The Paradox of Globalization: Development Cooperation at Risk


August 22,  2018

The Paradox of Globalization: Development Cooperation at Risk

by Dr. Jomo Kwame Sundaram

http://www.ipsnews.net/2018/08/globalization-enhanced-development-cooperation/

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Protracted economic stagnation in rich countries continues to threaten the development prospects of poorer countries. Globalization and economic liberalization over the last few decades have integrated developing countries into the world economy, but now that very integration is becoming a threat as developing countries are shackled by the knock-on effects of the rich world’s troubles.
Trade interdependence at risk
As a consequence of increased global integration, growth in developing countries relies more than ever on access to international markets. That access is needed, not only to export products, but also to import food and other requirements. Interdependence nowadays, however asymmetric, is a two-way street, but with very different traffic flows.
Unfortunately, the trade effects of the crisis have been compounded by their impact on development cooperation efforts, which have been floundering lately. In 1969, OECD countries committed to devote 0.7% of their Gross National Income in official development assistance (ODA) to developing countries. But the total in 2017 reached only $146.6 billion, or 0.31% of aggregate gross national income – less than half of what was promised.
In 2000, UN member states adopted the Millennium Development Goals to provide benchmarks for tackling world poverty, revised a decade and a half later with the successor Sustainable Development Goals. But all serious audits since show major shortfalls in international efforts to achieve the goals, a sober reminder of the need to step up efforts and meet longstanding international commitments, especially in the current global financial crisis.
Aid less forthcoming
Individual countries’ promises of aid to the least developed countries (LDCs) have fared no better, while the G-7 countries have failed to fulfill their pledges of debt forgiveness and aid for poorer countries that they have made at various summits over the decades.
At the turn of the century, development aid seemed to rise as a priority for richer countries. But, having declined precipitously following the Cold War’s end almost three decades ago, ODA flows only picked up after the 9/11 or September 11, 2001, terrorist attacks. The Monterrey Consensus, the outcome of the 2002 first ever UN conference on Financing for Development, is now the major reference for international development financing.
But, perhaps more than ever before, much bilateral ODA remains ‘tied’, or used for donor government projects, rendering the prospects of national budgetary support more remote than ever. Tied aid requires the recipient country to spend the aid received in the donor country, often on overpriced goods and services or unnecessary technical assistance. Increasingly, ODA is being used to promote private corporate interests from the donor country itself through ostensible ‘public-private partnerships’ and other similar arrangements.
Not surprisingly, even International Monetary Fund staff have become increasingly critical of ODA, citing failure to contribute to economic growth. However, UN research shows that if blatantly politically-driven aid is excluded from consideration, the evidence points to a robust positive relationship. Despite recent efforts to enhance aid effectiveness, progress has been modest at best, not least because average project financing has fallen by more than two-thirds!
Debt
Debt is another side of the development dilemma. In the last decade, the joint IMF-World Bank Heavily Indebted Poor Countries initiative and its extension, the supplementary Multilateral Debt Relief initiative, made some progress on debt sustainability. But debt relief is still not treated as additional to ODA. The result is ‘double counting’ as what is first counted as a concessional loan is then booked again as a debt write-off.
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At the 2001 LDCs summit in Brussels, developed countries committed to providing 100% duty-free and quota-free (DFQF) access for LDC exports. But actual access is only available for 80% of products, and anything short of full DFQF allows importing countries to exclude the very products that LDCs can successfully export.
Unfortunately, many of the poorest countries have been unable to cope with unsustainable debt burdens following the 2008-2009 financial crisis. Meanwhile, there has been little progress towards an equitable and effective sovereign-debt workout framework despite the debilitating Argentine, Greek and other crises.
Technology gap
In addition to facing export obstacles, declining aid inflows, and unsustainable debt, the poorest countries remain far behind developed countries technologically. Affordable and equitable access to existing and new technologies is crucial for human progress and sustainable development in many areas, including food security and climate-change mitigation and adaptation.
The decline of public-sector research and agricultural-extension efforts, stronger intellectual-property claims and greater reliance on privately owned technologies have ominous implications, especially for the poor. The same is true for affordable access to essential medicines, on which progress remains modest.
An international survey in recent years found that such medicines were available in less than half of poor countries’ public facilities and less than two-thirds of private facilities. Meanwhile, median prices were almost thrice international reference prices in the public sector, and over six times as much in the private sector!
Thus, with the recent protracted stagnation in many rich countries, fiscal austerity measures, growing protectionism and other recent developments have made things worse for international development cooperation.
Dr. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

Malaysian Prime Minister’s Visit: How to cut a better deal with China


July 25, 2018

Malaysian Prime Minister’s Visit: How to cut a better deal with China

https://www.bloomberg.com/news/articles/2018-07-24/mahathir-pushes-back-against-china-for-better-economic-deals

Malaysian Prime Minister Mahathir Mohamad is pushing back against China’s dominance in the economy, stalling billions of dollars of contracts as he tries to renegotiate them.

