Najib misses opportunity in 11MP


June 29, 2015

Najib misses opportunity in 11MP

 by Ramesh Chander and Bridget Welsh
The credibility problem with the 11MP goes far beyond the macroeconomic assumptions underpinning the plan. The Najib government is creating arbitrary targets that are not in line with standard international practices.–Chander and Welsh

11th Malaysia Plan2As debate in Malaysia’s Parliament draws to a close on the 11th Malaysia Plan (11MP) that lays out targets for the country to achieve “developed” nation status by 2020, the focus has primarily centred on the unrealistic assumptions contrived for the macro-economic framework for the blueprint.

Little attention has concentrated on the consistency of the assumptions and how the 11MP compares with previous policy frameworks. A close look at the 11MP reveals serious gaps and shortcomings, raising questions about whether the proclaimed milestones of development by 2020 can indeed be achieved.

Underlying macro-economic fallacies

DatukChanderThe 11MP argues that Malaysia will become a “developed” or “high-income” nation by 2020. This is in line with the long-standing Vision 20/20 targets laid out two decades ago. The current plan argues that this transformation will be achieved with the economy growing at an average rate of five to 6% per year over the next five years resulting in the GNI per capita level of US$15,690 by 2020.

The macro-economic assumptions underlying this trajectory have been questioned and have not been seen as credible.

Scholars have highlighted that the Plan begins by failing to acknowledge the shortfalls in projected growth targets in previous plans and thus begins from an unrealistic starting point. Targets set out in the 10th Malaysia Plan had postulated an average annual growth rate of 6.5% a year over 2010-2020. However, during the first half of the decade the level achieved fell short and only reached 5.5%.

Simple arithmetic indicates that the country will need to grow at a rate faster than 6.5% in the second half of the decade, to compensate for the prior shortfall. The Malaysian economy must thus achieve a real growth of 7.7% per year over 2015 to 2020 if the targets set in the previous 10MP are to be met.

Other assessments have pointed to inflated projections of growth resulting from a failure to account for conditions in the international economy, particularly lower revenues coming from the global drop in oil and gas prices, the slowdown in China’s manufacturing and lower investment and potential capital outflows from Malaysia tied to quantitative easing in the United States accompanied with a rise in interest rates.

Concerns have also been raised about inflated assessments within Malaysia’s economy. For instance, the overall growth in GDP is postulated in part on the assumption that that household consumption will contribute positively to overall growth.

This assumption appears to ignore the role of large household debt, estimated at 88% of GDP, that will reduce household consumption. Household consumption has been a main driver in the economy over the past few years, primed by public spending. Consumption has been further dampened by the introduction of the GST which has not only reduced demand, but also hampered business due to poor implementation, especially among small business and in country’s narrow private sector.

Malaysia is reaching record levels of inflation, officially at 2.9% but unofficially much higher. Net exports are likely to only provide a limited amount to GDP as Malaysia’s prime markets are likely to record modest growth as traditional sectors of oil and gas and other commodities such as palm oil under deliver due to lower prices.

The most troubling issue is the lack of a clear driver for growth in Malaysia’s economy. Public sector spending, already strained by high public debt and a growing deficit that passes the 3.5% threshold when one considers off-budget and contingent liabilities, is lower in real terms than in the 10MP and the proposed engine for growth laid out in the 11MP, the private sector, is in need of serious reforms to engender a more competitive and conducive environment for growth.

The 11MP has effectively abandoned any real economic reforms, as it comes after Najib’s expansion of chosen Bumiputera affirmative action programmes after the 13th general election and increased politicisation of government procurement, a key tool used to shore up political support.

The problems with the macroeconomic foundations of the plan have dominated the debate surrounding the 11MP, with the economic fundamentals seen as less than credible and undermining the basis for the blueprint.

Rather than acknowledge realities, Datuk Seri Najib Razak’s government has chosen to paint an overly optimistic and unrealistic fallacy, to not come clean in relation to the macroeconomic circumstances facing the nation.  This fallacy affects confidence, and undermines the ability for the country to actually reach the touted 2020 goals.

Arbitrary targets of ‘developed’ status

The credibility problem with the 11MP goes far beyond the macroeconomic assumptions underpinning the plan. The Najib government is creating arbitrary targets that are not in line with standard international practices.

One key concept embodied in 11MP is that of a “highly” or “developed country”, its origin needs to be understood.The World Bank classifies countries by income categories (low, middle, high income) to serve the Bank’s needs to establish operational and lending markers. Its website makes clear that low-income and middle-income economies are sometimes referred to as developing economies. This term is a convenient categorisation, it is not intended to imply that all economies in the group are experiencing similar development or that other economies have reached a preferred or final stage of development. The Bank makes it clear that classification by income does not necessarily reflect development status.

The Bank prepares its classification of countries annually on the occasion of its fiscal year (ending in June 30). The per capita GNI calculations used in the classification employ a well-established methodology known as the Atlas method for converting per capita incomes expressed in national currencies into a common measure (the US dollar).

