C.B.O., getting rid of these taxes and some annual fees that the A.C.A. imposed on insurers would reduce revenues by five hundred and ninety-two billion dollars over ten years.

If the Republicans really wanted to fulfill Trump’s promise of insuring everybody—or, at least, preventing a big fall in insurance rates—they could have taken the five hundred and ninety-two billion dollars and used them to maintain the Medicaid expansion. Or to enlarge the new tax credits they want to offer for the purchase of individual insurance, which, in some cases, would be much smaller than the subsidies offered under Obamacare.

And I mean much smaller. In a table at the end of its report, the C.B.O. provided some “illustrative examples” of how different types of people might fare under the new system. Take a single sixty-four-year-old with an annual income of twenty-six thousand five hundred dollars. Under Obamacare, after receiving a generous federal subsidy, this person would pay seventeen hundred dollars in annual premiums. Under Trumpcare, or Ryancare, or whatever we want to call it, this person would pay fourteen thousand six hundred dollars. That’s an increase of twelve thousand nine hundred dollars!

To be sure, the way the new system would be set up, not everybody would be a loser. For example, a single forty-year-old with an annual income of sixty-eight thousand two hundred dollars could end up saving more than four thousand dollars a year, according to the C.B.O.’s figures. But, in general, people would pay more, at least in the early years after the measure goes into effect.

In the first few years, as some healthy young people drop their insurance plans because they are no longer mandated to purchase them, premiums would go up fifteen or twenty per cent, the report says. After 2020, average premiums could start dropping, and by 2026 the C.B.O. projects they would be ten per cent lower than under the current law. But that would mainly be because insurers would be offering cheaper, crappier plans to young people, and older people would be dropping insurance because they could no longer afford it. It will be interesting to see how Trump tries to sell that prospect to his supporters, many of whom are older and living on modest incomes.

John Cassidy has been a staff writer at The New Yorker since 1995. He also writes a column about politics, economics, and more for newyorker.com

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.