As technology progresses with information becoming richer and more accessible, it is easier and easier to do targeted policy. Governments, especially those with conservative economic leanings compromising with democratic pressures, love targeting because in theory, it is cheaper and it avoids wastage. In fact, going back to basic microeconomics, it might even eliminate deadweight loss. I also love targeting, up to a point.

But just because we are able to do targeted policy does not mean we should do it. There are other considerations to be taken into account.

Targeting can create social stigma and that can be damaging in other ways. It does so through signaling, which means it lets other people know that a person is being targeted for some policy. This is something policymakers need to be mindful of, beyond the dollars and cents.

In a society where social status does matter, assistance could lower a person social status.

This is why government cash assistance program via automatic bank transfer is good, among other things. It keeps transactions private, and therefore gives no signaling to other people. So, it has minimal effect on social status if any.

But not all assistance policy can be private. Many do necessarily give out signaling affecting social status. The Free Breakfast Program for students to be introduced by the Ministry of Education in 2020 is one of such un-private assistance policy.

As a result, a program like the FBP cannot be targeted. This is especially so when it comes to kids who may take signaling from targeting wrongly, leading to bullying and social estrangement. At schools, we need to make learning as easy as possible, not harder for whatever reasons. Giving free breakfast for certain groups, which are the neediest, send signals to other better-off students that the beneficiaries are of a certain social class.

Schools at the elementary level are grounds for inculcating values. Some of the values we should inculcate is egalitarianism. And this makes signaling something to be thought of in designing policy relevant to the education system.

Our country is already divided in so many dimensions. We probably do not want to impress on our younglings of social divisions through yet another dimension. Targeting at this cost is not worth it.

In our specific FBP case, a blanket policy is better than a targeted policy. It muzzles the signalling, and fights the creation of social stigma that is the seed for future division in our society.

There are hard positions in our society. It is the product of years of abuse and mistrust, and it will not go away anytime soon. One small issue that rekindles our prejudice in the smallest of ways would ignite a culture war sucking almost everybody in the most unproductive manner.

Some culture wars are worth the fight. Our society does need a can opener to open up its canned mind, especially so when too many of us are so coddled inside our small world to the point that wrongs go unchecked and eventually become a right. It has become so bad that many are beginning to be scared of doing the right thing, just because such action would hurt the feeling of immature persons on the internet armed with incomplete or even downright inaccurate information. Explicitly racist behavior should be called out. Some things just have to be done lest we slide to an equilibrium that is so unbearable that migration would be the only way out.

But a lot of the culture wars we are fighting today are unnecessary.

One example is the teaching of Malay calligraphy-Jawi in school. The Jawi controversy besetting us recently reveals what we have known for the longest time: we live in a sensitive society – sensitive is only a euphemism that would not take much to decipher. We do not need such controversy to tell us that. The whole episode came to surface through an oversight within the government. The course was set several years back. Too few people noticed it that it developed its own procedural momentum that in the end forced all of us into a situation where no one could paddle back, without incurring significant political cost.

This reminds me of a scene from the movie War Game where the artificial intelligence holding the trigger to a nuclear holocaust, after going through all simulations, concluded that the only way to win is not to play the game.

Too bad that we have no time machine to use, no restore point to return. To abuse slightly the meaning of the Malay idiom, terlajak perahu boleh diundur, terlajak kata buruk padahnya.

Another example is the conversion bill in Selangor. We know religion and child conversion are subjects our overall society unable to deal with coolly. So, we all should approach it with care. Yet, the Selangor state government thought pushing the controversial bill through was the wisest course of action. Not only that, once we were given the chance to pull the brake halting our vehicle resting dangerously close by the cliff, the state government instead insisted on playing the game that nobody would win. Has it got this bad that the game has to be played anyway?

Our society is damaged and this is not the most incisive observation of the day. The last election gives all of us a chance to repair it, and be better. This government is reforming our institutions that for so long abused have been for personal gains. The trust deficit is still there. That is a huge barrier to fight.

I truly believe for Malaysia to get to the next level of development, we need to improve our institutions. We do not need more big malls, more tall buildings.