The method takes into account exchange rate fluctuations in cross-country comparisons.  The Atlas conversion factor for any year is the average of a country’s exchange rate (or alternative conversion factor) for that year and its exchange rates for the two preceding years, adjusted for the difference between the rate of inflation in the country, and through 2000, that in the G-5 countries (France, Germany, Japan, the United Kingdom, and the United States).

For 2001 onwards, these countries include the eurozone, Japan, the United Kingdom, and the United States. A country’s inflation rate is measured by the change in its GDP deflator. The calculations are done annually and are not comparable from year to year and cannot, therefore, be projected. In other words, the use of per capita incomes as a measurement is not a standard that is used for planning purposes as it does not allow for proper comparison and assessment over time, nor does it have any real meaning when projected in the future as there are too many unknowns to evaluate its value in the future.

Najib’s figure of US$15,000 in the 11MP has been arbitrarily chosen and has no real meaning. It is a concocted notional figure and then fancifully set as a goal. The reality is that, given the World Bank’s methodology, the cut-off for distinguishing “high-income” countries from “middle-income” countries cannot be determined at the present point in time for a date in the future.

Projecting future per capita GNI levels (in accordance with the Atlas methodology) requires an array of assumptions pertaining to inflation trends, exchange rates and the emergence of unexpected shocks.

The 11MP fails to offer any clues as to how the Najib government came to choose the figure of US$15,000 as the determining cut-off and what are the assumptions about the factors that would underlie it emerging in the future. In using the US$15,000 per capita target as the goal as it has, the credibility of the 11MP has been affected.

Missing details on poverty

A basic good practice in planning is to carefully lay out the methodology and assumptions in the numbers used for projections and assessments.

Nowhere is this more important that in the analysis of poverty. With self-congratulatory language, Najib’s 11MP claims that poverty incidence has declined from 3.8% in 2009 to 0.6% in 2014.

No details are provided about the estimated poverty lines used in the calculations. This is unlike previous plans, notably the 9MP. The failure to outline the methodology attempts to skirt the persistent concerns regarding how Malaysia’s poverty measurements do not conform with international practices.

Malaysia’s measurements are seen to define poverty below the bar used in international levels and to use “households” rather than “persons”, obscuring the real scope of poverty in society. In the absence of details, it is inappropriate to make grand claims in poverty reduction.

The perfunctory and non-transparent analysis of poverty in the current plan raises concerns. Even if we take the number of households listed as “poor” at face value, when converted to number of “persons” basis, (persons per households) the number in poverty is actually a staggering number – almost a million and a half of all Malaysians live in absolute poverty.

The 11MP offers no real discussion regarding the composition of these communities, namely that disproportionately the majority live in Sabah and Sarawak, are women and children and come from families of multiple generations of impoverishment. It is a most serious state of affairs that after almost four decades of the NEP, significant numbers of poverty exist even when a low bar is used to define it.

Not only do the poverty numbers reflect the current failure of the NEP to deliver upon development to all Malaysians, they reveal the shortcomings of the Najib government in its focus on short-term measures of millions of cash handouts and lack of meaningful policy programme to address the status of the country’s poorest citizens.

The thin accompanying “strategy papers” with the 11MP do not include substantive ideas to address poverty, from rural development to urban exclusion. What the 11MP reveals is the lack of the political will to acknowledge the need to make adjustments and develop meaningful policy programs on poverty.

The lack of a connection to the current conditions faced by Malaysians is especially troubling. No bridget-welshassessment is made of the impact of the reduction of subsidies. The Plan wholly ignores the question of how implementation of GST or the granting of BR1M (1Malaysia People’s Aid) cash handouts affects poorer Malaysians. The impression given is that poverty gains are to be lauded and the ongoing problems largely ignored.

A new beginning is needed. To sincerely and fully address the issue of poverty, it is imperative that Malaysian policy-makers first apply the internationally accepted concepts and methodology employed to derive the various Poverty Line Income (PLI) measures and the estimates of poverty incidence.

The current methods are deeply flawed and are not conducive to an honest discussion of the problem of poverty. To the extent there are efforts to distort real conditions facing Malaysians, the lack of proper measurement fundamentally affects the analyses and conclusions.

In turn, this leads to the adoption of ineffective policies. The World Bank and UNDP, two leading global agencies in analysing poverty, use the concepts of “absolute” and “relative” poverty.

There are no valid reasons Malaysia should deviate from standard international terminology and standards. A meaningful step toward reducing poverty involves using national estimates based on population-weighted estimates from household surveys, rather than unrealistic lower-than-normal bars based on notional estimates of food consumption baskets utilising caloric values that are widely seen as less reliable measures.

A struggle over how to understand and measure poverty is evident in the 11MP. A pitch is made for the introduction of a new “Multi-Dimensional Poverty Index” based on a tool used by UNDP.

In an elaboration of the index, details are provided of the weights that will be adopted for each of the component elements making up the composite index. The choice of weights is critical to the viability of the overall index.

In the citation provided, no rational is given as to how the weights would actually be calculated. This gap in information does not offer an improvement on current measures as it continues arbitrary calculations of Malaysia’s poverty levels.

