Wednesday, 28 February 2007

Malaysian Economy – Latest Update

Right from the oven, BNM released the 4th quarter GDP numbers for Malaysia. The press release is slightly different this time, with the inclusion of two paragraphs on the events of the past two days in the financial markets.

Highlights (emphases added):

Sustained steady growth

The Malaysian economy continued to sustain steady growth in the fourth quarter, with real gross domestic product expanding by 5.7% in the quarter (3Q: 5.8%). The expansion was more broad-based with all sectors of the economy now recording positive growth. Underpinned by stronger consumer sentiment and sustained business confidence, the private sector was the main contributor to growth which was supported by the external and public sectors. For the whole year, real gross domestic product (GDP) expanded by 5.9%.

Which is slightly above expectation, and above the official forecast of 5.8% for 2006.

The Malaysian economy is expected to maintain a steady growth path in 2007

Going forward, global economic expansion is expected to be sustained at above 4% in 2007. …The economic growth prospects for Malaysia is expected to remain favourable for 2007. While any moderation in the external economic conditions can affect the export sector, domestic demand, including both the private sector and public sector activity is expected to support the growth momentum of the Malaysian economy. Sustained private consumption and continued expansion in investment activity are expected to provide solid support for the growth

And notably, on the events of the past two days –

The diversified economic structure and the strengthened macroeconomic fundamentals, the more developed domestic financial markets and the sound financial sector are important factors that continue to support Malaysia’s economic flexibility and resilience to withstand external shocks. The developments in these two days in the global, regional and domestic financial markets reflect the potential for contagion. As a highly open and liberalized economy, Malaysia is not insulated from these developments. While the financial markets can be expected to experience volatility from time to time, the resilience of the underlying domestic economy continues to be the fundamental factor that will support the performance of the financial markets.

The strong corporate balance sheets and the favorable prospects for the economy remain important factors that will support this trend. Of greater significance, these external developments that have occurred in these two days have not had any material impact on the other domestic financial markets. Relatively stable conditions have prevailed in the foreign exchange market with two way flows moderating any significant movements in the market. The impact on the bond market has also been negligible, demonstrating the depth and maturity of the market. Thus, the preconditions prevailing in Malaysia would continue to support the growth momentum of the Malaysian economy.

Read the whole press release here.

Shanghai > New York > Tokyo (and everything in between)

Some coffee-table reading stuff for the day

Andrew Leonard from's How the World Works:

A long day for the global economy

Andrew Leonard, 20:12 EST, Feb. 27, 2007

In my last post I wrote that traders in New York would have a sleepless night tonight. But they don't have to wait for morning if they're looking for more turmoil in the markets. Two hours after the Tokyo Stock Exchange opened, as of about 5 p.m. PST, the Nikkei 225 index had fallen 588 points, or about 3.25 percent of its value.

Those numbers may well spike up and down as the trading day continues: The Nikkei first fell 700 points before rebounding a bit. But a day that begins with a stock market crash in Shanghai, continues with an implosion in New York and then finishes with panic selling in Tokyo is not your ordinary day. If a defining characteristic of the global economy is technologically mediated financial integration, then what we are currently witnessing could be a state-of-the-art global market meltdown.

In his previous post, he mused about how much we do not know:

This ... the kitchen-sink explanation for market behavior. Or, in other words, we really don't have a clue why the market spooked.

.... the lack of a single all-explanatory factor suggests that traders and investors are in a state of deep nervousness over where the economy is headed, and they are ready to bolt for the exits at a moment's notice. All it took was a discouraging word from Greenspan, a meltdown in Shanghai and a suicide bomber in Afghanistan, and they were off!

But continued with a relatively more sanguine note:

But you never know. On Wednesday traders looking for bargains could swoop back in, and few market observers would be surprised to see a sudden lunge back up. Certainly, if you look at a chart of the Dow over the last five years, you will see little reason for pessimism. Sure, there have been some minor setbacks along the way, but the overall trend line has been up, up, up. How much can you complain when your correction comes after a record high?

On other notes, AP just released a mostly redundant piece with the title - Economists Say Recession Unlikely.

... many economists put the probability of a recession at about one in five.