He’s heading to China in August — specific dates haven’t been disclosed yet — to discuss those projects and try to win deals that he says should be more favorable to Malaysia.

China has $34 billion worth of infrastructure projects underway in Malaysia negotiated by the previous government of ousted leader Najib Razak, deals that Mahathir said favored Chinese investors over the Malaysian economy. Among his concerns are the large sums that the government has borrowed from China and contractors that use Chinese labor and equipment.

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Earlier this month, Malaysia’s government suspended the East Coast Rail Link, which was being built by China Communications Construction Co. with an estimated price tag of 81 billion ringgit ($20 billion). Two energy pipeline projects were also stalled.

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Mahathir’s move comes against the backdrop of growing disquiet in Southeast Asia about China’s spreading influence in the region. China’s multi-billion dollar Belt & Road Initiative to build roads, railways and ports is stoking fears of ballooning debt in poor countries like Myanmar and Laos. China’s actions in the South China Sea are also a source of tension.

‘Nationalistic Stance’

Malaysia has been one of the region’s biggest beneficiaries of Chinese investment in the 15 years between Mahathir’s first and latest stint as leader, while economic links in the two countries from trade to tourism have strengthened.

“We expect some negative impact on future Chinese-related investments in Malaysia due to PM Mahathir’s nationalistic stance with regard to investment,” said Chua Han Teng, head of Asia Pacific country risk at BMI Research.

“However, we expect a compromise to mitigate the effect, with Malaysia unwilling to antagonize an important trade partner and China likely to prioritize its ambitious Belt and Road Initiative, of which projects in Malaysia are a key part,” he said.

Here’s a look at how China’s economic links with Malaysia have evolved in recent years:

1. Trade

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China-Malaysia twin industrial parks are set to boost investment and cooperation between the two countries as well as in the region under China-proposed Belt and Road initiative.

Malaysia is China’s biggest trading partner in Southeast Asia after Vietnam, with total trade of $92.4 billion last year. In 2003, when Mahathir ended his first period as Prime Minister, the figure was less than a quarter of that.

Malaysia is one of the few economies in Southeast Asia to run a trade surplus with China, exporting everything from electronics and palm oil to liquefied petroleum gas. Last year, Malaysia exported $54.4 billion to China, or about 18 percent of its total shipments. In 2003, that figure was just $14 billion.

Malaysia imports electrical products, machinery and equipment from China.China has been Malaysia’s biggest trade partner since 2009

2. Investment

Official data shows Chinese foreign direct investment into Malaysia surged more than 700 percent in the past decade to 9.9 billion ringgit last year, a far bigger increase than any other source country.

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Chinese FDI inflows into Malaysia have surged in recent years. The inflow has raised concerns among Malaysians over sovereignty, indebtedness and the risk of creating white elephant projects.

“Both Dr Mahathir and the China side look at the definitions of investments from their own experience and perspective and therefore differently,” said Oh Ei Sun, a senior adviser for international affairs at the Asian Strategy and Leadership Institute in Kuala Lumpur. “It is important for both sides to iron out their difference in preferences and expectations.”

3. Tourism

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Chinese tourists are now the third-largest group of visitors to Malaysia after Singaporeans and Indonesians, lured by sandy beaches, a shared culture in a country where a quarter of the population are ethnically Chinese, and a love of the pungent durian fruits.

That growth has underpinned a tourism industry that now makes up about 15 percent of gross domestic product. Total tourism receipts in Malaysia climbed 54 percent in the past decade to 82.1 billion ringgit in 2017.

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Chinese tourist arrivals to Malaysia rose 7.4% y/y to 2.28m last year (2017)

4. Immigration

Chinese nationals were the largest group of participants in the state-run Malaysia My Second Home program, an international residency plan allowing wealthy foreigners to live in the Southeast Asian nation on a long-stay visa. Chinese citizens accounted for almost 30 percent of successful applicants since the program was launched in 2002.

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5. Property

The increase in Chinese migration has helped underpin property demand in Malaysia, especially in the southern city of Johor Bahru, which borders Singapore, and in Penang and Melaka states, according to Knight Frank LLP consultants.

For Chinese investors, Malaysia is a cheaper alternative to real-estate markets in Australia, Hong Kong and Singapore. What also counts in Malaysia’s favor is a lower entry cost for property and cultural ties that make food and language familiar to Chinese buyers.

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China’s Xiamen University Campus in Malaysia

China’s Xiamen University also became the first one in the country to open an overseas campus, which was set up outside of Kuala Lumpur with the aim of boosting ties between Chinese and Malaysian students and academics.