It is crucial that these measures be determined transparently and consistently in line with international standards. The 11MP also introduces a new concept, namely that of “B40” households, made up of the households at the bottom 40% in terms income distribution. Some 2.7 million households make up this group. The mean average monthly income of these households is claimed to be RM2,537. The plan projects that their incomes will more than double to RM5,270 by 2020.

While some elaborations are provided, there are unanswered questions concerning the consistency of these numbers with other indicators in the 11MP and how these numbers can be achieved given the flawed macroeconomic assumptions underlying the plan as a whole.

The overall picture that emerges is that the 11MP is labouring hard to project “feel good” numbers without providing details.The numbers, even though precise to the last digit, are not supported by information concerning data sources, concepts employed and assumptions made in the projections. As Malaysia employs numbers not in line with accepted international practices, this information is necessary for credibility.

While the authors can be forgiven for not incorporating such details in the actual plan document, there is hardly any justification for not providing the relevant detail in the so-called strategy papers or in technical appendices.

Deviating from the past

A centrepiece in all Malaysian five-year plans, beginning with the 3rd Malaysia Plan, has been treatment of the two prongs of the NEP, namely the eradication of poverty irrespective of race and the greater equitable distribution of wealth.

The issues with the former are outlined above. The latter is essentially missing in the 11MP altogether. In Malaysia, the distribution of wealth has focused upon ownership of share capital by race.

All plans since 1970 have incorporated tables showing the progress made towards attaining the 30% target for Bumiputera ownership of share capital. It is thus truly surprising that this principal goal of planning in Malaysia since the early 1970s has essentially disappeared altogether in the 11MP.

A reference is made that the 30% target remains unfulfilled as of now, and a claim is made that the targets will be met by 2020, but no data is included to allow for assessment or evaluation.

Unlike all earlier Plan documents, the 11MP does not include a table detailing the ownership of share capital.  This is indeed puzzling, and raises questions about the intentions of the Najib government.

One possible explanation could lie with an attempt by the Najib government to skirt the controversial discussions regarding how estimates to measure share values of different communities have been prepared.

The use of nominal values has been extremely controversial. The impression given, however, in the failure to properly include this issue of equity ownership in the 11MP is that it is no longer a priority of the Najib government.

Missing information also surrounds the important area of development expenditures. Malaysia’s five-year plans have consistently included detailed accounts of where money will be spent, outlining the spending priorities of the government for long-term planning.

These expenditures have been tied into the broader goals of plans, including poverty reduction and increasing incomes.

While a number of projects are listed in 11MP, the relationship between these projects and the broader well-being of all Malaysians has not been laid out. A core element in planning involves a thorough and transparent accounting of public spending, sadly missed from the 11MP. Given the billions of funds that are being pumped into the Malaysian economy, as the Najib government has outlined over RM400 billion in expenditure while in office, the tie between spending and broader planning goals is a serious omission.

Raising questions, losing confidence

The 11MP stands out in how information is presented and not presented – the arbitrariness of numbers, concerns with distorted realities, lack of detail in assumptions and methodologies, distracting new concepts that further move away from international standards and major gaps in information and analysis that allow for the emergence of constructive and conducive policy platforms to address the country’s policy challenges, from poverty to raising incomes

All previous plans and mid-term reviews have gone beyond outlining aspirational targets and seriously attempted to lay out policy reforms tailored to the targets.

The 11MP has deviated from this approach. It has failed to outline meaningful measures that are needed to remove the constraints that are holding the country back, entrapped as a middle income country. It appears that the Najib government is not genuinely interested in planning, or does not have the capacity to effectively formulate policies for Malaysia’s development.

In the 11MP, the Najib government has missed an important opportunity to move the country forward, to build faith in the current leadership and to show that the Prime Minister has a plan to strengthen Malaysia. Rather than inspire confidence, the 11MP raises questions about how the touted targets will be achieved and whether Malaysians, especially poorer citizens, will get the governance they need. – new mandala, June 29, 2015.

* Dato’ Ramesh Chander was the first head of Malaysia’s Department of Statistics. He served as a senior adviser to the World Bank’s chief economist/senior vice-president before retiring from the Bank.

* Dr Bridget Welsh is a senior research associate at the Centre for East Asian Democratic Studies at National Taiwan University.

Learning English at The University of Cambodia


June 10, 2016

At the University of Cambodia we teach English

uc_campus_00Artist Impression of U of C Campus (Ready by October, 2015)

Today I was at the well equipped and modern Language Center, University of Cambodia, I watched how young Cambodians learn to speak, read and write  English. I was impressed. The young student in the video could speak better English than me. He  was confident  and articulate.

English is spoken here in Phnom Penh compared to the time I first lived and worked here some 2 decades ago. 

The Cambodian Government under the leadership of His Excellency Prime Minister Samdech Techo Hun Sen made a wise and conscious decision to teach English as a second language. The Prime Minister wanted his people  to  speak  this widely used language so that they can integrate with ASEAN and do business with the world large.

