Jomo: Whither the Malaysian economy ?


October 17, 2017

Jomo: Whither the Malaysian economy under Najib Razak?

http://www.malaysiakini.com

Image result for Finance Minister Najib Razak and the National Debt
Malaysia’s Worst Finance Minister Najib Razak–Fiscal Mess, Heavily in Debt and Lowest Reserves in Asia.

This interview with economist Jomo Kwame Sundaram, former Assistant Secretary-General for Economic Development at the United Nations, was conducted in August for publication in the run-up to the country’s next Budget for 2018 due to be announced next Friday.

Developed country status

Question: Malaysia is close to achieving developed country status and is growing at a reasonable pace. Why are you concerned then?

Jomo: Becoming a developed country involves much more than achieving high-income status. But even by reducing ‘developed country’ status to becoming a ‘high-income’ country, we are not quite there unless we resort to statistical manipulation, e.g., by using 2013 exchange rates, or by ignoring about a third of the labour force who are ‘undocumented’ foreign workers.

For example, the ringgit declined from RM3.2 against the US dollar in 2014 to almost RM4.5 before recovering to the current RM4.2! But then we continue to use the old exchange rate or purchasing power parity (PPP) to pretend that we are almost there. The only people we are cheating is ourselves.

Also, if we continue to grossly underestimate the number of foreign workers in the country, then the denominator for calculating per capita income goes down. Similarly, by excluding the lowest paid foreign workers, income inequality has been declining when their inclusion may give a different picture. Thus, we can reach supposed high-income status more quickly if we pretend there are only one or two million foreign workers, when even the minister admitted last year to about 6.7 million!

Seven million, mainly undocumented foreign workers in Malaysia comes to over a third of the country’s total labour force. Many of them work and live in far worse conditions than the worst-off Malaysian workers. We are thus dependent on a huge underclass, largely foreign, whom we are in denial about.

New Economic Model

What do you think of Prime Minister Najib Razak’s New Economic Model?

Jomo: Let us be clear about this. The New Economic Model, or NEM, is really a wish-list of economic reforms desired from an essentially neo-liberal perspective. That does not mean it is all good or all bad. It contains some desirable reforms, long overdue due to the accumulation of excessive, sometimes contradictory regulations and policies.

 

Although the NEM made many promises and raised expectations, most observers would now agree that it has rung quite hollow in terms of implementation despite its promising rhetoric. As we all know, the NEM was dropped soon after it was announced for political reasons, and has never been the new policy framework it was expected to be.

Turning to actual policy initiatives, to the current administration’s credit, it accepted the minimum wage policy and BR1M (Bantuan Malaysia 1Malaysia) idea, both long demanded by civil society organisations, and supported by many, mainly opposition parties. The minimum wage policy has probably been far more important than BR1M in improving conditions for low-income earners.

Premature deindustrialisation

The contribution of manufacturing to growth and employment has been declining in this century. Yet, you seem to be nostalgic for industrialisation when the leadership wants to move to tertiary activities.

Jomo: Sadly, instead of acknowledging the problem, ‘premature deindustrialisation’ is being cited as proof of Malaysia being developed although services currently account for most job retrenchments.

Indeed, Malaysia has been deindustrialising far too early, even before developing diverse serious industrial capacities and capabilities beyond refining palm oil and so on. We have abandoned the past emphasis on industrialisation, but have not progressed sufficiently to more sophisticated, higher value-added industries.

In Japan, South Korea and China, policies to nurture industrialists and other entrepreneurs to become internationally competitive, enabled these countries to grow, industrialise and transform themselves very rapidly.

We are suffering great illusions if we think we can leapfrog the industrial stage and go straight to services. We should not try to emulate Hong Kong because we are a different type of economy. Even Singapore has not gone the Hong Kong way and continues to try to progress up the value chain in terms of industrial technology.

We need to stop blindly following policies espoused by international institutions. GST (Goods and Services Tax) is a variant of value-added taxation, long promoted by the IMF (International Monetary Fund). To accelerate progress, we need to develop better understanding of the Malaysian economy – of its real strengths and potential, rather than assuming that the current mantra in Washington is correct, let alone relevant.