— With assistance by Molly Dai

Time to remove Nuts and Misfits from our Religious Establishment


Time to remove Nuts and Misfits from our Religious Establishment

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What about this Monument, Harussani ?

If most of you thought Harussani Zakaria, the Perak  Chief Mufti, who says wives cannot refuse sex on a camel, is bad, his deputy and successor, Zamri Hashim, is even worse. He is trying his best to outdo his boss in showing off his conservative Islamic credentials.

We don’t need Islamic State (IS) to destroy the country, because our own people and internal organisations are doing a good job of demolishing the country’s once solid foundations.

The ruling party  UMNO wants to be the ‘big boss’, but so do the religious leaders. In the ensuing power struggle, the rakyat are caught in the middle. The ‘champion’ manipulates the behaviour of his victim (the rakyat) to satisfy his ego and sate his greed for material wealth.

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Both Monuments (pictured above in Kuala Lumpur and Washington DC) were designed by Felix De Weldon. Malaysia and United States honour Brave Men and Women who gave their lives so that we may live in peace.  But today Islamic idiots in Malaysia want to demolish our National Monument and other landmarks.These idiots come from Perak which boosts of Harvard and Oxford educated erudite Ruler, Sultan Nazrin Shah.  Why do we allow Harussani Zakaria, Chief Mufti of Perak and his Deputy Zamri Hashim a free hand to make pronouncements that debase Islam? How much more can moderate Muslims in Malaysia take  of this kind of crap?–Din Merican

A few months ago, Zamri, the Deputy Perak Mufti, said that wives and daughters were destined to go to hell if they did not cover their heads, or followed careers which were traditionally suited for males. From the way he spoke, it was as if he was given a list by God himself, detailing which groups of people are reserved for Hell.

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Last week, Zamri caused public outrage when he told Berita Harian that the statue of an eagle on the Langkawi waterfront went against religious doctrine. He claimed that statues of living creatures are forbidden in Islam.

Like a good boss, Harussani endorsed his deputy’s statement, but stopped short of urging the destruction of the statue. Perhaps, Harussani had ordered Zamri to issue this ridiculous edict, so that people would not blame him for another odious remark.

The controversial group Ikatan Muslimin Malaysia (Isma) did not want to be out of the limelight, so they supported Zamri’s urging.

The way things are going, there will come a time when an overzealous mufti will proclaim that the practice of hanging portraits of the royals and the PM in our business premises is a form of idol worship and demand that these be banned.

How much more can the rakyat take? The Tunku’s brainchild, the National Monument (Tugu Peringatan Negara), is no longer the place where Malaysians pay their respects to our fallen heroes, on Warriors Day. In 2010, the National Fatwa Council ruled that the Tugu, with its larger-than-life figures depicting the brave men who died defending Malaya/Malaysia, was un-Islamic.

Today, we have fools deciding that the eagle statue, which is a crowd-puller in Langkawi, should be demolished.

The madness can end here and now, if only more Muslims speak out and make a stand.Sadly, it will not happen, because these Muslims, however much they object to the muftis, do not want to be seen as ‘going against Islam’. This shows how little they know their own religion, and they are so weak that they allow other ignorant Muslims to control their lives.

‘Seize all children’s dolls’

If the Perak mufti’s department and Isma are really sincere about making Malaysia an Islamic utopia, they should demand that government officials raid all private homes, paediatric hospitals, kindergartens and toy shops like Toys-R-Us and seize all children’s dolls like Barbie and Ken, adult life-sized sex dolls, and stuffed animals.

These toys should be dumped in the centre of Dataran Merdeka, the symbolic shrine which UMNO Baru privately claims belong to them, and have a mass ritual of burning these so-called idols.

In comparison with the actions of our religious leaders, the characters in Ray Bradbury’s book, ‘Fahrenheit 451′, seem to be indulging in child’s play. Are the Perak mufti and his deputy, as well as Isma, suffering from ‘penis envy’? Are they secretly against statues because thousands of people are attracted to them?

The religious leaders once conned the naïve Muslim public into believing that the statues of the Tugu were forbidden because they depicted humans. There was no mention then that statues of animals were also banned.

So, are the muftis making up the rulebook as they go along? What about the cat statue in Kuching and Francis Light’s statue in Penang? Why is the deputy Perak mufti interfering in Kedah?

We have a furore over statues today. What next? Dolls? Idols in temples and other houses of worship? That is already under way. What recourse does the non-Muslim community have when the inspector-general of police (IGP) justifies the actions of temple vandals by claiming they are mentally unstable?

Who do we blame for Malaysia falling into the gutter? Saudi Arabia, our leaders or ourselves?

Saudi Arabia’s petrodollars poured into mosques and Muslim charities as easily as we filled our petrol tanks. The Wahhabi indoctrination of our people was powered by Saudi money.

Our leaders love Saudi money, for obvious reasons. In exchange, they turned a blind eye to the brainwashing of Malaysians.

Finally, we have to accept responsibility, because we did nothing to stop this conservative Islamic madness. It is never too late, and you can speak up against our malevolent muftis, before they destroy Malaysia further.

IS destroyed ancient artifacts in Syria. The Perak Deputy Chief Mufti is advocating the same vandalism in Malaysia.

 

Prime Minister Najib’s Revised 2015 Budget Speech


January 21, 2015

Prime Minister Najib’s Revised 2015 Budget Speech (January 20, 2015)

Najib and the KijangWe are here this morning with leaders and administrators, civil servants, industry players and corporate members, representatives of embassies, NGOs and volunteer groups, as well as the rakyat in this hall, and those watching TV or listening to the speech.

I would like to address some concerns on the current economic developments and the Government’s financial position. Lately, there have been reports, concerns and queries on issues, such as crude oil prices and performance of the ringgit.The Government has been vigilantly monitoring the situation. In this regard, I will announce several proactive measures to realign our policies in line with the changing global economic scenario, which is beyond our control. We are undertaking this to ensure that we continue to achieve creditable growth.

In other words, I am here today to announce specific and proactive measures to align ourselves with the recent global economic developments.

We are not in crisis. Indeed, we are taking preemptive measures following the changes in the external global economic landscape which is beyond our control.

This is to ensure that our economy continues to attain a respectable and reasonable growth. And at the same time, we want to ensure development for the nation and rakyat continues.

Indeed, 2014 was a year of trials and tribulations for us due to several tragedies.

At the end of last year, Malaysia was hit by unprecedented floods, affecting several states including Kelantan, Terengganu, Pahang, Kedah and Perak.

Although the floods were not so severe in Johor, Sabah and Sarawak, local communities in some areas were affected.

Thus, it is said that while man plans, Allah SWT plans too. And Allah SWT is the best of the planners.

The Government has always done its best to plan, formulate and implement policies and measures for the betterment of the rakyat.

It has been three months since the 2015 Budget was tabled. The Budget was formulated based on; First, price of Dated Brent was forecast at USD100 per barrel.

Second, Gross Domestic Product (GDP) growth estimated between 5% and 6%. Third, a stable exchange rate of RM3.20 against the US dollar; and

Fourth, 2015 world economic growth was projected at 3.4% and 3.9% by the World Bank and IMF respectively. Since then, the World Bank and the IMF have revised global growth to 3% and 3.8% respectively.

It should be noted that Budget 2015 was formulated based on strong economic fundamentals in 2014. Therefore, the fiscal deficit was forecast from 3.5% in 2014 to 3% of GDP in 2015.

However, the external situation has changed lately and we are impacted directly as Malaysia is among the largest trading nations in the world.

Compared to the situation a few months ago, the global economic landscape has since changed significantly. This necessitates us to review and clarify some of our earlier macro and fiscal assumptions.

Among the issues raised is the Government’s ability to achieve its fiscal targets for 2015. Given the current situation, the question is whether the economy and Government’s financial position will be affected.

In this special address, I will explain to the rakyat and announce several measures to mitigate the current economic situation.

As a responsible Government, we will continue to ensure economic development and safeguard the well-being of the rakyat.

Declining Crude Oil Prices

We are aware of the concerns among the rakyat, business community and analysts over the impact of the sharp fall in crude oil prices on the domestic economy.

Over the last six months, global crude oil prices have plunged more than 50%, among others, due to oversupply amid weak demand.

Leveraging advances in technology, shale oil and gas output has risen significantly in the US.

The situation is exacerbated by higher output from non-OPEC (Organisation of the Petroleum Exporting Countries). OPEC is also not willing to undertake production cuts in order to maintain its market share.

The Government has consistently reiterated that crude oil prices are beyond its control.

The benchmark Dated Brent crude oil price has dropped to around USD48 per barrel on 19 January 2015. And analysts expect oil prices to take quite a while to stabilise.

Benefits of Declining Crude Oil Prices

Lower crude oil prices benefit net oil importing countries like Malaysia. For instance, the recent reduction in pump prices of petrol and diesel by 35 sen and 30 sen per litre, respectively will increase the overall disposable income of consumers by RM7.5 billion. Assuming that consumers spend 40% of this amount, it will boost private consumption by RM3 billion.

The World Bank estimates that lower crude oil prices will have a positive impact on world GDP. In fact, a 30% decline in oil prices could boost global GDP of up to 0.5%.

This bodes well for Malaysia’s manufactured products. Further, with the US economy strengthening, there will be sustained demand for our exports, in particular electrical and electronics (E&E) products.