His farsighted policy decision is paying good dividends for his country today. At the same time, the Prime Minister made sure that Khmer is taught as the first language in all schools and universities together with Cambodia’s history, culture and the fine arts. A study of history, culture and the fine arts is vital to the Cambodian psyche. It has to do with their national identity.

University_of_CambodiaAt the University of Cambodia, we offer degree courses in both Khmer and English at the undergraduate, Masters and Phd. levels.–Din Merican

History Repeats Itself in A Different Place


March 12, 2015

History Repeats Itself in A Different Place

Najib and Marcos

God Help Malaysia. Be ready for difficult times ahead. Don’t take what The Governor, Bank Negara Malaysia says. She has become an apologist of the Najib Administration. In that role, she has destroyed the independence of our central bank. Tan Sri Zeti Aziz is disconnected from reality on the ground. That is her biggest problem.–Din Merican

Is Malaysia the last refuge of the scoundrel?


March 10, 2015

 A nation of scoundrels? A Big NO is my answer. It is true that some of us areDin Merican New subservient to plutocrats in UMNO. These people  are found in the Judiciary, the Civil Service, the Police and the military and include those who prosper as UMNO cronies. But thousands of decent Malaysians have shown(at BERSIH 1, 2, 3 and other rallies)  that they have got what it takes to make Malaysia a united, peaceful, and prosperous country where there is equal opportunity for all who are prepared to work hard. They are the patriots. They want to be a free people and resent government telling them how to live their lives and practice their religions.

Ambassador Malott, I agree with you wholeheartedly when you said that “[T]he majority of people in Malaysia want political freedom. They want free and fair elections. They want genuine democracy. They want all races and religions to be treated with dignity and respect. They are asking only for what the Malaysian constitution guarantees them and what the UMNO regime denies them…”

I believe change will come to my country, maybe not anytime soon since the process is painfully slow, but it will come. Most of my fellow Malaysians are sick and tired of the political games played by UMNO.   UMNO leaders and their supporters claim to be helping the Malays, when in truth the Malays do not realise that they are victims of greed and lust for power. Scandalous 1MDB is the litmus test.–Din Merican

Is Malaysia the last refuge of the scoundrel?

by John R. Mallot@www.malaysiakini.com

COMMENT: One evening in April 1775, the English man of letters Samuel Johnson made a famous remark.”Patriotism,” he said, “is the last refuge of the scoundrel.”Johnson was criticising what he called false patriots – people who invoke the name of their country to advance their own political agenda.In America, we often refer to that kind of scoundrel as “people who wrap themselves in the flag.” It means people who pretend to do something for patriotic reasons or out of loyalty to their country when their real motives are selfish, and their real goal is their own personal and political gain.It means people who “play the patriot card” and try to diminish their opponents by suggesting they do not love their country, or are even traitors to it.

So it is in Malaysia. Anyone who has the courage to disagree with the UMNO regime today stands the risk of being arrested for sedition. Meanwhile, many hundreds of millions of dollars disappear because of corruption. The needs of the rural poor, primarily Malays, still are not being met after more than half a century of promises from UMNO.Instead, the government’s focus seems to be on checking Facebook accounts and Twitter postings, which are scoured for evidence of alleged disloyalty to the nation.Question: If you love your country, then why do you steal from it? After almost 58 years in power, the leaders of UMNO have come to see themselves and the nation as one and the same.
So if you say “damn UMNO,” or you make a humorous video about the Prime Minister’s wife, you will be arrested for sedition against the government, even though your target was UMNO and the self-styled First Lady of Malaysia. Just ask RSN Rayer and Teresa Kok and Zunar.

UMNO and Rosmah are not the government.

For years the government has tried to put the opposition on the defensive and imply that they are traitors to the nation, and that they are tools of foreign powers.Samuel Johnson would have understood the UMNO regime very well.”Scoundrels!” he would say. So the question arises – who are Malaysia’s real patriots? Who truly loves Malaysia and wants the nation to fulfill its great promise? Who really cares about making the dream that is Malaysia become a reality – a multi-racial, multi-religious nation, a genuine democracy, a model for Islamic nations around the world, a leader in Asia, and a developed nation where all its people may share in its prosperity? And who cares only about political power, money, and wealth for themselves, their families, and their cronies? Who are the greedy, selfish ones?

Not special treatment, but equal treatment

We know the answer. We know who the real patriots are and who really loves Malaysia.

 Fifty years ago this weekend, Americans, and primarily African-Americans, led by Dr Martin Luther King, were met with incredible violence on a bridge in Selma, Alabama. They were there to ask for their rights as Americans – to vote.The photographs and television videos of what happened that day were seen around the country – and shocked the American nation into action to counter the local racist authorities in the South, who suppressed democracy and political freedom “in the name of the law.”Like the violent racist white southern police of 50 years ago in America, the authoritarian political regime that controls Malaysia today still suppresses democracy and political freedom “in the name of the law.”As I watched the scenes of this year’s 50th anniversary commemoration of the confrontation in Selma, I thought about all the demonstrations for political freedom in Malaysia over the past few years that have been met by government force – and I realised that there is no difference between Malaysia and Selma.The majority of people in Malaysia want political freedom. They want free and fair elections. They want genuine democracy. They want all races and religions to be treated with dignity and respect. They are asking only for what the Malaysian constitution guarantees them and what the UMNO regime denies them, just like the racist white police of America denied African-Americans their rights 50 years ago.