Middle-income trap

According to the World Bank and others, Malaysia is stuck in a middle-income trap. The argument is that the NEM as well as financial services development are needed to get out of it.

Jomo: The idea of a ‘middle-income trap’ is due to Latin American and other countries uncritically following Washington Consensus prescriptions promoted by the Bank and the IMF. The promise is that following their prescriptions would lead to development.

Key elements of our own ‘middle-income trap’ are actually of our own making, e.g., by giving up so quickly on industrialisation. The prescriptions imagine we can somehow leap-frog to accelerate development without making needed reforms.

 

The NEM and current official development discourse emphasise modern services, especially financial services, for future growth. But why would investors want to come here rather than, say, Singapore? If they want lower costs, there are other locations.

To offer tax breaks or loopholes, or to make Malaysia a tax haven, the question again is why come here rather than Singapore.

And how much has the national economy really benefited from the Labuan International Offshore Financial Centre? Do we need to keep making the same errors?

Looking at other international financial centres, it is not clear that it will be a net plus for the country, and provide the basis for sustainable development suitable for an economy like ours. Remember, we are no Hong Kong.

Historically, we have been heavily dependent on foreign direct investment, not for want of capital, but for access to markets, technology and expertise. To make matters worse, over the last decade, foreign investors have taken a growing share in publicly listed companies, helped by the falling ringgit in recent years.

Arguably, foreign ownership of the Malaysian economy has never been as high since the 1970s. As large corporations are increasingly dominant, they have often crowded out small and medium-sized enterprises (SMEs) and other Malaysian firms.

Macroeconomic management

In his recent book, Dr Bruce Gale (author of ‘Economic Reform In Malaysia: The Contribution Of Najibnomics’) has praised current macroeconomic management.

Jomo: Well, Gale is a political consultant and needs to ‘cari makan’. He is not a serious macroeconomist the last time I checked, but should nonetheless be taken seriously because he reminds us that well-managed ‘public relations’ influence market and public sentiment, including credit and other ratings. He heaps praise on ‘conventional wisdom’ which remains very influential, even if wrong.

Gale’s book reminds us that ‘creative accounting’, involving the transfer of debt and liabilities to state-owned enterprises or government-linked companies, has enabled the government to limit the growth of mainly ringgit-denominated federal government debt by rapidly expanding federal government-guaranteed ‘contingent liabilities’.

His defence and justification for GST ring quite hollow as his premise is that the middle class has been evading income tax, whereas it is mainly the rich who have successfully done so, whether legally or otherwise.

Although he has been writing on Malaysia for over three decades, he appears to have selective amnesia, only giving credit to the prime minister and his late father, whom no one would grudge, while ignoring other prime ministers and finance ministers, in line with the new official narrative.

Malaysians worse off?

Earlier, you acknowledged that Malaysian economic growth has continued, albeit at a lower rate, over the last two decades. Yet, you also argue that Malaysians may have become worse off in recent years. That sounds contradictory.

Jomo: Moderate economic growth has continued since the 1997-1998 financial crisis. More recently, this has been partly due to foreign financial inflows, helped by unconventional monetary policies in OECD economies.

Between 2012 and 2014, most people, especially low-income earners, became better off, thanks to the introduction of the minimum wage, continued ‘full employment’ and higher commodity prices.

Since then, commodity prices have fallen, unemployment has been rising (especially for youth), the GST was introduced, and consumer confidence has fallen lower than during the 1997-1998 or 2008-2009 financial crises.

However, consumer sentiment in Malaysia has been negative for some time according to CLSA and MIER (Malaysian Institute of Economic Research). Indeed, according to Nielsen, the international polling company, it has been poor since 2013, and is now the lowest in Southeast Asia.

Food prices have generally continued rising, as transport charges – for tolls, trains, etc. – have been increasing again, with floating petrol prices. Meanwhile, lower commodity prices and climate change have reduced many farm incomes.

Official unemployment has gone up from 2.9% in 2014 to 3.5% in 2016, still commendably low, although there are concerns about high youth unemployment, especially among the tertiary educated.

Retrenchments have been worst for services, casting doubt on future employment prospects as the authorities rely increasingly on services for growth and jobs. With unemployment low, but rising, wage growth has slowed after the initial introduction of the minimum wage, while real incomes have been hit by higher prices and taxes.