Falling Crude Oil Prices will Reduce Federal Government Revenue

In contrast, falling crude oil prices will reduce Government revenue. The revenue is used for development purposes such as building of schools, roads and houses of worship. It is also used for other expenditures such as salaries of civil servants, cost of medicine in Government hospitals, agriculture subsidies and expenditure for security including armed forces, police and RELA.

In 2014, Dated Brent reached its highest level at USD115 per barrel on 19 June. Global crude oil prices have since plummeted by more than 50%.

Consensus among economists is that the forecast price of USD100 per barrel used in the 2015 Budget is no longer realistic. They now estimate the average oil price in 2015 to range from USD40 to USD70 per barrel.

The Government has therefore revised downwards its forecast for the average baseline oil price to USD55 per barrel for 2015.

Based on the crude oil price of USD100 per barrel, coupled with savings following the implementation of the managed float pricing mechanism for retail fuel prices effective from December 2014, the Government is expected to get an additional operating surplus of RM3.7 billion.

If crude oil price remains at USD100 per barrel, the Government will be able to accommodate all the measures announced in Budget 2015 with the fiscal deficit target not exceeding 3% of GDP.

However, at the forecast price of USD55 per barrel, there will be a revenue shortfall of RM13.8 billion.

If we compare the revised figures with Budget 2015 tabled in October last year, despite the savings of RM10.7 billion from the implementation of the managed float mechanism for retail fuel prices, the Government still faces a revenue shortfall of RM8.3 billion to accommodate the 2015 Budget measures.

Without any fiscal measures, the deficit will increase to 3.9% of GDP against the target of 3% for 2015.

This requires the Government to take measures to reduce the deficit, in line with the Government’s commitment towards fiscal consolidation.

Therefore, taking into account the revised estimates, we are revising the fiscal deficit target to 3.2% of GDP in 2015.

This is still lower than the fiscal deficit of 3.5% of GDP in 2014. In view of the external factors, we have to acknowledge that we may not be able to achieve the earlier fiscal target of 3% of GDP as announced. Of importance, is our commitment to continue reducing the fiscal deficit from 3.5% of GDP.

More importantly, we will not compromise on national development planning as it will enhance productive capacity of the economy. We will not neglect the rakyat’s welfare, particularly the bottom 40% of households.

Volatile Capital Flows and Ringgit

The fluctuations in the ringgit are influenced by developments in the global economy. Hence, the ringgit is not the only currency to have weakened against the US dollar. In fact, almost all currencies in the region have softened against the US dollar since September 2014.

The recent volatile capital flows and significant depreciation of the ringgit were also due to concerns over the impact of the sharp fall in oil prices on the Malaysian economy.

In relation to this, we must closely monitor the following:

First, the current account in the balance of payments must remain in surplus.

Second, continue with fiscal reforms and consolidation and

Third, economic activity must be further diversified to enable us to cope with falling crude oil and commodity prices.

The Government is confident that the exchange rate will over time adjust to reflect the strong economic fundamentals. Of importance, our financial system continues to function in an orderly manner.

Most importantly, there has been no disruption to financial intermediation, with lending activities continuing smoothly. Businesses continue to have access to financing from banking institutions and the capital market.

In essence, greater policy flexibility, adequate international reserves, deeper and more diversified financial markets, sound banking system and strong domestic institutional investors such as the Employees Provident Fund will increase resilience to volatile capital flows.

Current Account Balance

The current account balance is directly related to the import and export of goods and services.

We are a crude oil exporter. Thus, when oil prices plummeted recently, there was a perception that export receipts will also decline drastically and result in a current account deficit.

Indeed, this perception is not correct. As a net crude oil exporter, we had a surplus of RM7.7bil from January to November 2014.However, we are an importer of petroleum products with a net import bill of RM8.9bil during the same period.

If we include both crude oil and petroleum products, we are actually a net importer with a deficit of RM1.2bil.

Therefore, the perception that Malaysia is a large oil producer is also not true.However, if we factor in exports and imports of crude oil, and nett out petroleum products, then Malaysia is a net importer of petroleum. This does not include LNG, for which Malaysia is a net exporter.

Furthermore, we are still resilient as our diversified economy is able to weather the decline in oil prices.

With a better outlook for the global economy in 2015, the shortfall in commodity receipts is expected to be cushioned by increased demand for manufactured goods, such as electrical and electronic products, wood-based products, textile products and others, which account for 76% of total exports. Meanwhile, crude oil exports account for only 4.5% of total exports.

Therefore, the Government is confident that the current account will remain in surplus this year, although smaller in the range of 2% to 3% of Gross National Income or GNI. In 2014, the current account balance is estimated to record a surplus at 5.1% of GNI.