And those institutions are not merely government institutions like the parliament, the police, the judiciary and anything of the like. It is also about our social capital, that is trust among ourselves.

Culture wars, especially the unnecessary and avoidable ones, do not build trust. Instead, it erodes it and makes bridge-building harder.

Yet, we all are too eager to fight it. And to one-up the others online (adversaries who we likely have never met in real life, or even human bots), we type the harshest words and switch on our scorched earth mode to burn everything that moves.

And god, there are so many other things to do. Yet, here we are with our culture. All heat, no light.

It is that time of the quarter again. The second quarter 2019 GDP will be released by the Department of Statistics next week, on August 16 2019.

How fast do you think did the Malaysian economy expand in 2Q19 from a year ago?

  • Slower than 3.6% (14%, 3 Votes)
  • 3.6% - 4.0% (18%, 4 Votes)
  • 4.1% - 4.5% (32%, 7 Votes)
  • 4.6% - 5.0% (27%, 6 Votes)
  • 5.1% - 5.5% (9%, 2 Votes)
  • Faster than 5.5% (0%, 0 Votes)

Total Voters: 22

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Malaysia’s 2Q19 industrial production growth so far has been stronger than it was in the first quarter. For illustration, April and May factory output expanded 4.0% year-on-year each. In contrast, the 1Q19 industrial production grew by 2.7% year-on-year only. The June industrial production has not been released, but it would have to be really bad before it would bring the 2Q19 growth below 1Q19 rate. There is however a minor possibility given how bad June export growth was.

Yet even with the June exports, exports for the whole 2Q19 did better than in the previous quarter.

Meanwhile, Bank Negara’s public data shows government expenditure growth is stable, with 2Q19 spending growth being about the same as it was in the previous quarter.

Another data set from the central bank does not look pretty though. Loans growth is slow. In 2Q19, total loans in the banking system grew 4.4% year-on-year, versus 7.2% in 1Q19. But there is a noticeable base effect here, possibly due to companies rushing to get their loans prior to the election. Just to highlight the importance of base effect, in month-on-month terms, loans grew 2.4% in April 2018, when the average loans growth in the January 2017-March 2018 was only 0.6% month-on-month. Loans growth is a proxy of private consumption but given the base effect, it is a difficult proxy to use for this quarter.

This is especially so when other proxies of private consumption are doing well. For instance, 2Q19 consumption imports grew 8.0% year-on-year, versus only 1.0% in 1Q19. Retail and wholesale trade statistics are also doing reasonably okay. The rate cut in May 2019 would also boost demand. The labor market is also stable.

Talking about base effect, we also have to remember that in June 2018, consumers in Malaysia faced no consumption tax. That would be a negative to consumption growth from year-on-year perspective.

Nevertheless, I am expecting a high 4%. It could even surpass 5% if Malaysia is lucky enough. Yes, I am optimistic of the second quarter, unlike for the first quarter statistics.

The shifts from SST to GST, and back to SST were controversial. There were debates on its effects on inflation and living costs. While the GST introduction led to a one-time rise in price level and that, I think, has not been widely disputed, the effect of SST reintroduction on price level has been more contentious. Pro-government camp would would claim that SST reintroduction did bring prices down, while the opposition would disagree, and citing various examples where prices went up (both real and made-up instances).

Did SST bring prices down?

The answer, on aggregate, is yes. Here is the main chart central to my argument. This chart shows core price level.

In April 2015 when the GST was introduced, prices went up by 1.19% month-on-month (after adjusting for seasonality). And in June-September 2018 when the SST was reintroduced, prices fell by 1.32% month-on-month (also after adjusting for seasonality).

Now, the long explanation.

Core prices instead headline prices

There are various factors affecting prices. It can be difficult to extract and isolate each factor out. But the official core inflation series does a relatively good job filtering out various factors, most notably items with volatile prices affected by seasonality. This cancels the noise (enough) that we can see price effects of tax regime changes.

Using core prices as our starting point, did the SST bring prices down?

Month-on-month versus year-on-year

The answer, again is yes… from month-on-month perspective.

This section is a bit dry and digresses into discussion on measurement. You might want to skip this as skipping it would not hurt the “yes” explanation by too much. If you are not skipping, let us move on with the agenda.