Wage depression

You seem to imply that Malaysian wages have been artificially lowered.

Jomo: Malaysians, in general, have higher incomes now than before. However, official numbers are misleading as we do not account for the massive presence and contribution of foreign labour, especially undocumented immigrant workers.

Their status has also served to depress wages for low-income Malaysian workers. Not surprisingly then, labour’s share of national income has gone down relatively.

This decline is not due to declining labour productivity, even if that may be the case. After all, higher labour productivity does not automatically raise workers’ incomes. Prevailing low wages retard technical change which would, in turn, raise productivity.

Thus, the unofficial low wage policy stands in the way of labour-saving innovation, such as mechanical harvesting, so necessary for development. We need a medium-term development strategy far less reliant on cheap foreign labour.

Consequently, wages and living conditions are too low, especially in agriculture. And even smallholder agriculture has been neglected by officialdom in Malaysia for some time, especially after Pak Lah’s (Abdullah Ahmad Badawi’s administration.

Fighting a jihad against middlemen was not only thinly disguised misinformed and misguided stunt intended to score ‘ethno-populist’ points, but also irrelevant to addressing contemporary challenges.

Shifting tax burden

How have recent tax reforms affected Malaysian households?

Jomo: Following the introduction of the GST in April 2015, tax revenue from households increased from RM42 billion in 2014 to RM67 billion in 2016, with GST more than doubling the contribution of indirect tax from RM17 billion to RM39 billion.

At the same time, income tax revenue has risen modestly from RM24 billion in 2014 to RM28 billion in 2016. On average, Malaysian households paid taxes of RM5,600 each, more than ever before.

Meanwhile, government subsidies and assistance have declined, falling from RM43 billion in 2013 to RM25 billion in 2016, with most food price subsidies removed between 2013 and 2016.

Inflation numbers

Official inflation numbers are low. Why does the public doubt official inflation numbers?

Jomo: There are many reasons why the public doubts official inflation numbers, but perhaps most importantly for the country’s open economy, the ringgit exchange rate dropped from RM3.2/USD to RM4.5/USD before recovering to RM4.2 recently.

People presume that a decline in the international value of the ringgit by about a quarter must surely have inflationary consequences.

The GST of 6% has been imposed since April 2015, directly affecting about half of household spending, with up to a fifth more indirectly affected. Again, this is expected to have affected the cost of living.

Price subsidies for sugar, rice, flour and cooking oil have been removed since 2013, raising prices by 14% to 31%. Meanwhile, transport – including fuel and toll – prices have risen on several fronts.

Hence, you can understand why people are sceptical.

Transformasi Nasional 2050 (TN50)

After announcing and then abandoning the New Economic Model, there is now much ado about an economic transformation agenda for 2050.

Jomo: The TN50 exercise has been broadly consultative, involving young people, which surely is a good thing. Unfortunately, as with BR1M, it has been used to mobilise political support for the regime before the forthcoming elections rather than open up a more inclusive debate about where the country is headed.

The conversation should be about where the country should go and how to get there. It is still unclear to what extent we are going beyond the usual feel-good, futuristic sounding clichés, but this should open up an important debate to give serious consideration to actually achieving the transformation.

 

The country is presently mired in a political crisis that has paralysed effective economic policymaking. Malaysia desperately needs a legitimate and consultative leadership to implement bold measures to take the country forward.

Many people in the country know what ails the economy, but we do not have the open discussion needed to really tackle the challenges the nation faces. For example, a free and independent media will not only improve the quality of public discourse, but also the legitimacy and acceptability of resulting public policy.

Yesterday: Jomo in defence of honest, constructive criticism

Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline


October 5, 2017

Malaysia: 2018 National Budget–Need for Greater Fiscal Discipline

by T K Chua@www.freemalaysiatoday.com

Image result for Najib as Finance Minister

 

In a couple of weeks, the 2018 national budget will be revealed and a peek into the options and challenges awaiting us, is in order.

Beware of Off-Budget Agencies

FIRST, the budget is not what it used to be. Increasingly there are expenditures and commitments outside the purview of the budget but their impact may eventually impinge on government finance. These are off-budget agencies of which the revenues, expenditures and debts should be tabulated and presented as addendum to the budget.

