January 29th, 2013 by Hafiz Noor Shams
Malaysian private economists mostly find themselves in domestic banks. They typically provide macroeconomic outlook and commentaries on the Malaysian economy for the banks and its clients.
These economists are mostly interested in business cycles, which is a code word for short term economic fluctuation. After all, most professionals in the finance industry and especially the fund managers are mostly interested in making money. Money is made during a business cycle. Beyond the cycle, it is academic.
Academic matters are good to know but one cannot use it to make a killing in the market. Five years down the road? Structural issues? “Cool story, bro.”
So, these private economists focus on projecting Malaysia’s economic growth, inflation, foreign exchange and interest rates as well as trade figures for the year and the next. These short-run forecast are the big five traditional things that private economists have their eyes on.
Those are not the only things on which economists maintain a close watch. They do monitor and comment other economic indicators and irregular issues, which include developments in other countries that may affect the Malaysian economy.
What is happening in the euro zone? Will the Greek government get the bailout money? Will the US Congress increase the debt limit? What is happening in China? Will the new Abe administration really interfere in the operations of the Bank of Japan?
In many cases, things that are being asked are not strictly economics. They can be political in nature. Do you think Obama will win in the US presidential election? What will happen to Monti? Will Merkel continue to lead Germany? What is Hollande doing? Will Japan and China go to war over those islands? All these questions and more affect the global economy even if they are firmly set in the realm of politics.
Sometimes, some people ask economists about the weather. How bad will Hurricane Sandy be? Regretfully, it seems that economists are the in-house political experts, gypsies with a crystal ball and meteorologists all at the same time. It is outrageous but it just comes with the job. It is demanded of them.
These questions on foreign politics can be answered by these private economists frankly. Not too many will be offended by the answers. The reason is that many in Malaysia do not invest their livelihood in the politics of other countries. They just need to know what is happening abroad so that, for instance, they can anticipate the exchange rate movement. So, foreign politics is not ― in Malaysia-speak ― sensitive to the Malaysian financial industry.
But Malaysian politics is.
Despite the fact that politics clearly affects the economy and, specifically, the financial market, frank political discussions are a bit of a taboo in the industry here in Malaysia.
When the conclusions do not place the government of the day in a good light, there is at least a need to rethink how to deliver the message, if there is a need to deliver that message at all.
While the research arm of a bank is theoretically independent, they are under some pressure to avoid direct political reference altogether, however potentially relevant it is to the economy and the performance of the financial market. The conventional wisdom is, do not offend anybody in politics, especially not the government of the day. Conservatism rules the day.
It does take a lot of tact to write something political. Not in the rhetorical or polemical way mind you but as in critical analysis and how it may affect policy, hence investment. To circumvent the problem, analysts and economists express political-related opinions behind closed doors. It either remains unwritten or coded in confusing sentences if it is written at all.
After all, the typical large clients of the banks are large, rich statutory bodies. One does not want to commit a faux pas and lose out on millions of ringgit worth of transactions and deals.
This is not to say that employees in these institutions are political hacks. No. