Saturday, October 24, 2015

Malaysian Budget 2016: Comments

Budget 2016 is about the government's budget, not about the economy although it has implications for the rest of the economy.

To be fair, the strategic thrusts for the economy where already spelt out the 11MP announced earlier.

In straightening out the books of the government, the government did the following:

1. Increasing personal income tax for those earming RM600,000 a year or more by 1 and 2 percentage points. Move in the right direction.
2. There should be an increase in the corporate income tax as well, especially for big multinationals. They must contribute more to the economy.
3. I am dismayed that the government gloated at the massive amount of money they have raised and will raise from the GST. This is taxing everybody for the benefit of government revenue to pay civil servants who do a bad job in running the country and economy.
4. I am concerned that the extra GST money may have come from the reluctance of the government to refund businesses. If the government can go around to every shop and demanding GST payments and fines, the government is not thinking of fairness in implementing the GST but in collection extra revenue, by hook or by crook.
5. The minimum pay for civil servants at RM1,200 per month is a good move, being socially just though the economics is another matter althogether.
6. The move to ramp up the average speed of the internet to 20mps is a good move.

Having said that, a good budget is one that inspires investors. This budget does not do that.

Thursday, October 22, 2015

Economic Transformation: Right Way, Wrong Way

We are being told that transformation is the way for our nation to get out of the middle-income trap and progress. I am afraid that transformation is just a nice word. Yes, we need transformation but not of the kind you are taking about. The current transformation is bogging down the whole nation.

1. Reducing the budget deficit to a manageable size is good. But going for a balanced budget is not so clever.

2. Reducing the budget deficit by reducing mega projects is good, but reducing the budget deficit by taxing the general public more is no good as it bogs down the private sector.

3. Reducing the budget deficit is good but increasing the cost of living and doing business by the removal of subsidies and imposition of more taxes is no good because it burdens the general public and the private sector.

4. Enhancing rural development is a good transformation for the rural areas, but it will not enhance economic growth and transformation.

5. Putting in a public transportation system is good although belated but it is good only for KL and not the rest of the nation and it by itself will not transform the economy. It only solves a perennial problem in hindsight but forward looking into the future.

6. Assisting low income households is good for low income households which exist because of deterioration in productivity growth, increase in the cost of living, and bad economic planning which is unable to create good paying jobs. It is not going to transform the economy into fast growing.

My apologies for yet another negative post. This is my long winded way of saying that we need better policies than the ones we are having if we want this nation to have a good economic future. Our policy makers have no good ideas. We are only doing the management of the economy by treating symptoms we can see, but not inspiring our young people and old businessmen to fight in the frontier of the technological war in the international market.


1. To keep the GST, you must abolish personal income tax but keep corporate income tax.

2. To impose tax on stock market transactions because it is no more transfer payments but a money making industry on its own.

3. To increase the levy on foreign workers who are using the public transport system and other public services for free.

4. The government to divest itself out of business areas and introduce more competition to create more business opportunities in services and to reduce the cost of living. Why do I have to pay more for my internet connection while access to the line has deteriorated.

5. The banks to start recovery action on default loans especially on commercial and residential properties in order to bring the market price of properties to affordable levels instead of waiting for another boost of liquidity to inflate asset prices.

6. To get banks to allocate at least 40% of their loans on commerce and businesses, excluding property purchases.

7. To bring savings interest rate to 5% pa, and limit the mark-up by banks to 4% pa, so that the maximum loan interest rate is 9% pa for businesses.

8. To limit the loans for buying cars.

9. Not to protect the plantation businesses by pursuing a low currency policy, since subsidies have been removed for the general public and the pursuit is higher productivity growth.

10. To make English the national language of business so as to empower more young people to have the world as their oyster.

Wednesday, October 21, 2015

Is Govt Ineptitude Killing the Economy?

I wish to contend that government ineptitude is killing the economy.

The quality of the government has deteriorated so much that it is detrimental to all and sundry who are unfortunate enough to those who are part of the economy, not just who has to deal with the government.