Keep Budget Deficits under Control

SECOND, in all likelihood, the 2018 budget will be another year of deficits. This means there will be new borrowings or sales of government assets to finance the deficit. New borrowings mean more accumulated debts and more debt service charges going forward. When more is provided for debt service charges, less will be available for other operating expenditures.

THIRD, most government revenue has almost reached its limits unless income and expenditure continue to grow. In recent times, the government has been relentless in its enforcement efforts to extract the maximum from individuals and business establishments. Similarly, the implementation of the GST is in full swing. It is doubtful that the government will be able to cover more loopholes and tax leakages/avoidance cases or to increase further the GST rates at this stage.

If revenues are limited, the government will not be able to offer new expenditure programmes unless it incurs more borrowing and debt.

FOURTH, most expenditure programmes are “locked in”, stifling the government’s ability to look at the new impetus. The government’s commitments toward BR1M, civil service salaries and benefits, pensions, and debt service charges will continue to grow. This will leave little room for the budget to meet new challenges lurking in the horizon.

Watch the Expenditure Side of Things

FIFTH, the government has looked at the revenue side by introducing new taxes and by enforcing stricter compliance of existing taxes. However, this trend can’t go on forever. It is time to look at the expenditure side of things.

The annual audit report has given more than sufficient information on wastage, inefficiency and abuse of government allocations and expenditures. Sometimes corruption is due to allocations being too lavishly handed out. If government departments and agencies have too much money, the tendency is to be careless with the expenditures.

 

MALAYSIA ‘SCREWED UP’ BY WORST FINANCE MINISTER NAJIB – RESERVES THE LOWEST IN ASIA THAT MoF UNABLE TO PAY EVEN US$600 MILLION DEBT?

Who is the de facto Minister of Finance– Najib Razak or Handbag Rosmah Mansor? How did she spend the funds  allocated for her signature project Permata?

Stringent and optimal budget allocations do not have to affect output or service to the people, as was commonly claimed. We only need those responsible to work harder and be more careful with the money.

The National Budget is not a Mundane or routine exercise

I think it would be a big mistake if we continue to look at the budget formulation as a mundane or routine exercise. Some of the trends are obviously unsustainable. Even if we start to reverse or correct the trends now, it may take us many years to restore sustainability.

TK Chua is an FMT reader.

Najibnomics not all bad, says researcher


September 1, 2017

This piece by UKM educated Dr. Bruce Gale* should be read after you have studied Tricia Yeoh’s Open Letter to our Great Corrupt Leader.

https://dinmerican.wordpress.com/2017/08/18/tricia-yeohs-advice-to-malaysian-prime-minister-dont-provide-misleading-information-to-foreigners/

Can the blame be laid squarely on the Prime Minister Najib Razak for being corrupt. After all, USD680 million in his personal bank account is a gift from a generous Saudi Prince. With regard to FGV, Isa Samad is in charge. Is it fair for us Malaysians to point our finger at the Prime Minister for Isa’s financial cock-up? That is not being emotional.

Dr. Gale says, “Sadly, emotions are running so high on both sides of the political divide that genuine attempts at formulating an objective assessment are in danger of being ignored.”  His book is an objective assessment of Najib’s financial stewardship of the Malaysian economy.

After thinking for yourself, you can decide whether you should buy his book. –Din Merican

Image result for Bruce Gale Economic Reform In Malaysia: The Contribution of Najibnomics

Najibnomics not all bad, says researcher

http://www.malaysiakini.com

A new book, “Economic Reform In Malaysia: The Contribution of Najibnomics”, by a Singapore-based researcher, argues that the Najib administration’s economic policies has some plus points.

Independent researcher Bruce Gale, in an opinion piece today in Singapore’s Straits Times to promote his book, said several controversies clouded public opinion on Prime Minister Najib Abdul Razak’s policies.

These controversies include 1MDB, Felda Global Ventures Holdings Bhd (FGV), and the US$681 million “gift” from Saudi Arabia.

Image result for Bruce Gale Economic Reform In Malaysia: The Contribution of Najibnomics

 for Isa’s financial cock-up?  Dr. Gale says, “Sadly, emotions are running so high on both sides of the political divide that genuine attempts at formulating an objective assessment are in danger of being ignored.”  His book is an objective assess

“But are all these things really true? And, if so, can the blame be laid squarely at the feet of the current Prime Minister?

“Sadly, emotions are running so high on both sides of the political divide that genuine attempts at formulating an objective assessment are in danger of being ignored,” wrote Gale.

On the Najib-administration’s handling of the national debt, Gale argued that the RM655.7 billion debt as of end-June, 53.2 percent of GDP, was a response to the 2007-2008 financial crisis.

“It sounds worrying, particularly since the comparative figure when Najib became Finance Minister in late-2008 was a more comfortable 41 percent.

“A closer look, however, shows that almost all of the increase took place in a single year. In 2009, governments everywhere were pumping huge sums into their respective economies in response to the global financial crisis. Malaysia did the same thing,” argued Gale.

He said that Malaysia’s current debt levels is not unprecedented as Malaysia’s debt-to-GDP ratio in 1990 was almost 80 percent.

While debt troubles faced by GLCs such as FGV and 1MDB are hard to ignore, it does not appear to affect sovereign debt ratings.

“The macroeconomic impact of any future sovereign downgrade should also be seen in context. Since domestic institutional funds have ample liquidity, any sell-off in the country’s bond or equity markets would likely be limited,” he said.

Weak ringgit due to externalities

On the weak ringgit, Gale attributed this to externalities: the fall in international oil prices and a drop in demand for Malaysia’s commodities.

“By comparison, the impact of the political uncertainties brought about by various political controversies is likely to have been minor.

“Those who contend that the weak ringgit reflects foreigners’ low confidence in Mr Najib’s Malaysia have to explain why the stock market has not collapsed and why international institutions such as the International Monetary Fund and World Bank have consistently published positive assessments of the Malaysian economy,” he wrote.

He argued that a weak ringgit is, in a way, good for Malaysia because this will help improve exports and lower the cost of entry for foreign investors.

On the removal of subsidies, Gale’s assessment was that this was necessary as subsidies were unsustainable and was stunting growth.

“The government has tried to alleviate the impact of these economic reforms on the poor by introducing programmes such as the 1Malaysia People’s Aid (BR1M).

“Of course, such handouts are not a permanent solution. For that, strong and balanced economic growth is needed.

“But growth can come only if leaders are willing to take the unpopular measures necessary to reform the economy,” he said.

‘GST was necessary’

Gale also supported GST because it “forced the middle class to share the tax burden.”

“While the GST is generally regarded as a retrogressive tax as it taxes the rich and the poor alike, its impact on the poor has been minimised by ensuring that many common food items such as rice, fresh fruit, bread, meat and vegetables are GST-exempt.

“Annual price rises, as measured by the consumer price index (CPI), have breached the three percent level only twice since Najib took power. The political problem arises from the fact that the food and beverage component of the CPI has often risen much faster,” he said.

Gale said that Malaysia’s economy still suffers from low labour productivity, a lack of affordable housing, and high household debt.

The silver lining, said Gale, was that the productivity of Malaysian workers is improving at a faster pace compared to developed countries, and that household debts are offset by the higher value of household assets.

Give Najib due credit

Gale concluded that regardless of what the critics say, key areas of Malaysia’s economy has continued to grow and at a rate above the international average, while inflation remains under control.

“The wider point to be made, however, is that Mr Najib has simply not been given due credit.

“The reality is that under his leadership, Malaysia’s macroeconomic policies have been broadly appropriate.

“Abolishing the subsidies and implementing the GST were both necessary and urgent,” he wrote.

 

*Gale received his bachelor’s and master’s degrees in Australia. His PhD on political economy was obtained from University Kebangsaan Malaysia in 1987. He has written several books on Malaysian politics since the 1980s, including a biography on former Deputy Prime Minister Musa Hitam. He is a senior contributor to Straits Times.

No Reason to celebrate 60th Merdeka Day


August 18, 2017

No Reason to celebrate 60th Merdeka Day

by Stephen Ng@www.malaysiakini.com

Image result for UMNO Flags

COMMENT | As we approach Merdeka Day, one thing is too obvious not to be noticed.

This observation that I make will answer the question I pose: “How can BN gain back people’s confidence after 2008?”

Sixty years have passed and BN has ruled the nation. This year is crucial as it may be the coming general election that will decide whether Malaysia will return to BN or see a change of government at the federal level.

Image result for Jalur Gemilang at half mast

On August 31, 2017–In stead of rejoicing, we Malaysians  mourn the state of our country. After 60 years of Merdeka, we are being colonised by corrupt and racist UMNO kleptocrats and their partners in MCA, MIC, Gerakan.–Din Merican

My observation is based on the mood of the people as we approach Merdeka Day. It is obvious that the flags are not flying. By now, most shops would be carrying the Malaysian flag and cars would be adorned with the Jalur Gemilang.

But, unless some arm-twisting tactics are used, by now the flags would be all over the place. Patriotism is not something that can be forced. It has to come from the people’s own sentiments.

Although patriotism has nothing to do with giving support to the government of the day, its absence can indicate the people’s sentiments and confidence towards those in the powers of corridor.

This year is the 60th anniversary since Malaysia achieved its independence from the British colonial government in 1957, yet Malaysians are generally lukewarm about the celebration this year.

Why are Malaysians not showing their patriotism?

It does not cost more than RM10 to purchase a Malaysian flag, but could it be that Malaysians are unwilling to fork out even that amount of money, not forgetting the additional 60 sen for the Goods and Services Tax (GST)?

After three years, by now, most Malaysians would have felt the burden of the GST on their rising cost of living.

Only a total reversal of the GST, which unfortunately Prime Minister Najib Abdul Razak said is impossible to implement, is the only way BN can gain the people’s confidence.

Pakatan Harapan said the moment they win the general election, they would remove the GST. So, why is BN saying it cannot be abolished?

Is it because the country has reached such a financial state that despite the oil money, the government would not be able to meet financial obligations without the income from GST collection?

All the “positive” reports aside, one needs to only read Tricia Yeoh’s open letter to Najib to realise how much of Najib’s speech at Invest Malaysia last month can be swallowed.

The truth is most people have a very negative economic outlook, with most saying that the country appears to be going nowhere. Malaysians are beginning to see the doom ahead of them with the latest report that in 2016, the country’s debt has hit RM908.7 billion or 74 percent of the gross domestic product (GDP).

This is one of the highest since the country achieved independence. To say it is no problem is something hard for even ordinary Malaysians to believe. Imagine you are earning RM10,000, but you have to service your loan for the RM7,000 that you have borrowed.

You may be living a lifestyle of someone earning RM17,000 a month, but how many people even earn RM5,000 a month? This is called “over gearing”.

If people smell that something is not right, they will panic to think that the country’s total foreign debts may show that we are in real danger of bankruptcy.

One explanation after another has been given. For example, everyone knows that it is the weaker ringgit that is contributing to the higher cost of foreign debts, but what is the BN government doing about controlling external debts?

What we are hearing about are the mega projects being carried out using borrowed funds. The East Coast Rail Link (ECRL) for example is to be built using money from a soft loan provided by China’s Exim Bank at 3 percent over a period of 20 years.

Anyone borrowing from the bank for a housing loan for that period of time will realise that it is not that rosy after all. The moment someone defaults on a loan, there will be penalties. The bank may even force the property to be auctioned off.

Would the RM55 billion soft loan place Malaysia under the control of a Chinese bank, hence, indirectly the Chinese government? No banks would loan any amount of money if it does not have the assurance that it is able to get back the money.

Besides, we all know that Keretapi Tanah Melayu (KTM) is not making any profit despite running the North-South corridor. What makes us think that the ECRL would be able to pay back the loan?

Political violence

Image result for UMNO Red Shirts

UMNO-Malay Unity, not National Unity

It is not only the financial aspect that people are worried about. No thanks to its past record, and people like Jamal Mohd Yunos and his Red Shirts, people seem to have the impression that UMNO is given the right to use violence.

Peace-loving Malaysians are no longer easily intimidated. The silent majority may not do much, but the sentiments are definitely not with UMNO when more political violence unfolds, whether linked to the party, its members, or otherwise.

They may not be outspoken, but they are waiting for the right moment to strike with another tsunami. This is my observation especially after Mahathir and his men abandoned UMNO.