Month-on-month is a better way to observe things than year-on-year. This is because there are multiple significant supply-induced for the past few years. For instance, because of the SST which was reintroduced in September 2018, we would have to wait until September 2019 until its effects on prices disappear from year-on-year perspective. These changes make year-on-year unreliable as a change measurement. If we insist on using year-on-year as a measurement for policy purpose, we will risk making the wrong call based on a massive structural break, never mind the 12-month recognition lag.

Year-on-year does control for seasonality, unlike month-on-month and that is its strength. But it is not great at handling (structural) breaks in series. And as far as consumer prices are concerned, Malaysia has experienced too many breaks at least since 2015 when the GST was implemented. The last big break was in February 2019 when petrol and diesel prices were capped at its current ceiling. I expect one or two more major breaks in the next 12 months.

This is why there is a need to move from year-on-year to seasonally-adjusted month-on-month (or quarter-on-quarter whenever relevant) measurement. Seasonally-adjusted month-on-month addresses problems of structural breaks and seasonality, which makes it better than year-on-year by a mile.

Additionally, changes in a series could be seen immediately through month-on-month. This significantly removes the problem with recognition and policy lags.

Our familiarity with year-on-year and stubbornness to move away from it is part of the reason why too many people panicked over “deflation” earlier this year, when in fact, it was just a mathematical artefact arising from a massive structural break, or two, or three.

Effect of shift to GST in April 2015

Now that is out of the way, we can start directly discuss about how GST changed the price level.

The raw month-to-month price change in April 2015 was 1.28% (below is just the month-to-month change for the chart above).

But how do we know whether the 1.28% was fully due to GST?

That is a difficult question, really. But because it is core prices, significant amount of items susceptible to large volatile changes are out of the picture. Food items and fuel are out. Yet, there is still a problem. Our problem is that the core CPI is not seasonally-adjusted (as far as I understand it). In order to control for seasonality, we need to look at March-April change in other years and use that as a correction factor.

Here, we get into another problem, the official core series does not go to far back. Publicly, core series begins in 2015.

Nevertheless while keeping that in mind, April price change in 2016, 2018 and 2019 were either 0.08%, or 0.09% (in April 2017, prices rose 0.26%. I do not know why, and I am too tired to find out. So I am going to close my eyes and consider it as a outlier and pray hard. Please do not shoot me). To control for seasonality, we take the 1.28% and subtract 0.09% (the April average change in 2016, 2018 and 2019) from it. Through this, we can claim that the April price change due to GST—as far as core prices and the seasonality I have accounted for concerned—is 1.19%.

In short, GST quite possibly raised core price level by 1.19% month-on-month. Yes, GST did raise price level.

Effect of shift to SST in June-September 2018

Now, this part is not so straightforward because the transition from GST to SST lasted for 4 months. In 2015, there was an immediate transition from SST in March to GST in April. But in 2018, the GST was effectively abolished in June 2018 and was replaced with a 3-month tax-free period. The SST only came in September 2018.

As a result, direct comparison between the SST-GST shift (April 2015 core CPI), and GST-SST shift (September 2018 core CPI) could not be made. There are at least two reasons:

  1. First, in June 2018 when the GST was abolished, core price level dropped 1.43%. And it was a drop from GST regime to no tax period. This number does not help us answer our original question, which is whether SST brought prices down.
  2. Second, when the SST was reintroduced in September, core price level rose by 0.60%. This also does not help answer the question.

So, how could we make it comparable?

This chart shows the problem, and the adjustment required from price level perspective to make a fair comparison (blue is actual, red is adjusted).

The adjustment is: calculate the difference between May 2018 core price level (GST prices) with September price level (SST price level), while ignoring the free-tax period completely. Do this and we would get a price drop of 0.59%.

This is how it looks like in month-on-month changes (blue is actual, red is adjusted).

However, just like the SST-GST shift, we need to control for seasonality. And the average May-September change for 2015, 2016 and 2017 is 0.73%. The variance is not that big: for transparency, it was 0.72%, 0.79% and 0.68% rise for 2015, 2016 and 2017 respectively.