The United States President Barack Obama spoke at the bridge last Saturday on the 50th anniversary. He said: “We gather here to honour the courage of ordinary Americans willing to endure billy clubs and the chastening rod; tear gas and the trampling hoof; men and women who despite the gush of blood and splintered bone would stay true to their (goal) and keep marching toward justice… They didn’t seek special treatment, just the equal treatment promised to them almost a century before.”

 What greater form of patriotism is there than the belief that America is not yet finished, that we are strong enough to be self-critical, that each successive generation can look upon our imperfections and decide that it is in our power to remake this nation to more closely align with our highest ideals?”Loving this country requires more than singing its praises or avoiding uncomfortable truths. It requires the occasional disruption, the willingness to speak out for what’s right and (to) shake up the status quo.” And that is what so many brave Malaysians are doing today.They want Malaysia to be true to itself, to its constitution and its ideals, and to its potential.

JOHN R MALOTT is former United States Ambassador to Malaysia.

 

Indonesia–The Emerging Tiger of ASEAN


March 10, 2015

Indonesia–The Emerging Tiger of ASEAN with some challenges ahead

by Ajeya Bandyopadhyay, Kolkata, India | Opinion–http://www.thejakartapost.com

Indonesia's Open Government Partnership

Indonesia has experienced impressive growth in recent years. On the basis of purchasing-power parity (PPP), the gross national income per head doubled to US$4,730 during the decade to 2012.

The proportion of the population living in poverty fell by almost half, from 24 percent in 1999 to 12 percent in 2012 (World Bank). The booming young population joining the workforce created huge demand for real estate and brought foreign investment in construction and consumer goods.

Yet Indonesia’s growth has been quite uneven and perhaps unsustainable in the long run. Real consumption grew by about 4 percent a year on an average in 2003-2010. More alarmingly, for the poorest 40 percent of households it grew by only 1.3 percent.

In contrast the consumption by the richest 20 percent grew by around 5.9 percent. In other words the income disparity between rich and the poor is rising rapidly. Indonesia’s Gini Coefficient, a measure of income inequality, jumped from 0.29 in 2000 to 0.38 in 2011. High income inequality in the long run, hurts higher growth potential and disrupts social cohesion.

Growth momentum in the Indonesian economy has moderated somewhat over the past several months due to a weaker performance by the export sector, together with the impact of tighter monetary policy as the central bank has hiked interest rates to control inflationary pressures. This has resulted in GDP growth rate lowering from a 6 percent a year ago to around 5 percent year-on-year (year on year) till the end of 2014.

Although Indonesia made considerable progress in macroeconomic stabilization under former president Susilo Bambang Yudhoyono, a key challenge for the present administration will be to implement crucial microeconomic reforms.  In other words, the crucial symptoms of a country falling into the so-called ‘middle income trap’ are quite apparent in all corners of the economy.

Over 3 million migrants from the countryside arrive each year in Jakarta and other cities. Many of them take recourse of jobs in low-end services, hawking food by the roadside or selling things from handcarts. They are part of Indonesia’s vibrant informal economy, which accounts for nearly 70 percent of the country’s GDP.

The “local content” restriction is acting as a deterrent for many manufacturers to open factories in Indonesia.

A large workforce engaged in the informal sectors rarely earns the minimum wage or gets access to government benefits.

The World Bank estimates that labor productivity in Indonesia’s low-end services is about double that of agriculture but it is still one-fifth of that in manufacturing. In nutshell, it means that poverty will fall much faster if agricultural laborers shift to manufacturing instead of low-end services. However, the manufacturing sector in Indonesia still remains highly uncompetitive due to decrepit infrastructure, rigid labor laws and the government’s protectionist policies.

Even though the share of Indonesia’s labor force in agriculture has been in decline for decades, manufacturing share has not changed really much at all from the 13 percent in 2012. Local manufacturing remains mostly confined to palm oil and a few other primary commodities.

To a large extent, the “local content” restriction is acting as a deterrent for many manufacturers, especially in the consumer goods category, to open factories in Indonesia. In contrast services now employ about 44 percent of the labor force, up from 37 percent a decade ago.

Jokowi WidodoAlthough it is too early to predict, it can be stated with a reasonable degree of certitude that Indonesia is likely to miss the bus in manufacturing if infrastructure and human skills continue to remain the biggest challenges. A very high level of energy subsidies (on fossil fuel and electricity), around Rp 300 trillion in 2013 equivalent to 3 percent of GDP, also pose a significant burden on the taxpayers.

Already under implementation, a phased and sequenced approach to energy subsidy reform, while protecting the most vulnerable consumers, will encourage energy efficiency, shift consumer behavior and free up resources for critical social investment.