Strategies to Strengthen Economic Resilience

As I have explained earlier, there are several issues which will impact the domestic economy significantly. In the light of this, the Government will take measures to ensure economic growth remains on a strong trajectory. We are confident of achieving GDP growth in the range of 4.5% – 5.5% this year with the implementation of the following strategies:

– First: Ensure balanced, inclusive and sustainable economic growth;

– Second: Continue fiscal reforms and consolidation; and

– Third: Provide assistance to the rakyat and business community to rebuild infrastructure damaged by floods.

First Strategy: Ensuring Balanced, Inclusive and Sustainable Economic Growth To boost exports of goods and services, the following measures will be taken:

First, actively promote import-substitution services such as shipping, port, education and professional services. This will reduce dependence on foreign sources for procurement of goods and services;

Second, accelerate implementation of recommendations of National Export Council:

– Enable exporters, especially SMEs, to be connected to new clients in new markets under an international linkage programme using market linkers and industry specialists;

– Intensify export promotion programmes in 46 countries covering Asia, Europe, the Middle East and the US;

– SME Bank will introduce SME-Go, an export programme for SMEs; and

– Leverage the Services Export Fund (SEF) and promotional programmes for SMEs to enhance sustainability of projects abroad.

Third, frontload implementation of Logistics & Trade Facilitation:

– Improve last-mile connectivity to Port Klang including access road, railway network and traffic management system;

– Upgrade Padang Besar railway terminal;

– Improve operational efficiency of import and export processes; and

– Establish a hub and spoke system for air transport.

Fourth, intensify tourism industry;

Fifth, review levy on foreign workers; and

Sixth, waiver of visa fee for tourists from, among others, China.

To enhance private consumption, the Government will implement the following initiatives:

First, give priority to local class G1 (class F), G2 (class E) and G3 (class D) contractors registered with CIDB to undertake reconstruction works in their respective flood affected areas;

Second, intensify promotion of “Buy Malaysia” products;

Third, increase frequency and extend shopping hours of nationwide mega sales;

Fourth, accelerate promotion of domestic tourism through competitive domestic air fares; and

Fifth, encourage the private sector to leverage benefits from the establishment of the ASEAN Economic Community.

In efforts to accelerate private investment, the Government will:

First, set up a Services Sector Guarantee Scheme amounting to RM5 billion for SMEs in the services sector, with maximum financing of RM5 million and 70% Government guarantee;

Second, encourage GLCs and GLICs to invest domestically;

Third, reduce cost of doing business:

– Postpone the scheduled electricity tariff hike in 2015; and

– Postpone the scheduled gas price hike for the industrial sector in 2015.

Fourth, allocate 30% of the annual procurement budget of Government agencies and GLCs for goods and services to local SME producers; and

Fifth, increase local goods and services in Government procurement.

Second Strategy: Continuing Fiscal Reforms and Consolidation Among the revenue enhancement measures include:

First, broaden the tax base by encouraging companies to register with the Royal Malaysian Customs to enable them to charge and collect GST. This is expected to contribute an additional RM1 billion in GST collection. As at mid-January 2015, more than 304,000 companies have registered; and

Second, realise additional dividends from GLCs and GLICs as well as other Government entities amounting to RM400mil.

The Government will undertake the following expenditure rationalisation measures:

First, optimise outlays on supplies and services, especially overseas travel, events and functions and use of professional services. This will result in savings of RM1.6bil;

Second, defer the 2015 Program Latihan Khidmat Negara to enable the programme to be reviewed and enhanced, with savings expected at RM400 million;

Third, review transfers and grants to statutory bodies, GLCs and Government Trust Funds, particularly those with a steady revenue stream and high reserves. This measure will result in savings of RM3.2 billion; and

Fourth, reschedule the purchase of non-critical assets, especially office equipment, software and vehicles, with an expected savings of RM300 million.

  1. Third Strategy: Assisting the Rakyat and Business Community as well as Rebuilding Infrastructure Damaged by the Floods

The recent floods affected around 400,000 people nationwide. The latest estimate of damage to infrastructure is about RM2.9bil.

Among the measures that have been taken and will be implemented to assist flood victims include:

The Government has provided an initial allocation of RM500 million for rehabilitation works and welfare programmes for flood victims.

This is in addition to the existing allocation to the National Security Council, bringing the total to RM787mil.

Provide an initial allocation of RM800mil for repair and reconstruction of basic infrastructure such as schools, hospitals, roads and bridges;

Provide RM893 million under the 2015 Budget for flood mitigation projects;

Build 8-ft stilt houses for those who have land and whose homes were damaged by the floods; Hand over 1,000 units of completed low-cost houses in Gua Musang; Provide RM500 per flood affected household; and Provide RM5,000 for the next-of-kin who have lost family members.

For businesses affected by floods:

– Provide an additional RM100 million to TEKUN and RM100 million to AIM to provide soft loans to support SMEs and microenterprises.