Controlling for seasonality, that means the GST to SST shirt brought core price level down 1.32% (that is -0.59% plus -0.73%).

Conclusion: SST brought core price level down

As a summary, after accounting from seasonality:

  1. SST-GST shift raised core price level by 1.19%
  2. GST-SST shift cut core price level by 1.32%

Some comment on the results: I had expected the SST-GST and the GST-SST shifts to bring prices up and down by about the percentage point. Right now, there is a difference because I think there are still some important factors that have not been controlled. It is possible that one of them could be forex rate.

Caveat and other business

There is a important clarification here. These results do not mean core prices in September 2018 when the SST was reintroduced were lower than core prices in May 2015. Between May 2015 and September 2018, headline and core prices rose for a variety of reasons. Rather, the two changes in 2015 and 2018 were one-time changes, or structural break in core price series. You could see this from the price level charts above.

This brings us to inflation. The remarkable thing is, at least from the naked eyes, inflation (in the sense of general rise in prices) remains largely the same throughout the changes. Another way to say is that, the slopes of the lines (GST and SST) are about the same. What happened was a shift in price level, which is what this whole post shows.

And finally, I want to show you this chart.

The black-shaded area was caused by GST (specifically, GST at 6% minus GST at 4% – GST at 4% has been cited as the equivalent of SST around 2014-2015). If GST were never introduced, core price level would likely have be lower by that shaded area.

I do have strong policy preference, and that preference originates from my ideological leanings. But the preference only sets the default position, or more accurately, the initial stance. I am willing to be swayed by data and models but then again, over the years, I have learned data and models can be bent so much even with the best assumptions, it can be interpreted in various ways that make the numbers never quite as objective as it is made out to be. In the end, it is the context of the numbers that is important, not the numbers themselves. Numbers alone can be meaningless in social science, and economics.

I have become less ideological over the years, especially after the 2008 global financial crisis, and my policy preference is driven more and more by empirics. But after a year in the public sector, I find my preference has not quite been assaulted by empirical results. Rather, it has been a lesson on compromise and second or even third-best solutions.

Second-best solution is arrived at when the ideal solution is not possible given some constraints. The best solution is technically possible in the sense that it is technologically or economically possible. However, the challenges from the political or social aspects make it difficult to achieve fully.

For instance, I prefer to have the ECRL be cancelled outright. It does not seem very economically viable, and there are cheaper ways to encourage connectivity across the country while developing the areas outside of the peninsular economic centers. But the need to be careful with China, especially at a time when the global economy is at risk of heightened protectionism with Malaysia dragged into an unwanted trade dispute, means my policy preference is out of reach.

And it is not merely a theoretical concern. After all, China did employ unfair trade practices on the Philippines just to punish the latter over totally unrelated issues involving the overlapping claims in the Spratlys and the Paracels several years back. China can be a big bully, as any big power can be, and Malaysia being a small open economy should not test that proposition by too much. We have been successful in pushing for our case with China, but one has to wonder where is that line that we should not cross.

That is one example of having to land on a second-best solution, with an external consideration.

But more often than not, the challenges are internal in nature.

In a democracy where consensus is absent, the available solutions are frequently second best. There are so many stakeholders to take care, making compromises a must.

Just today, a senior civil servant asked how do I feel about working in the public sector, and how does it compare against the private sector. I answered that professionally, working in the public sector was tougher than in the private sector. In the former, there were so many parties to manage and to satisfy, whereas in the private sector, one could doggedly pursue an agenda, or even bulldozed it all the way through. In a way, achieving the ideal solution is easier outside of government than inside of it.

However, that does not mean the public sector is redundant. Many things do require the public sector to work and cannot be done through the private sector alone. It is the reality of a non-anarchist world, which is true almost everywhere in this world.

This can be linked back to the manifesto of Pakatan Harapan.

The Institute for Democracy and Economics Affairs, a think tank I somewhat have a relation with, today criticized the government for being overambitious with its election manifesto, and for the government’s weak resolve in delivering its promises.[1]

I would say that the manifesto is an example of the ideal solution, and the current situation is a second-best solution.

And this does not yet account for the fact that even the manifesto is a work of compromise, and that a manifesto as an ideal is supposed to be bold (in a good way, not the Brexit shambolic way). Furthermore, many supporters of the government work on having reasonable compromise. I for one is not 100% in agreement with the manifesto. But the urgent need for reforms after years of proliferating brazen grand corruption meant compromise had to be made to achieve a goal of cleaning the country. Second-best solution was what we had, because the ideal was not achievable.

Hafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reserved

But coming back to the criticism leveled by the think tank on the government lacking sufficient resolve to deliver institutional reforms, I think I can come out and say such reforms are still coming and it is not clear whether on its own context that it would be demoted from the ideal to the second best solution. Besides, it is not as if there was no reform at all. All too often, people forget the significant reforms that are already staring them in the eyes, be it the separation of powers between the prime minister and the finance minister, wider application of open tender, greater transparency and freer media.

There are challenges even in the areas I have cited where reforms have happened. But wide-ranging reforms require time, especially in a robust democracy. Mock the line all you want, but you know it is true.

The important thing is that, we must persist. Democracy simply does not end at the ballot box. It is more than just going out to vote. A fancy deck does not a reform make, too.

Hafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reserved

[1] — The government has set a list of unrealistic goals and showcased a lack political will to fulfil other achievable promises made in the Buku Harapan GE14 election manifesto, according to the Institute of Democracy and Economic Affairs (Ideas). Ideas research director Laurence Todd (photo, above) said the think-tank’s ongoing Projek Pantau monitoring of 244 selected sub-promises found little progress made to about 30 percent of the “unrealistic goals” set in areas of education, institutional reforms and the economy. [Alyaa Alhadjri. Report card on Harapan shows ‘unrealistic goals’ in manifesto. Malaysiakini. June 28 2019]

As a libertarian, hate speech is always a difficult subject to touch on. It is difficult to determine how far should free speech go until a line has to be drawn.

The pure libertarian position is very tolerant of all kinds of speech, and even hate speech. So tolerant that it goes so far away towards the horizon that for a peaceful society with high social capital, there exists a boundary much, much closer and well short of the libertarian realm of the unacceptable. Here, there is a conflict between inherent right and the ideal of coexistence. Without context, an answer is difficult to reach and even if it is reached, a libertarian is unlikely will be content with it. But living in a peaceful society will always call for a compromise, and that is the price we all have to pay in some way.

But when a person makes an explicit physical threat against another person or group of identifiable people, then the libertarian answer is quite easy: it is wrong and action has to be taken to make sure that such threats will not be realized. This is because of the non-aggression axiom (I know, I know. The axiom is problematic. Nevertheless…). The use or threat of force against a person is coercion and coercion is a big no-no in the libertarian understanding on how the world should work.

And so, I am not particularly impressed when what seems to be a group of fascists complained that a follower of their ideology, and the person himself, has had his right to free speech or free press robbed after a bookstore decided to stop selling his book that encourages others to murder certain people who they do not agree with.[1]

In the first place however, the store is a private entity. The bookstore owner can do as he damn well pleases.

The author later complained that the pull out proved that there were people afraid of him. Rightly, so. He is after all calling for murder. One must be so dull in the mind to think such opinion is an astounding revelation and people should not be afraid. If somebody made a credible threat against me, I would go to the police for protection and take the necessary precaution against that threat (and possibly, even preemptive measures). One does not need to be libertarian to act such a way. It is human nature.

In the end, there is only one violation of right in this episode and it is the physical threat made by the fascist. That alone from libertarian perspective makes it sufficient for police action to be taken against him.

In any case, a fascist’s world is one where a libertarian cannot live free. When a fascist cries for freedom, such a claim should always be viewed with supreme skepticism.

Hafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reservedHafiz Noor Shams. Some rights reserved

[1] — A bookstore has dropped two books by author Helmi Effendy over his social media comments on killing Malay “traitors.”

“Effective immediately, we will not be selling any books by Helmi Effendy at Kedai Fixi or on We support freedom of speech, but not threats or ‘prayers’ for people to be killed,” Buku Fixi said in a statement today.

Helmi is the founder of right-wing publication The Patriots.


“May the Night of Broken Glass become a reality in Malaysia. The Night of the Long Knives will kill Malay leaders and voters who have betrayed their religion and race,” he said in his post.


In a Facebook post today, the author lashed out at the move, claiming that his books have been “banned.” There is no government ban on the books, however.

“I don’t care. I don’t give a f***. I take it that when Buku Fixi takes my books off their shelves, it means someone out there is very very afraid of me,” he said. [Store drops books over author’s call to kill ‘Malay traitors’. Malaysiakini. May 29 2019]

There is a kerfuffle about the definition of foreign direct investment, due to the former PM Najib Razak’s messaging and the general public’s unfamiliarity of it. I strongly believe Najib actually understands the nuances of FDI but he is navigating through the somewhat complex definition to score political points with half-truths. Truly, you need to know the actual definition to play around with skillfully. After all, he was the Finance Minister for about a decade and one ought to learn something while at it, including about government policy on fund transfers and its weaknesses.

Of interest today are 3 points, given the ongoing popular public discussion, which is quite ill-informed.

One is approved FDI published by Malaysian Investment Development Agency, or MIDA.

Two is actual FDI published in the Balance of Payments documents published by the Department of Statistics

Three is “asset sale.”

I will not very delve deeply into these because the manuals are thick, arcane and I doubt more than 1,000 people in the world have read the manual from cover to cover. In Malaysia, probably fewer than 10. For instance, the Balance of Payments manual published by the International Monetary Fund, (the mouthful title is the Sixth Edition of the IMF’s Balance of Payments and International Investment Position Manual) has 351 pages with discouraging font size and spacing.

But there is a surge in public interest it in. Which I suppose, is a good opportunity to educate.

Let us start.

Approved and actual FDI

To start we need to attack both point 1 and 2 because they are easily confused despite have been frequently published and easily accessible.

Approved FDI and actual FDI are two different sets of numbers. Yet more than once, the media and even trained economists have referred to both as simply FDI without hinting its differences. The media probably does not know any better while economists are being sloppy though they likely know the difference. This is a constant source of confusion for the public (and the media) and it becomes crazy when politics is injected into it.

Approved FDI is self-explanatory. A foreign investor applies for permission to invest in Malaysia and the Malaysian authority decides whether to approve. Not all investments get approved and for example, my former employer’s request to do so was rejected for unclear reason. If approved, it will go into the approved FDI statistics published by MIDA.

The important thing is approved FDI functions as a leading indicator to actual FDI. In less complicated English, approved FDI provides the maximum limit to actual FDI. Theoretically, approved FDI is always higher than actual FDI because sometimes, a company would get its approval but later change its mind in terms of investment of value, or even investing at all.

Theoretically because sometimes, approval to invest is given for a period of time and practically too, it is difficult to invest immediately upon approval. Accounts have to be set up, the money has to be transferred, people have to hired, etc. I have been told after approval, a lot of approved FDI get realized roughly about form 1 to 3 years. But the point is, approved FDI gives us an inkling what the actual FDI would be. Example: when approved FDI in 2017 was low, so was actual FDI in 2018. When approved FDI was high in 2018, actual FDI in 2019 was also high. It is not a clean correlation due to the problem of lags, but there is a noticeable one.

There is further complication to the public understanding of FDI. MIDA publicly published approved manufacturing FDI quarterly (all-sector data annually). So without basic understanding of the metadata, confusion is easy. Indeed, the relatively complicated definitions have been used by Najib to spread half-truth about FDI.

The purposeful switching of context

Before I move on to point 3, allow me to digress and comment about the ongoing political conversation about FDI.

When assessing Najib’s post, one has to realize when he is switching the definition and context. When the government talks about 2018 approved FDI, he will switch to 2018 actual FDI and accuse the government of lying by stating actual FDI is lower than approved FDI. When the government talks about actual FDI in 2018, he would veer somewhere else to again pain the picture that the government is being dishonest.

For those unfamiliar with the numbers and context, they would say Najib was arguing based on facts. But if only they knew how context could make facts as half-truth. The best of disinformation works as such.

FDI and “asset sales”

The last point I want to make is about FDI asset sale.

The definition of FDI is hard to master fully even for working economists. But in general, it is acquisition of long-term stake in local companies (plus several other things). In the IMF manual, if I recall correctly, a purchase of share at least 10% in local company would qualify as FDI.

This is why when Mutsui buys a minority stake in the Malaysia-based IHH Healthcare, it is FDI.

This is also the reason why when Petronas sold its 50% stake in its RAPID projects in Pengerang to Saudi Aramco of Saudi Arabia, that was considered FDI too. But of course, Najib will not mention that asset sale that happened under his watch. He would call that investment, and he would be right, just like how Mitsui’s purchase is investment. Najib wants to have his cake and eat it too.

Finally, for me personally, I am not hung up on asset sale. In the end, what is important is the returns to investment, not the investment per se. A fund should maximize returns, and if it diverges from that, it has to be for a very, very good reason.

But perhaps politics is more complicated than the Balance of Payments manual. You do not a good reason, just half-truth. We are, after all, live in the age of Trump.

And for the FDI conversation, know that Najib is switching the context and manipulating public ignorance to win the credibility game.

The 2019 first quarter GDP will be out on May 16. Since we live in an age of trigger warning, let us play the game first:

How fast do you think did the Malaysian economy expand in 1Q19 from a year ago?

  • Slower than 3.6% (17%, 4 Votes)
  • 3.6% - 4.0% (26%, 6 Votes)
  • 4.1% - 4.5% (30%, 7 Votes)
  • 4.6% - 5.0% (26%, 6 Votes)
  • 5.1% - 5.5% (0%, 0 Votes)
  • Faster than 5.5% (0%, 0 Votes)

Total Voters: 23

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The consensus views are that growth for the quarter will be weak, possibly in the lower half of the 4.0%-5.0% range. Some are even betting on something lower. There are at least two justifications for the pessimism.

One, industrial production grew only 2.7% YoY during the quarter, largely due to contraction in mining production. Supply disruption continued to bedevil the sector after a major incident in Sabah last year. Manufacturing did largely okay, except in February. This leads us to the second factor.

Exports. Exports plunged quite drastically in February and a bit in March. While some of it had to do with supply constraints in the mining sector, manufactured goods exports also dropped, which indicated weakness in external demand. The country until recently had benefited from the trade war through trade diversion and business relocation. This could be seen from FDI and trade data. But prolonged and wider trade war would slow the expansion of global trade volume, possibly to a point where trade diversion would not overcome effects from slower trade growth. If the February and March export trend continues (exports for the quarter was down and in fact, so did export volume) in the second quarter, that might indicate we have reached that point where positive trade relocation factor is giving way to volume growth slowdown. The the escalating China and the US trade conflict is very likely the one major contributing factor to Bank Negara Malaysia cutting its policy rate by 25 basis point rate last week.

These two trends could hit the domestic economy in terms of employment. But so far, employment statistics have been going strong. It has not budged from 3.3% and anecdotally, there has been no story of widespread layoffs caused by weakened domestic and external demand. There were layoffs, but those appear directly induced by government policy, not demand per se. For instance, the non-renewal of contracts for political appointees and other politically-linked projects, which are not quite demand-driven.

There are complaints of economic slowdown among the public and in the media for awhile now, but again, that has not quite affected employment statistics by one bit. This makes the slowdown in the past few quarters puzzling to me. A pure supply-driven slowdown could explain this and there were supply problems. It is also possible that firms are hoarding labor supply, with a view of better economic performance in the near future.

From pure GDP growth statistics perspective, there might be some good news. Net exports might be doing better, or more accurately, external demand is doing better than domestic demand. Export volume index fell 2.2% YoY for the first quarter; import volume dropped 3.1%. The usual goods exports decreased 0.7% versus import drop of 2.5%. This could boost the GDP growth up by way of net exports, even if it is just math at work. If the actual GDP growth does surprise the market on the upside, I think it would come from here.