1. It is morally wrong for the government to raise its revenue through additional taxes and fines. What is worse that with its latest objective of raising raising money for the government, government ministries and departments and their officers are now behaving like gangsters terrorising ordinary people with threats. Small businesses now would rather close down their businesses altogether rather than having to deal with this new crop of government officers who are inept and who try to show result through psychological and pecuniary coercion. Small businesses are forced to react in a manner that these officers imagined the real business world to be, accusing businesses of being greedy and dishonest. It takes a thief to imagine that everyone is crooked. Small businesses have to lower prices because the price of petrol has fallen regardless of the mighty fall of the local currency and the imposition of the GST which is now kicking up the honest nest of business tax reporting where businesses are being fined for every conceivable accounting crime, helped no doubt by the accounting firms which concocted such schemes in the first place before. Yes, the government will get its bucket of blood but the economy will die in the end.

2. The distribution of wealth in this country is deteriorating in this country because the political class has colluded with big businesses to maximise their profits by underpaying sub-contractors and contract workers. We are now back square one. This economy is not about the welfare of the ordinary people any more. This economy is not about training local citizens with good skills and paying them decent salaries on which they and their families can live on. This economy is now about making big money by not working but by creating fantastic ideas on which to make use of other people's savings as capital and other people's efforts as labour. The big banks colluded with this politics and big businesses to create extraordinary profits for bankers and for which the future generations will have to pay for the bad loans that are surely on the way to hit all of us as the economy deteriorates. Those with no access to big bank loans and depending on their meagre wages and salaries who have whatever little they have squeezed further by the GST, the hike in tolls and the imported inflation. The worst part of this skewed distribution of wealth is that the loot has been squirrelled away in overseas assets to avoid taxes and is the main cause of the persistent depreciation of the value of the ringgit. In return, we import cheap unskilled labour to generate more profits for the capital employed in property development and mega infrastructure projects. The spending addiction of the government helps to distort the distribution of wealth and destroy the future potential of the economy.

3. The key to the growth of the economy is always investments and investment opportunities always arise from new territories that emerge from the mixing of two or more spheres of seemingly incongruous nature. This nation should not be reduced to a mono-culture, and not be seen to allow such tendency even to have a toe-hold. It is unfortunate that top politicians have allowed themselves to play with the fire of racism if only to again momentary political mileage but at a tremendous cost to society cohesion and the future of the economy. This nation needs the confidence of its people to sink the future of their children here. This nation needs to exploit the tremendous opportunities that exist from having probably one of the richest cultural mixture in the world by allowing that diversity to bloom in its full splendour. For a start, we should introduce bilingualism in all our public communications - the national language and English. We should have Malay and English in all our official letters and public signs. Even the Japan that Malaysia has followed in the past into mono-culture is now anglicising its street signs. Malaysia seems to have lost our common sense, not being able to respond to the market logically but being enslaved by an ideology that is bringing us back to the Stone Age. This nation needs to shake out of its spell of doom.

4. I think I have written enough to give an inkling of how I feel about the state of the nation. There are many more things to write but they will just be more words. To cut the whole thing short, I will make this simple policy recommendation. I disagree that the GST should be reduced from 6% to 5% or 3%. I strongly believe that the GST should be abolished although and the person who sold this idea to the PM should be sacked. This one simple act will do much good in bringing back some hope for this economy. It will also demonstrate that the PM has some sense and guts to do the right thing.

Wednesday, October 7, 2015

Malaysia: State of Economy

1. The economy is undergoing one of the sharpest adjustments in recent world economic history, after having gone through the glory times of the US quantitative easing of money printing. The rise and collapse of the asset markets - stocks and properties - is what we are seeing as the current business cycle. During the downturn, the sellout in the stock market and the subsequent outflow of funds depresses the local currency. How far down the adjustments will go is left to be seen.

2. As we have seen in Japan, if the adjustments are small and managed, then the adjustments will take a long time. In Japan, three decades and counting. Property prices have gone up to levels which the average young person in the job market could not even dream of owning a simple housing. This will create an entirely new generation of youngsters who have to cope with a high cost of living. At the same time, the property developers continue to milk their land bank by developing real estate based on inflated expectations. They can do so because they are already cash rich in their projects in the last three decades. Rents will remain high or properties vacant, and the only available market is the foreign market. In the world today, there is a class of the super rich who have the privilege of buying prime properties in any major city in the world. In the world today, there is also a class of the super poor who cannot afford to subsist even when they work very hard everyday. Those who cannot work are of course suffering the greatest miseries of human life especially in cities.

3. But do we dare to do major adjustments and how can we do it? The only balancing act is between the cost of living and wages. Ordinary people find it hard to live even when they are working hard. It means that wages are insufficient and therefore should be raised by an amount which is deemed sufficient, maybe 40%. If this happens, employers will say they cannot afford that as business is now bad. The other adjustment is to say that, given the current wages, the cost of living should come down. The cost of living is not just food, but importantly transport and housing. In the modern world, the cost of telecommunications and utilities now feature prominently.

4. The greatest spanner in the works today is the current great currency depreciation of 20%. This raises the prices of all imported stuff. This squeezes the livelihood of ordinary people into a pulp. As a result, overall demand for imported stuff drops. This squeezes even further the ability to own properties. This means that for those who are already invested in a property or properties, they may already be defaulting if they cannot find good tenants.

5. The greatest dilemma for banks today is how to deal with the aftermath of their reckless lending frenzy. The bad consumer debts and the non-performing loans in shares and real estate. Do they forgive these bad debts and move on? Who pays for the debts ultimately? The answer is simple - savers and depositors.

6. In such a depressed economic environment, the role of the government is to revive investor confidence. This good and generic statement is often mistaken to mean that we must sell our country cheap to foreigners. The most important thing for the government to do is to revive the investor confidence of Malaysians. This is of prime importance. It is really unbecoming of irresponsible politicians, just for the sake of rhetoric and showing courage, to deride businesses of all kinds in all occasions. We have the ministry of domestic food prices accuse businesses of profiteering by not reducing food prices when the price of petroleum drops a sen. We have the customs now going around witch hunting legitimate businesses for that gangster money called GST to the point, as I have heard, of outright harassment simply because every business in town is assumed to have always been evading customs duties and taxes and now GST. The response of many old businesses is to close down shop because it is simply too bothersome. The customs people are new in this game of the GST collection and in order to show results they use fear. In a word, the imposition of the GST will worse the business climate of this country and we should see a great economic slowdown and a rise in poverty as the government gleefully go about solving its deficit problem. Really, the best way to cut government deficit is to stop spending money you don't have on silly projects proposed by half-past-six management consultants.

7. I believe the political issues are mere political issues and should be isolated from economic issues. If there is any connection, I would say that the economics have a greater influence on the politics than the politics have on economics. Of course, in this country of ours, the politics have driven the economics for so long that it is assumed to be the only and correct for human beings to live. I believe we have been living under a dark cloud and that dark cloud will be passing even if reluctantly. That doesn't mean that the current shenanigans are acceptable. They are not, and they are silly. But in the end, it is going to be the economics that is going to influence people how they are going to vote.

8. How do we put the economy back together again? Confidence in ourselves. Start working with each other for the greater good. Politicians should stop making social comments and start straightening their policies and implement projects and programme. Give more money to the department of statistics so that they can get a more accurate picture of the social and economic profile of the country and the states. DOS has been so grossly underfunded and findings are approximated from sparse surveys and we get an unchanging picture of a blurred reality. Make the utilities more competitive through watchdogs and remove their monopolistic elements. Hopefully, basic facilities can be affordable and efficient and hence improve the overall competitiveness of the living and economic environment. Keep finance a separate and independent function. Charge finance with the role of ensuring the financial health of the nation. Remind the central bank of its role of preserving the value of the currency in a proactive manner. (Eg. ban inflows of short-term capital for the stock market.) Stop spending on silly projects - the LRT is the recent one, totally underplanned and hastily put together. Stop imposing silly policies - the GST is the recent one, totally uncalled for, with stupid arguments.

I better stop here.

Tuesday, September 15, 2015

Malaysia: RM28 Billion Stimulus

The Prime Minister announced yesterday a RM28 billion stimulus package:

- RM20 billion to be invested in ValueCap to support undervalued shares
- RM4.5 billion for integrated development of hotel and theme park in Desaru Coast
- RM2 billion for a working capital guaranteed scheme for small and medium enterprises
- RM1.1 billion to enhance Muzium Negara, National Monument, Perdana Lake Gardens
- RM1 billion more to Domestic Investment Strategic Fund under 11MP
- RM80 million for health tourism promotion campaign in selected markets

- Asking international and local Malaysian companies to repatriate their profits and reinvest at home.
- Restructuring and rescheduling the loans of SMEs.
- Import duty exemption given to an additional 90 tariff lines including consumable spare parts and research apparatus used in manufacturing companies.