BSN, Agrobank, SME Bank, TEKUN and AIM to defer existing loan repayments of up to six months.

Bank Negara Malaysia will establish a RM500 million Special Relief Facility for SME loan financing at a concessionary rate of 2.25% with a grace period of up to six months through banking and development financial institutions;

Bank Rakyat will offer a personal loan scheme of up to RM50,000 at a financing rate as low as 3.9%, while loan repayments will start after six months from loan disbursement;

A sum of RM500 million will be provided by financial institutions with a 70% guarantee under a Flood Relief Loan Guarantee Scheme (Skim Jaminan Pinjaman Bantuan Banjir) (SJPBB). The Scheme will be administered by Prokhas; and

Exempt levy payment to the Human Resources Development Fund (HRDF) for a period of six months for SMEs in the flood affected areas with effect from 1 February 2015.

Conclusion

To sum up, I would like to highlight 6 key take-aways:

First, we are neither in a recession nor a crisis as experienced in 1997/1998, and 2009 which warranted stimulus packages;

Second, the strategies announced by the Government are proactive initiatives to make the necessary adjustments following the challenging external developments which are beyond our control. This is a reality check following, among others, declining global crude oil prices;

Third, the current account balance is expected to remain in surplus;

Fourth, the financial markets remain orderly and resilient. Although the ringgit has depreciated, it is expected to stabilise over time to reflect the strong economic fundamentals;

Fifth, Development Expenditure of RM48.5 billion for 2015 will be maintained and spent.

This includes projects for the people economy such as public housing, flood mitigation, water supply, electricity and public transport infrastructure such as Pan-Borneo Highway.

In addition, projects such as the MRT Line 2, LRT 3, High-Speed Rail Kuala Lumpur-Singapore will be continued.

In May, I will table the Eleventh Malaysia Plan (11MP) to outline the development expenditure until 2020.

Sixth, Operating Expenditure is expected to be reduced by RM5.5 billion through reprioritising expenditure.

In concluding, let us pray and hope that Allah SWT will always assist us in our efforts to find solutions.

In all of human nature, to Allah SWT we submit and surrender to His will. Of importance, we stand together in solidarity to face challenges.

Surely, with every difficulty there is relief.Hopefully God Almighty will continue to protect our beloved country from harm and danger.

 Thank you.

_____________________

2015 Budget Revision: Need to focus of structural reforms

by Zurairi AR@www.themalaymailonline.com

Revised budget 2015

Putrajaya needs to look beyond adjusting its annual deficit figures and focus instead on structural reforms to keep Malaysia’s oil-dependant economy afloat as the plunge in global prices continue to eat into government revenue, economists said.

The observers noted that a number of rating agencies have already given Malaysia’s sovereign ratings negative outlooks, and Prime Minister Datuk Seri Najib Razak’s Budget 2015 revision yesterday have yet to change their views.

Fitch Ratings even warned of a possible downgrade yesterday after Malaysia revised its fiscal deficit target to 3.2 per cent of the gross domestic product (GDP), saying the move is evidence that “dependence on commodities remains a key credit weakness for Malaysia”.

“It is more useful, in my view, to focus on the progress in the underlying structural reforms that underpin long-term fiscal sustainability rather than the year-to-year deficit figures,” said Dr Frederico Gil Sander, a World Bank senior economist who specialises on Malaysia.

Besides warning against a weak implementation of the Goods and Services Tax (GST) this April and a return of oil subsidies, Gil Sander also suggested that Putrajaya prepares budgets for years in advance for its ministries to enhance the credibility of its fiscal policy.

“Part of the deficit is currently due to the financing requirements of government-linked companies (GLCs), which are further crowding out private investment,” suggested Asian Development Bank’s (ADB) lead economist on trade and regional cooperation, Jayant Menon.

“The current looming fiscal crisis in Malaysia provides the perfect opportunity to seriously reduce the government’s involvement in the market by divesting from GLCs.”

Yee Farn Phua of Standard & Poor’s (S&P) said the credit ratings agency was more keen on watching long-term fiscal consolidation efforts from the Najib government, rather than just for 2015.

“We view Malaysia’s revised budget as an indication of the government’s continued focus on fiscal consolidation,” the agency’s associate director of sovereign ratings commented.

Najib announced yesterday that Malaysia’s revised fiscal deficit target for 2015 is now 3.2 per cent of the gross domestic product (GDP) instead of 3.0 per cent. Malaysia’s deficit for 2014 was estimated at 3.5 per cent of GDP.

Najib claimed that with the revenue shortfall from the global oil slump, the deficit would be as high as 3.9 per cent of GDP if the budget was not revised.

“We have to accept the reality that we can never achieve the original target of 3 per cent of the GDP as announced previously,” the Prime Minister admitted in his televised address.