Image result for UMNO Red Shirts

Jamal Ikan Bakar Yunos and his Red Shirts on a rampage?

The answer to my question, “How BN can gain back people’s confidence?” therefore requires more soul-searching on the part of BN leaders, including those from Sabah and Sarawak.

If flying of the Jalur Gemilang is any indication of the people’s sentiments, it is time for some serious discussions at the higher level.

STEPHEN NG is an ordinary citizen with an avid interest in following political developments in the country since 2008.

Malaysia Practises KorekEconomics


June 12, 2017

Malaysia Practises KorekEconomics (Dig-Economics)

by Rais Hussin Mohamed Ariff

http://www.malaysiakini.com

Image result for najib razak

Finance Minister Najib Razak–The Proponent of KorekEconomics

COMMENT | The history of taxation is synonymous with the rise of the state. When kings and warlords could not go on plundering and pillaging the people, they switched to taxation to prevent the farmers and settlers from avoiding the punitive measures.

By soft pedalling on the extraction, the state was born. Mancur Olson, an economist, referred to the state as the evolution from the “stationary bandit”. Paul Collier, at Oxford University, spoke of the logic of using the state to collect rents systematically, rather than to steal sporadically and in a spurious manner too.

In Malaysia, under the current administration, the two concepts that separate stealing from collecting taxes have been collapsed into one. Both are two sides of the same coin.

By introducing the tourism tax, for example, it seems to be aimed at foreign tourists. Yet, does anyone remember “Cuti-Cuti Malaysia?” This is an ongoing campaign that encourages Malaysians of all ages to travel within the country.

Yet, the moment you do, any five-, four- or three-star hotels you stay in means you would incur an additional cost that will go to the current administration. This ranges from RM 20 per night in a five-star hotel to RM 5 per night in a three-star hotel.

Thus, it doesn’t matter if you are a high-end traveller or a low-end traveller. The administration of Prime Minister Najib Abdul Razak is there to extract a portion of your hard earned income that you have set aside for a family holiday.

Digging deep for ‘korek economics’

Image result for najib razak

In other words, in addition to the goods and services tax (GST), your income tax and potentially the service tax too, the government wants to put its hands into your pockets. And they will dig deep to get what they want, in what can only be known as “korek economics”.

“Korek economics” is not based on collection. It is driven by the degree to which the Malaysian economy has become ruined, or “koyak” in Malay, the lingua franca of Malaysia.

In 1MDB, Malaysians are now saddled with, allegedly, a debt in excess of RM44 billion. When the debt of other government-owned companies are taken into account, the debt is easily more than 80 percent of the GDP.

Not forgetting the on-budget and off-budget debts. Off budget debts are debts created through bond issuance by an entity wholly owned by the government, with guarantees by the government.

Debts like the astronomical ECRL project, which is priced at an inflated price of RM55 billion and funded through debts from China. With an estimated three percent interest rate, seven years deferred payment and 240 months of repayment instalment, it will cost the government or the taxpayers a whopping sum of RM99.6 billion!

If we use the East Coast passenger load to find the breakeven ticket price one way from KL to Kota Bahru, it will cost a whopping RM3,586 one way, the same price for a return economy class air ticket to Siberia, Russia. Get the point?

Not happy with the revenue drawn from GST, the Malaysian government has offered a mere 15 percent discount to more than half a million graduates who remain unable to pay back their PTPTN loan. This harms the ability of the graduates to live an ordinary life. Given the youth unemployment is three times the national average, they seem to resign to the fact that they are in hopeless zone.

Thus, the process to “korek” Malaysia has not merely happened in the heart of Kuala Lumpur, where a hole is dug deep, without any structures on it, but it is proliferating across the whole country. Welcome to Curi-curi Malaysia.


RAIS HUSSIN MOHAMED ARIFF is a supreme council member of Parti Pribumi Bersatu Malaysia (Bersatu). He also chairs the Bersatu Policy and Strategy Bureau.

 

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

Image result for Chinese investments in Malaysia

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.

Image result for 1mdb assets sold to China

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.

Image result for 1mdb assets sold to China

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.

Image result for Forest City Project Johor

 

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.

Image result for Najib and Big Momma in China

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.