Widening access to affordable housing, clean water, sanitation, education and healthcare might slowly start to trickle down the benefits of rapid economic growth to the less fortunate and create adequate purchasing power to sustain the next generation of industrialization.

But the defining question remains if the current level of investment (as a percentage of GDP) is adequate to support the next level of strong growth. Historical precedents reveal that sustained higher levels of investment are crucial, along with the improved efficiency of investment. China is a golden case in point with investment to GDP ratio being 46 percent in 2012.

Fortunately, Indonesia, among other middle income countries of East Asia (excluding China) is maintaining a nearly 33 percent investment rate which is above the 25 percent threshold prescribed by the Growth Commission as the necessary condition for robust and high growth.

ria-bintan

Apart from creating world-class infrastructure — roads, airports, power plant, telecom and information super-highways, a significant proportion of investment and budgetary support should also be channelized into R&D, innovation and enrichment of human capital through high quality technical education and modern skill building.

Reforming the investment climate is essential; so are the conditions for innovation, to attract leading companies and a world-class talent pool. The present government should play a decisive role in determining Indonesia’s future economic policies: whether to pursue a strategy of globalization by encouraging greater international integration or adopt a more nationalist, protectionist approach. Each approach has its own pros and cons.

But what is apparent is that, the government needs to undertake a bunch of crucial policy and institutional reforms bundled with critical investment in hard and soft infrastructure.

All these should be accomplished with a sense of utmost urgency before it gets too late for the country to get out of the middle-income trap and graduates into a high income, industrialized nation providing a better quality of life to its citizens.
_______________
The writer is presently a senior executive of Ernst & Young (India), advising government, multilateral and bilateral clients in the area of public policy, economic growth, energy policy and governance. He worked quite extensively in the South and Southeast Asian region, including Indonesia. This is a personal view.

Dean Kishore Mahbubani shares Singapore’s success story


March 9, 2015

Dean Kishore Mahbubani at the Dili Convention Centre, Dili, Timor Leste shares Singapore’s success story

https://www.mof.gov.tl/lecture-by-dean-kishore-mahbubani-at-the-dili-convention-centre/?lang=en

Profile_Prof

It is truly a great pleasure for me to finally visit Timor-Leste. As I was President of the United Nations Security Council (UNSC) whenTimor-Leste became independent on May 20, 2002, I have always felt a special bond withTimor-Leste. This is why I am truly delighted that Ms. Noeleen Heyzer, the Special Adviser of the United Nations Secretary General forTimor-Leste, has arranged this very special and sentimental visit toTimor-Leste.On April 26, 2002, when Xanana Gusmão and Mari Alkatiri visited the UNSC, we had a debate in the UNSC on the future of Timor-Leste.

I said: “The lesson of the history of the past few decades is relatively clear: independence, even if it comes after a hard-fought struggle, may still be a relatively easy victory. Success after independence, unfortunately, has been relatively rare.” Since Timor-Leste became independent under very difficult circumstances as a conflict-afflicted country, it is remarkable how far it has come. Still, it has a long way to go.The history of the post-colonial period shows that few newly-independent countries have succeeded. It is therefore remarkable how well Singapore has done.

I was 17 years old when Singapore became independent in 1965. There was total gloom and doom when Singapore was expelled from Malaysia. At independence, Singapore was poor and struggling. The GDP per capita was $500 – the same as Ghana. I myself felt the pinch of poverty – I was so undernourished as a child that in elementary school, I was placed on a special feeding programme. Singapore was also struggling in other aspects. There were ethnic riots on the streets. I remember seeing men cutting each other with beer bottles at my doorsteps. Against this backdrop, Singapore’s current success is truly amazing.

Today, Singapore has one of the highest HDIs in the world – 9th in the world with a score of 0.901. Singapore has the 4th-highest GDP per capita in the world at $76,237 (in PPP terms), nearly double that of its former colonial master, the UK ($37,017). More than one in six households have $1 million in cash savings. In the past decade alone, the number of Singaporeans running their own business has doubled. The US is the only other country in the world with more entrepreneurs-per-capita. Singapore has consistently ranked as one of the best cities in the world to live in. People from all over the world come to our small city-state – attracted by our state-of-the-art education and health systems. We are also ranked consistently as one of the safest countries in the world.

10 reasons for Singapore’s success

The big question is: how and why did Singapore succeed? Unfortunately, we still do not have a good history book on Singapore. There is no consensus. In my efforts to understand why Singapore succeeded, I came up with 10 reasons. I am sharing these 10 reasons with you in the hope that it will be helpful to Timor-Leste in the coming 50 years. I believe that Timor-Leste can be as successful as Singapore. This is why I want to share the reasons for Singapore’s success.