The downside is, the import volume drop suggests private consumption growth had slowed down. After all, imports are just a reflection of domestic demand. But to be honest, the consumption growth in the past several quarters have been extraordinarily high due to the changes in the tax regime. Such growth should decelerate and we would only see a “normal” growth rate for consumption in the fourth quarter of this year once the tax factor has been equalized across the relevant period (This of course is purely from year-on-year perspective and this is where quarter-on-quarter calculation offers a quicker and a better way of measuring changes).

As for government spending, it should be on the recovery mode and I think the worst should be behind us (or nearby, if it is not behind). As for gross fixed capital formation, I would want to say the same thing, but I really do not know.

When the Malaysian consumer price index dipped 0.7% an 0.4% year-on-year in January and February this year, there were hysterical claims that Malaysia was experiencing deflation, never mind that deflation is characterized as persistent decline in prices rather than temporary dip. And never mind that the bad deflation is one associated with decline in demand, rather than supply-driven, which was what the dips in January and February of weighted average consumer prices were.

Just for context, the prices for January and February were heavily affected by the drop in retail petrol prices, on the back of the shift from GST to SST. But by March and April, retail petrol prices were on the way up and for RON95 and diesel, it hit the ceiling set by the government. RON97 continues to be on the prices as crude prices now soars to above $70 per barrel.

Additionally, we know when inflation would stabilize as we know when retail petrol and diesel prices were stabilized. Given the structural changes and its effect on year-on-year calculation, year-on-year and headline figures should not be the focus at the moment.

Anyway, the March numbers that will the out tomorrow should reflect this, as has been highlighted as early as January. And so…

How do you think did the consumer price index change in March 2019?

  • It fell (14%, 1 Votes)
  • It did not change (0%, 0 Votes)
  • It rose (71%, 5 Votes)
  • Unsure/Do not know (14%, 1 Votes)

Total Voters: 7

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I first began supporting Ajax in the late 1990s after watching Edwin van der Sar playing for the team. I do not remember when exactly, but possibly after finding out Ajax won the 1995 European Cup.

That team was a magical one. Marc Overmars. The de Boer brothers. Nwankwo Kanu. Jari Litmanen. Clarence Seedorf. Danny Blind.

As a teenager, I kept drawing Ajax’s Dutchman logo on my belongings. Pencil case, exercise books, tabletop. I remembered every line that needed to be drawn. And when I played Championship Manager, I only played Ajax and nothing else.

It has been ups and downs with Ajax. But since the late 1990s in general, until Frank de Boer arrived to manage the team, it is not an exaggeration to say it had been a downhill journey. I have stayed true to the team for all those years, but being dismissed as a has-been second-rated team was an insult I am sure many Ajax fans had to endure.

That is not to say there were no great players during the interim. Rafael van der Vaart. Wesley Sneijder. Luis Suarez. Christian Chivu. John Heitinga. Zlatan Ibrahimovic. The names go on and go. Yet, they could not quite make it super big at Ajax, and Ajax could not hold on to them. There was not enough money to go around. So they went away, doing great things at bigger clubs outside, getting paid multiple times more than what they got in Amsterdam.

But this current team, well…

I watched some ESPN clips commenting about the Ajax-Juventus fixture. All of them were dismissing Ajax with a halfhearted hand wave. “Ajax is good,” they said. “But they lack the experience,” they claimed.

And there was Cristiano Ronaldo.

This team that forced Bayern Munich to work for their one point and embarrassed Real Madrid in Santiago Bernabeu so badly, could not beat Juventus so supreme in the Serie A and so certain to win the Italian League, they believed.

And Ajax, oh well, Ajax is only at the top of the second-rated division, ahead of PSV Eindhoven by only goal difference.

Who is Ajax?

But Ajax has been in a serious rebuilding mode since the early 2010s when several of the 1990s veterans joined the management. There were infighting, but Frank de Boer rebuilt the team. He left in 2016 but he left a great foundation for Ajax to run on that they reached the final of the 2017 Europa Cup, losing to Manchester United after a great run. But well, that is second-rated competition. Who cares?

And now, in 2019 Ajax is in the semifinal after beating Juventus. Do not let anybody say it was luck. It was actually Ajax working brilliantly with confidence and experience.

And those ESPN commentators?

Eating Ronaldo’s smelly socks, no doubt.

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