And WSJ has a 'still hot from the oven article' by Greg Ip on Greenspan's influence, titled - Markets Find It Hard To Break the Greenspan Habit.

It begins with:

As chairman of the Federal Reserve, Alan Greenspan had 200 Ph.D. economists (!) at his disposal to help decipher economic and market trends. Now, in the year since retiring from the job he held for 18 years, he relies on less than a half-dozen staffers to analyze the same economic trends.

The last 48 hours have made clear, though, that investors can be just as devoted to what he has to say about those trends -- a devotion some say makes it harder to concentrate on what his successor, Ben Bernanke, has to say.


Tuesday, 27 February 2007

Review and Preview of the Malaysian Economy

“Most people think economics is boring, difficult and irrelevant. In fact, economics is fascinating, comprehensible and highly relevant.”

- Martin Wolf, Chief Economics Commentator, Financial Times


Crunch time at work, less time to blog :(

Anyway, you might find this string of comments, pertaining to the state of the economy, interesting – my personal thanks to the owner of the blog for responding to my comments. Do note that I have blogged on the state of the economy and my core opinion remains.

Today is also a very interesting day. KLCI slumped after a lengthy frothy run (along with basically the rest of the world) – thanks to global developments (and Greenspan’s R-word perhaps). It is my personal opinion that this is merely a short correction triggered by culmination of global bad news – the underlying up'ish trend should remain for a while more (I hope).

What does this mean about the real domestic economy? Nothing much. Bank Negara Malaysia will announce the 4th quarter GDP figures tomorrow and hence the complete set of 2006 economic figures. Almost definitely, it will show sustained and stable growth rate – no recession/downturn/upward jump. If anything, it will exceed the official forecast of 5.8% slightly. The trends that have been happening for the past couple of years will remain – domestic private sector-driven, strong but moderating consumption growth, continued uptrend in investment, and so on. To really read more, these two good quality and concise “review and preview” pieces on the Malaysian economy can be downloaded free here, from RAM and ASLI. Read the summaries on outlook for 2007 to get an idea on what to expect.

It is unfortunate that good pieces like these are not read more.


Monday, 26 February 2007

Quis Custodiet Ipsos Custodes?

" I, of course. "

- Sir Samuel Vimes, Terry Pratchett's Discworld series

" 2002 - 33
2003 - 37
2005 - 39
2006 - 44 "

- Malaysia's Ranking, Corruption Perception Index


Who Watches the Watchers?
(Quis Custodiet Ipsos Custodes?)

Quis Custodiet Ipsos Custodes?

The answers; how about a combination of:

1. Clear and real separation of powers; without concentration of absolute and ultimate power on any one group, be it the executive, legislative or judiciary;

2. Freedom and respect in the generation and dissemination of knowledge and information;

3. A population with strong social-cohesion?

How relevant are these attributes in Malaysia? Please discuss this rhetorical question.


Friday, 23 February 2007

Economic Freedom: 2007 Edition

The feverish march of globalisation has resulted in ever integrated expenditure, capital and information flows across borders... and left many many international ranking tables in its wake :P

Here is another just released one:

2007 Index of Economic Freedom

by The Wall Street Journal and the Heritage Foundation (Washington’s think tank). I am taking the liberty to summarise some of the relevant findings of the latest publication for your reading pleasure.

1. What is economic freedom?

The highest form of economic freedom provides an absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself. In other words, individuals are free to work, produce, consume, and invest in any way they please, and that freedom is both protected by the state and unconstrained by the state.

2. How does economic freedom help an economy grow?

Studies in previous editions of the Index confirm the tangible benefits of living in freer societies. Not only is a higher level of economic freedom clearly associated with a higher level of per capita gross domestic product (GDP), but GDP growth rates also increase as a country’s economic freedom score improves.

3. Where Does Malaysia stand?
Malaysia was ranked at 48th globally (out of 161) and 8th regionally (out of 30), which is an okay'ish ranking with an average index of 65.8.

Malaysia scored well in:

Labor Freedom - 89.5%
The labor market operates under flexible employment regulations that enhance employment and productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is not difficult. The government restricts the number of expatriates that foreign and domestic firms may hire. Malaysia does not have a national minimum wage.