 1. If we take the view that a soaring stock market does not necessarily mean a bubbly real economy, whereas a sore stock market may indicate a sick economy, then we think that trying to boost the stock market is merely trying to produce a sign of well-being without taking a good look at the cause of the problem.

It is indeed exasperating that time and time again, the government tries to pander to the stock market all the time whenever there is a little sign of trouble.

I think we should tax the stock market, a specific transaction tax, first to discourage speculators and second to collect money for times like this when the government feels to urge to give a resemblance of helpfulness.

This attempt to shore up the stock market reflects very small and narrow economic thinking.

If we remove this RM20 billion stimulus, we are left with RM8 billion.

2. The next big chunk is a tourism development by Khazanah for RM4.5 billion. This is a one-off project. The RM1.1 billion refurbishment of tourism sites. This is the usual maintenance cost.

The depreciated ringgit is good for tourism and the thinking seems to be that it is good to encourage tourism. Does it imply that the ringgit to stay weak forever? You mean the government does not any idea of how to revive the economy or how to make the economy regain its vibrancy again?

Well, seriously, one small project does not an economy of RM330 billion make.

3. The rest are just sprinklings of stardusts all over the place to try to make the economy glitter.

If we take this to be the maiden outing of the Special Economic Committee, we may forgive it for being polite and demure. For the SEC to do any real good to the economy, as John Lennon's Aunty Mimi said to him on the release of the Beatles' first single "Love Me Do," "you've got to do better than this."

Monday, September 14, 2015

Malaysia: Post-Capitalism

I am rather unused to my current stream of consciousness that is plaguing me like mad about the very sorry state of this would-have-been great country of ours, our cultural diversity promising to be an example of the how the modern world could live with Islam as a major component, while we have many prominent and titled personalities sitting with the PM thinking of how to pick the brains of the not so prominent and not so titled individuals who have been putting up with incompetents in our daily lives. This is not supposed to be a rant.

I do not think that this time round, we can solve our economic problems like we did in the aftermath of 1997. Then, it was long-term investment funded by short-term capital, the mega projects instituted on the expectation that the economy was then on a quantum leap, and the opportunities affording the political boys to among the corporate leaders. The financial fallout put the political boys in a financial disaster and they just had to be rescued, if the political leadership of the day had to survive. That was prompted and expeditiously done.

Today, the problem is a more serious one, not that it is a direct home-made one because it is substantially not the case. It lies in that great global structural change that I had written earlier about.

But it is not enough that (a) we wish oil can go back to US$100, for it may instead go to US$20, some say; (b) we do not raise interest rates; (c) we do not impose capital controls, and this is what the market fears and unless this fear is removed, the ringgit will remain weak; (d) we remove the GST for we have already built in the inflationary expectations into the system and removing GST or zerorising it will not reverse prices, as official institutional inefficiency has already infested the private sector.

At the same time, we have GLCs that are monopolising and politicising the economy, maybe as desired, but certainly not without economic costs. Privatising those assets will be a step in the right direction but whether that will help or not would really depend on how it is privatised, or whether it will be put for greater efficiency.

We have to restructure the national economy and put it onto a proper footing for the future.

We all know that the information technology has now completely changed the world, and it has indeed. Social information is now creating a life on its own, and people are connected to create their own virtual world which they now enact in real life. Segments of society want to send out their messages and they do that enmass on foot. They idealise in their virtual world and they want the real world to be frictionless and instantaneous as well. They want sharp drastic and significant changes to society and life because they want the opportunity to create their own world. As not everyone will come to a consensus, it is likely that upheavals of all kinds will take shape for display in the social media. We are having a more versatile and more volatile society, and we would expect the authorities, those whom society has delegated some of our powers to, to be able to know how to maintain law and order in such a messy environment. The authorities have done well so far, and their continued ability to maintain public restrain and disciplined is important and critical.