The first reason is that Singapore has been lucky. By an accident of fate, Singapore, like the United States, was blessed with good founding fathers, such as Lee Kuan Yew, S. Rajaratnam, and Goh Keng Swee. These were 3 amazing individuals. I worked with all three of them. They were intellectually brilliant. They were totally dedicated to improving the lives of Singaporeans. They were also good learners. For example, Goh Keng Swee learned from the Meiji reformers in Japan. Hence, they formulated policies which benefited Singaporeans. Timor-Leste is as blessed as Singapore. It has also been blessed with good founding fathers, such as Xanana Gusmão, Mari Alkatiri, and Jose Ramos Horta. Timor-Leste has this in common with Singapore. With the right leadership in place, countries can succeed.

The second reason why Singapore succeeded was the implementation of meritocracy by its founding leaders. They selected other good people to lead the country and laid down meritocracy as the cornerstone of public service appointments. As Lee Kuan Yew himself said, “A strong political leadership needs a neutral, efficient, honest civil service. Officers must be recruited and promoted completely on merit. They have to share the same nation-building philosophy and development goals of the political leaders. They must be adequately paid so that temptations would not be difficult to resist. An impartial, capable Public Service Commission had to be shrewd at assessing character. Appointments, awards of scholarships must be made to the best candidates.” This is something that Timor-Leste can do as well. Meritocracy ensures that the best talent in the country is attracted to public service and also serves to create a fair society.

The third reason why Singapore succeeded was the pragmatic outlook of its leaders in terms of their willingness to learn from other countries. As Dr Goh Keng Swee once told me, “Kishore, no matter what problem we encounter, somebody, somewhere has found the solution. Let us find that solution and adapt it intelligently to Singapore.” Singapore is the most pragmatic country in the world and it has copied solutions from all other countries. This is also why Dr Goh studied the Meiji Restoration very carefully. Japan succeeded in becoming the first Asian country to modernise because the young Meiji reformers of that time had no hesitation to study, copy and adapt best practices into Japan from all around the world. Dr Goh tried to inculcate the same spirit of pragmatic learning in Singapore. Few would doubt that he succeeded in this goal. This is something Timor-Leste can do as well. In fact, the Lee Kuan Yew School’s Graduate Education and Executive Education programmes are dedicated to disseminating best practices from Singapore to developing cities across the world. I welcome civil servants from Timor-Leste to attend our programs and learn more about adapting best practices to suit Timor-Leste’s needs.

Fourthly, as a small country, Singapore was also pragmatic in its foreign policy. For example, during the Cold War, Singapore was friendly with the United States – but it did not shun the Soviet Union. When I visited the Soviet Union in 1976 with Mr S. Rajaratnam, the legendary Foreign Minister of Singapore, he said that Soviet ships would also be welcome to Singaporean waters. Small states like Singapore and Timor-Leste cannot afford to make enemies. As S. Rajaratnam said in his 1965 speech at the United Nations on Singapore’s foreign policy, “We want to live in peace with all our neighbours simply because we have a great deal to lose by being at war with them. All we therefore ask is to be left alone to reshape and build our country the way our people want it. We have no wish to interfere in the affairs of other countries or tell them how they should order their life. In return we ask other countries to be friendly with us even if they do not like the way we do things in our own country. This is why Singapore has chosen the path of non-alignment.” Pragmatism in foreign policy is something which Timor-Leste can do as well.

The fifth reason for Singapore’s success was the fact that the leaders focused on starting with small wins. An incremental approach to policy reforms is advised by many leading academics and scholars of public policy today. But even before these things became common knowledge, the leaders of Singapore recognised the need to make small improvements in order to achieve big changes. Lee Chiong Giam once said that in the early days, if they could just get a standing pipe in a village to provide water, the governing party would get the villagers’ votes. This would in turn lead to the provision of public housing and schools. Development cannot be achieved through big sweeping reforms alone. Small steps that have a huge impact on the everyday lives of people are necessary to ensure that progress happens in a meaningful way. This is something Timor-Leste can do as well.

Sixth, Singapore did not rely on foreign aid to achieve its development goals. As I said in my book The Great Convergence, “I believe that if a large-scale objective study were done of Western foreign aid, it would demonstrate that the primary intention is to enhance the national interests of the donors and not to help the interest of the recipients.” Furthermore, a large chunk (about 80%) of Western aid goes back to the donor country in the form of administration expenses, consultancy fees and contracts for donor country corporations. In short, there is very little actual transfer of aid to the developing countries. Singapore has always distrusted foreign aid. Instead, we believed in trade and investment: We believed that trade, not aid, was the way forward for us. When others shunned investment, Singapore welcomed it. In this regard, the Economic Development Board of Singapore is particularly worth studying. The EDB was set up in 1961 to create economic opportunities and jobs for the people of Singapore, and to help shape Singapore’s economic future. The EDB has been instrumental in Singapore’s success by bringing in FDI, and has been a driving force behind Singapore’s transformation into a financial hub that is at the forefront of several service industries in Asia. This is something which Timor-Leste can do as well. By setting up a one-stop specialised agency that focuses on foreign direct investment, Timor-Leste will also signal to the rest of the world that it means business when it comes to attracting FDI.