He stressed, however, that Putrajaya was committed to reducing the budget deficit from the targeted 3.5 per cent in 2014.

Despite that, the economists said that yesterday’s budget revision was inevitable, and that Putrajaya must proceed with spending cuts as it still faces a projected revenue shortfall of RM13.8 billion.

The shortfall was calculated based on a forecast that crude oil prices would stay at US$55 (RM197.6) per barrel this year, compared to the initial estimate of US$100 per barrel that was used in the Budget 2015 announced last October.

As a crude oil exporter, Malaysia is highly dependent on petroleum income. Its oil-related revenue totalled RM63 billion in 2013, accounting for 29.5 per cent of total government income.

“There are several reasons why Malaysia cannot defer addressing its large budget deficit.  International rating agencies will almost certainly downgrade Malaysia’s credit rating unless it appears to be addressing the deficit.

“Any downgrade will raise the cost of borrowing, as well as put further pressure on the ringgit,” Menon said.

Among the “big three” credit ratings agencies, Malaysia’s sovereign bonds’ outlook was last rated “stable” by S&P and Moody’s, but “negative” by Fitch.

“[We] view that reforms to attract private investments are insufficient and growth is being underpinned by increasing amount of government and household indebtedness,” said HSBC’s Asean economist Lim Su Sian.

Prior to Najib’s announcement yesterday, HSBC’s credit research team had already placed Malaysia’s sovereign on a negative outlook for 2015, according to Lim.

“Fiscal consolidation remains very important for Malaysia’s longer-term growth prospects as well as capital flows, and deferring those efforts now particularly at a time of increased global macro and financial market uncertainty would be foolhardy.

“The fact that Najib did not end up making any significant revisions to the 2015 deficit goal this morning suggests that the government is keenly aware that it needs to remain committed to its fiscal consolidation aims, in spite of the challenges,” Lim added.

In the Budget 2015 revision announced yesterday, Putrajaya insisted that there will be no cuts in the RM48.5 billion allocated to development expenditure, preferring instead to reduce operational expenditure by RM5.5 billion.

Putrajaya is also targeting an economy growth between 4.5 and 5.5 per cent this year, down from an earlier forecast of up to 6 per cent.

“Continuing on the path of fiscal consolidation is still the right policy so that Malaysia can continue to rebuild its fiscal buffers,” offered Gil Sander.

“The fact that 2015 will continue the consolidation trend, albeit at a slower pace, is positive.”

http://www.themalaymailonline.com

Japan is still No.1 in Asia


September 5, 2014

Japan: Efficiency and Sense of Economy is a Way of Life

by Din Merican, Tokyo, Japan

Kamsiah and Din in Tokyo2In my book, despite what has been written about the country over the last 2 decades since the Plaza Accord of 1985 when the Yen was revalued against the United States Dollar, Japan is still No.1.

As a frequent business visitor to this Land of the Rising Sun in the 1980s, and after a considerable lapse of time  before this visit,  I reaffirm this assessment when I arrived with my wife, Dr. Kamsiah yesterday at Narita Airport on Malaysia Airlines Flight MH88.

It was indeed a very good flight where we enjoyed the excellent service provided by a team of very kind and dedicated crew of pilots and stewards and air hostesses. If they were affected by the MH370 and MH17 tragedies, they certainly did not show it.

Japan is an outstanding example of efficiency. That has not changed despite negative reports we read about Japan after the 1985 Plaza Accord. Why? These reports overlook the character of Japanese society and its culture, values, and heritage. The Japanese are hardworking, dedicated, efficient, friendly, and proud people. Their work ethics remain legendary.

The Samurai

We saw Japanese efficiency at Narita. It took us less than 15 minutes to clear immigration and customs and get our bags. After these formalities, we were met by two City Police officers who introduced themselves in good and fluent English, took our particulars and handed us a pamphlet containing contact numbers for emergency and ambulance services. We were then driven to our hotel by well dressed hotel chauffeur who greeted us with the usual bow of welcome. At the hotel, we again saw efficiency in action. The hotel staff attended to us promptly. After checking in at the Grand New Takanawa Prince Hotel, we were driven by a shuttle bus to Shinagawa station. We then took the train to Shinjuku and Ginza for some sightseeing.

tokyoTokyo

The Japanese standard of efficiency is everywhere on display. Be it time efficiency, traffic management and system,  economic use of space , and fuel efficiency; this apparently is ingrained in the Japanese psyche. We are told that this habit is taught to Japanese kids in their schools. Tokyo is a very clean city and environment. Its garbage separation and collection system is second to none, and we feel that both Kuala Lumpur and Petaling Jaya can learn a lot about how to deal with our rubbish and care for the environment

july 4th 2007Get Politics Right and the rest will follow