Economically, however, we have the two superpowers - the US and China - sucking all the resources from the rest of the world. The QE has introduced this global inflation which is precisely the best way to siphon off resources. China has used its cheap labour to monopolise all labour-dependent activities such that global wages have been driven down to near zero, creating a standard of living among the labouring class at par with those in China. This is where Bangladesh and Indochina workers come to Malaysia to ensure absolute joblessness among working Malaysians at home. With this happening in the underbelly of the national economy, it is not unrelated an issue that Malaysians on both sides of the social divide are coming out to show their discontent. To have the red shirts pitching the yellow shirts and all the other demonstration of public strength and power is not but a reflection of the deep sense of insecurity that everybody is feeling about the state of the nation.

The government knows that the information system is basic to the new Malaysian economy of the future. That ICT backbone must therefore be competitive and efficient. But Malaysians are paying huge fees every months for a quality of IT service that cannot be said to be adequate for the present, and hence worse for the future. Monopoly and collusion are the killers. These big IT firms can make their huge profits to satisfy their shareholders but they are doing a disservice to the general public and the future of the nation.

A nation that is competing with the rest of the world on a fraction of its strength and capability is not living up to the full potential of its people. This creates discontent and hence a potential political disaster for the incumbent government. But a new government coming in will not do better either. Because we have not laid the future of our nation for our young to conquer. We must not allow old men who have past their prime to dictate the future; they have already done their damage in the past. Malaysia must really push all Malaysian youngsters to the forefront. The opposition which once was young is now not young any more. Their is a need for a third force to rise. The rising in the streets, in that one instant, is a good sign that the young is still keen and interested in the future of this country. This enthusiasm must be grasp as an opportunity to built the new Malaysia, instead of killing it and pushing everybody into the underground where only those with political might can show their emotions.

The future is the world of social media propagated information, no matter we like it or not. It may be utter true or false, but it is the reality. We act on perception, and confirm on facts. We do not act on facts, as it is always too late. Facts are for justice, not future.

The social media is all about inclusiveness, and the government has been talking about inclusiveness since day one. This is the way to go. Just accept it.

The government should promote current technology and expose it to society at large, so that society can innovate among itself to create a new way of life. New technologies, for them to be game-changers, must be disruptive to the existing way of doing things, to the existing system, to the status quo. The technology is challenging the way the government is run, how the government operates. The public service cannot be sleeping anymore, and its only communication with the general public cannot be as a bully and ticking off the people. Technology should be used to make redundant or bypass little napoleons whose incompetence and inaction is a scourge to our future. New technology should be used to interface by the government with the people in their daily dealings with the state, leaving face to face only as a matter last resort. But before full automation can take place, the systems must be tested to work efficiently. Almost all systems imposed by the civil service has become a bane on society. Competence is a rare commodity in our whole of highly educated people.

How can we allow incompetence to be so pervasive across our society? Is it our social experiment gone wrong?

I think the PM should ask those whom he has appointed to come out with their own individual recommendations of what should be done to improve the future of our nation. Those individual recommendations should be made public so that we know which one is competent and which one is just our usual titled prominent people pretending to be experts. Then ask for the feedback of society, so that you can which recommendation is favoured. You have listened in private to your advisers on the implementation of the GST and this has not gone down well. If any of your advisers in the SEC is no good, get new ones to come in. You don't have to be stuck with old men with old ideas. You should ask young people want they want for their future to set your policy direction.

This is as such as problem of our times as it is a problem of our own doing. We have to tackle both.

Saturday, September 12, 2015

A Great Haze Has Descended

A great haze has descended upon the whole country
At first a sprinkle of dust here, a dose of fudge there
But slowly the fog grows thick obscuring the reality
We cannot see far, the smell of the ashes hangs in the air.

They say it was due to a few hot spots not here but over there
A normal phenomenon in this part of the world, this time of the year
They say we must bear while they try to do something and persuade
Not that they know what to do and we know we must wait and wait.

But this is not a spot of fire in a small little place in an isolated incident
This is a great big fire of an open matter lit under an entire nation
The heat is getting stronger and stronger and we cannot bear any more
We give out a cry, a jolly big cry, they smile and give us back terrifying roar.

A great haze has descended upon the whole country
We cannot see the future clear but we can smell the aweful fear
Let there be more smoke and haze until we cannot gather
We may have no future but at least let us be alive together.