Fiscal Freedom - 87.8%
Malaysia has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 28 percent. The government has announced that it will reduce individual and corporate tax rates when introducing a value-added tax (VAT). Other taxes include a capital gains tax and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 16 percent.

But did quite badly in:

Investment Freedom - 40.0%
Foreign investment rules have been eased over the years, but foreign investors still face such restrictions as limited voting shares, prior approval, and mandatory hiring of ethnic Malays. In September 2005, the government eased restrictions for domestic residents to buy foreign-listed securities and for foreigners to sell shares in the domestic market. Residents and non-residents may hold foreign exchange accounts, but government approval is required in many cases. Nearly all capital transactions are prohibited, are subject to restrictions, or require government approval.

Financial Freedom - 40.0%
Malaysia's financial sector is relatively well developed but subject to extensive government intervention. Of the 29 commercial banks operating as of September 2005, 10 were domestically owned and 13 were foreign-owned. Six Islamic banks (five domestic and one foreign) account for over 10 percent of baking assets. The government owns a majority of Malaysia's two largest local commercial banks. Foreign equity in banks is restricted, with participation in commercial banking limited to a maximum of 30 percent. The government influences the allocation of credit. There are several offshore banks, insurance companies, and other financial institutions. Numerous restrictions apply to the insurance industry, including restrictions on expatriate employment and foreign equity. Foreigners may trade in securities and derivatives, but foreign participation in stockbrokerages and trust management companies is restricted.

Policy recommendation opportunity, anyone?

4: Here are the global and regional top tens:

5. Sala-i-Martin: Convergence, Period

For those who are interested in the growth literature (or in poverty and inequility), chapter one of this report (which is also available online) is a shortened version of Sala-i-Martin recent'ish paper on global growth, poverty and inequality. It is a very interesting and good read, and has a co-title: Convergence, Period. (contrast with Lant Pritchett influential paper in 1997: Divergence, Big Time, haha.)

Have a good weekend ahead :)


Wednesday, 21 February 2007

Bureaucrats with Bad Incentives

Perhaps ASLI’s Centre for Public Policy Studies should start considering the dire effect of ‘behavioural public choice’ before their next paper (if any other worthy ones are going to ever come out again) is conveniently considered rubbish again by our wise bureaucrats.

Dum dee dum.

From Jane Golt:

The post below also applies to behavioural economics, which the left seems to believe is a magical proof of the benevolence of government intervention, because after all, people are stupid, so they need the government to protect them from themselves. My take is a little subtler than that:

1) People are often stupid

2) Bureaucrats are the same stupid people, with bad incentives.

And these are some quality comments:

Milton Friedman described 4 classes of spending:

1) You spend money on yourself. You care about price, but also about value.

2) You spend money on a present for someone else. You care about price, but not so much about value.

3) You spend money on yourself, from an expense account. You really care a lot about value, but not so much about price.

4) You spend government money on someone else. You don't care about value, and don't care about price either.

Moral: If you get "market failure" with type 1 spending, you can only fail more spectacularly with type 2,3 or 4 spending.


You've hit the problem on the head. Jerry Pournelle, arguably the first blogger, has his Iron Law of Bureaucracy:

"Pournelle's Iron Law of Bureaucracy states that in any bureaucratic organization there will be two kinds of people: those who work to further the actual goals of the organization, and those who work for the organization itself. Examples in education would be teachers who work and sacrifice to teach children, vs. union representative who work to protect any teacher including the most incompetent. The Iron Law states that in all cases, the second type of person will always gain control of the organization, and will always write the rules under which the organization functions."

Indeed. Sigh.


Saturday, 17 February 2007

Milton Friedman, Václav Havel and Bloggers

From, on blogging, economics, market of ideas, journalism, self-regulation, Milton Friedman and more:

Milton Friedman, Technology Maven

By Jens F. Laurson and George A. Pieler*

… [T]he beauty of blogging: Self regulation at its very best. While 99.9% of blogs will be read only by their authors and three buddies, possibly coerced, quality asserts itself quickly and rises to the top. With no editorial straitjacket on the information or the quality of offerings, the consumer chooses by his action (reading—or not; spreading the word—or not, linking—or not) what makes a quality product. The “blogosphere” is like a little experimental universe validating consumer choice vs. regulation—and consumer choice has won a colossal victory. Trial and error may not help find the right surgeon, but it seems to be a great way to find your right media diet. By and large, blog consumers have shown an incredible sense for quality and reliability.

Blogging’s greatest “weakness” is thus its greatest strength: Web authors and their sites come with no expectations, claims, or certifications of quality or reliability. Precisely because there is no authority filtering our blogged content, because of this healthy lack of “if it is printed, it must be true”, the reader can and must judge for himself. Instead of floundering helplessly in a sea of (mis-) information (the self-serving admonition from media traditionalists), the internet news-and-entertainment hungry reader develops a knack for picking the cherries out of the innumerable offerings. The blogosphere has something for everyone. Viewpoints are chosen, not dictated, and niches of interest explored, not marginalized.

Left to the free market of ideas and instant reader feedback, good writing, quality and reliability in blogging secures a readership and reputation solely on merit. The analogy to “democracy” may be clichéd but the blogosphere is a prime example of Milton Friedman’s credo (“Capitalism and Freedom”) that minimal (or no) regulation and state licensing are best; they are too often a pretext to shut down competition not protect the populace.

All the more reason, then, why Friedman should be the patron saint of the Age of Blogging: people with brains, networks, and powers of self-expression don't wait for journalism degrees anymore to have an impact. Indeed the response of 'mainstream' journalism to blogging (if you can't beat 'em, join 'em) vindicates Friedman's skepticism of credentialing like few other phenomena of the past 50 years. This may be a sub-part of what Friedman saw as the power of the Internet: "The Internet is the most effective instrument we have for globalization," he said in 2005, referring to the power of instant electronic connections for commercial purposes. The same applies, of course, to the world of ideas, flourishing free of the state.

Makes you reflect on the current situation in Malaysia doesn’t it? Clash of Web 2.0 and strictly state-regulated media; flourishing world of ideas and the power of the powerless.

Speaking of Václav Havel**, this is from the introduction of his essay “The Power of the Powerless” from

…[H]avel urges his fellow citizens to down-play strictly political activity in favor of a strategy he feels will be more successful: cultivating the sphere of truth within individuals in the hope that as this hidden sphere grows, it will becomes an irresistible force that will change society.

Perhaps Malaysian bloggers could down-play politically charged tendency and instead be catalysts to cultivate objective pursuance of truth and knowledge. It is bound to be more productive if the aim is to sow the seed towards a more mature society.


(All emphases added.)

*Jens F. Laurson is Editor-in-Chief of the International Affairs Forum and classical music critic for the Culture-blog Ionarts. George A. Pieler is Senior Fellow with the Institute for Policy Innovation.

**Václav Havel is a Czech writer and dramatist, the last President of Czechoslovakia and the first President of Czech Republic, hero of the Velvet Revolution and the moral core of the movement to establish a true democracy in Czechoslovakia.

Friday, 16 February 2007

The Smallest Sparrow

Today, Shanghai Daily ran on op-ed by Wang Yong, on the legacy of Deng Xiaoping. In the piece, Wang believes firmly that the influence of Deng’s leadership extent beyond his politics and economic policies – he changed the very philosophical consciousness of China on the notion of equality, justice and openness.

Many lessons can be learned from this piece pertaining to the current leadership of our country and the collective awareness of every Malaysians on what is needed to drive our nation to a better tomorrow.

I am reproducing some parts of the article here, but I highly recommend the whole article. Emphases are added.

“Deng's legacy: Equality, justice and openness

Wang Yong

Shanghai Daily, 2007-2-16

…All of China has Deng Xiaoping to thank for her prosperity and freedom.

Deng may not have been a perfect man, but he was a great man. Next Monday marks the 10th year since Deng passed away, and people remember him for different reasons.

Most people, of course, remember the great leader for his dedication to a socialist market economy and an open-door policy. But why did he prefer an open market economy? What made him believe that markets exist in both socialist and capitalist economies?

I think Deng's philosophy is more important than his economic policies. After all, policies can be fine-tuned over time, but what matters to a nation's prosperity is often the mindset of its leaders.

In his mind, the fundamental difference between socialism and capitalism is that the former advocates common prosperity, while the latter focuses largely on efficiency and accommodates extreme inequalities.

Deng's pragmatic and democratic spirit is best reflected in his thinking about common prosperity. To achieve that goal, he allowed for some people getting rich ahead of others. He did not sacrifice efficiency just to preserve the utopian idea of equality

But Deng never ever allowed for extreme inequalities, though some Chinese economists since Deng's death have preached that they are inevitable in an advancing economy.

In particular, Deng hated inequalities caused by official corruption. He once said that high-level officials must be strictly monitored for corruption…

Deng's most important legacy is to do away with extreme inequalities, especially those resulting from official corruption.

To achieve common prosperity is not just a purely economic matter. It requires leadership to heed even the voice of the smallest sparrow falling to the ground. It's a common prosperity of material and ideas together…”

Greater efficiency over a misguided preoccupation of equality, unconditional intolerance of corruption especially that of the highest level, and to heed even the voice of the smallest sparrow to achieve a common prosperity of wealth and values – I sincerely hope Malaysia is listening.

Have a good Chinese New Year.


Thursday, 15 February 2007

Why Can’t We Have Better Press Corp (NST Edition)?*

For three days last week, NST trumpeted the tremendous revival of our economy. I first blogged about it here after their second headline of the week, voicing my dismay at the quality and sophistication of our mainstream media, as well as my opinion on what truly matters for the economy now.

So what is my take after all three headlines?

Basically, my opinion remains. After reading the headlines, you should say – “so?!” Let’s look at two of the main issues, first on the best ever share market activities in 10 years, and second on the landmark RM1 trillion total trade number.

KLSE index back to pre-crisis level – Yay?

So what can we say about the current share market condition? I am no expert in financial market issues, but the recent rally in the KLSE is by no mean unique. Many countries are having similar experience, largely due to excess liquidity (cheap money) in the global market thanks to (amongst others) Japan. I will not go into details regarding this (and all the talk about potential disorderly unwinding of the yen carry trade and yada yada), but the point is this – Malaysia is not unique.

In fact, if you are willing to look at simple statistics, you will notice that Malaysia is a laggard when is comes to ‘rebounding back to pre-crisis level’. I did a quick check and compared Malaysia to the rest of the region; we are basically the last to recover from the crisis, measured by share market indices. Refer to the graph below (guide: it is normalised to Feb-97 readings, roughly the pre-crisis peak. So, when the country lines hit 100 again, it has ‘recovered’).

What do we have?

Basically Singapore and South Korea recovered in 1999, two years after. Indonesia in early 2004 and even Philippines is faster. I forgot to add Thailand, but you get the picture. Taking 10 years to recover is not really something we should be proud of.

Gigantic Trade Numbers! Wait, what about US-Malaysia FTA?

Perhaps the biggest irony is that the day NST ran an overly optimistic message on our international trade prowess is also the same day that Malaysia took a step backward in securing a potential leap in ensuring the growth of its trade and economy in general.

The 9th of February marked the failure of the 5th round of discussion for a US-Malaysia Free Trade Agreement. US is the single largest trading partner and third largest FDI source for Malaysia and the FTA is expected to give tremendous benefits for both nations economically.

DBS Group Research ran a report on this, and provided an instructive account on why the agreement is not working out:

“Affirmative action vs “National Treatment”

While many issues have been resolved in the four negotiations already conducted, an important stumbling block remains: policies that are inconsistent with the principle of “National Treatment”, one of the core principles of all global trade agreements. The National Treatment principle requires each side to offer the other treatment no less favorable than what it accords its own citizens/companies. Malaysia’s affirmative action policies, which favour ethnic Malays, are difficult to reconcile with the principle of National Treatment, which is key to important FTA chapters like government procurement, trade in cross border services, investment, labour and competition. Indeed, FTA negotiations with New Zealand have been suspended due to problems in these areas. Likewise between Malaysia and Australia, where FTA negotiations have become deadlocked.

Only if our press will highlight the concerns of the future of our economy rather than wasting our precious national consciousness on silly numbers.

Another sigh.


* after Brad DeLong