The seventh reason for Singapore’s success is its inclusive policy on ethnic groups. Singapore’s main ethnic groups are Chinese, Malay, Indian, and others. So we have four official languages: English, Mandarin, Malay, and Tamil. This way, everyone feels included.

Singapore’s founding father, S. Rajaratnam, said: “In a multi-racial society, one soon learns that no one people has a monopoly of wisdom and that one’s own culture is not without flaws. This breeds not only tolerance for different viewpoints but also a readiness to learn and borrow from the accumulated wisdom of other people.” It is remarkable that among the five small multi-racial states that the British decolonized all over the world (namely Guyana, Cyprus, Sri Lanka, Singapore, and Fiji), Singapore was the only one to avoid ethnic strife.

In a multi-racial society, if there is no common language, the people cannot communicate. That is why the main language of instruction in Singapore schools is English. Singapore made English its common language for pragmatic reasons. Firstly, English was a neutral language. If another language, like Mandarin, had been chosen as the common language, non-Chinese Singaporeans would have felt marginalised. Secondly, English is the international language of commerce. Knowing English, Singaporeans would be able to do business with people from around the world.

Timor-Leste can also improve English literacy by teaching it in schools. It can also ask the parents of the children to choose if they want their children to learn English, Portuguese or Tetum, I believe many of them will start to ask for English, so that their children can work with people from all around the world. But they can still learn Tetum or Portuguese as well, so that they will remain in touch with their rich cultural and historical roots.

The eighth reason for Singapore’s success is that its leaders, like Lee Kuan Yew and Goh Keng Swee, believed in thinking long-term. For example, though Singapore had signed a 100-year water agreement with Malaysia in 1961, we knew that Malaysia could threaten us by cutting our water supply. Thus, we invested in ways to get our own sources of water. We built reservoirs, desalination plants and water reclamation facilities. In March 2013, Dr Vivian Balakrishnan, Minister for the Environment and Water Resources, said: “We will certainly be water independent well before the expiry of the last agreement with Malaysia.”

Timor-Leste can also think long-term. For example, unlike Singapore, Timor-Leste has abundant oil and gas resources. But these oil and gas reserves will not last forever. So Timor-Leste can now think ahead about how to solve the problems which it could face when that day comes. Norway, for example, has invested its oil and gas money in a big sovereign wealth fund. Only 4% of the surplus from the fund is spent on public projects. I am glad to learn that Timor Leste is following the example of Norway in this area.

The ninth reason for Singapore’s success is that it avoided populist measures. Singapore has always been opposed to the welfare state. Former Prime Minister Lee Kuan Yew said, “Watching the ever-increasing costs of the welfare system in Britain and Sweden, we decided to avoid this debilitating system. We noted by the 1970s that when governments undertook primary responsibility for the basic duties of the head of the family, the drive in people weakened. Welfare undermined self-reliance. People did not have to work for their families’ well-being. The handout became a way of life… They became dependent on the state for their basic needs.”

The welfare state is too expensive for developing countries. It also undermines productivity. However, even though Singapore did not become a welfare state, it cared deeply about the welfare of its people. Singapore found other ways to make sure that its people would be well provided for. It invested in the welfare of its people through universal education, quality healthcare, affordable public housing and public transportation. In addition, it set up the Central Provident Fund, a compulsory savings fund. Singaporeans and their employers automatically contribute some money to this fund when they receive their salaries every month, and the money can be used to buy a house, for medical expenses, and, primarily, as a retirement fund.

Singapore also has trade unions, but they are pragmatic. The government, unions and employers cooperate in a tripartite system, which, as Mr Lee Kuan Yew says, “has brought benefits to workers, the government and employers because industrial peace creates confidence and increases foreign investments.  Whenever employers make above average rates of return on capital, profits are shared.”

Similarly, Timor-Leste can avoid the costs of welfare state spending by finding its own innovative methods of cooperating with employers and workers to make sure that employees can earn a fair wage to support themselves, and to make sure that every employee is able to save enough to provide for their own health care, housing, and retirement.

The tenth and final reason for Singapore’s success is honesty. This is the most challenging to achieve. The first generation of Singaporean leaders were brutally honest. In 1975, a minister of state was invited by a businessman friend to go on holiday. He said no, because he didn’t have the money, but the businessman offered to pay. So he went, and he was arrested when he came back.

When there is honesty, the people and the investors will trust that government policies are meant to benefit the country, not to benefit the politicians. Only then will they feel confident in the leadership. This also creates a more stable political system, which gives investors peace of mind. Thus, a remarkable degree of honesty in a country’s leadership will lead to success.

Although some may be difficult to replicate, these ten reasons are all things that other countries can do. But it is important to adapt these principles to the local context.

When many people visit Singapore today and see a modern city-state, they tend to assume that Singapore was always like that. Actually, Singapore was one of the poorest and most unlucky countries when it achieved independence. It had no natural resources. This is why it is useful to study Singapore’s experience. If Singapore can succeed against the odds, other countries can do so also. This is why I am happy to come to Timor-Leste to share Singapore’s experience. I hope that it will be helpful to all of you.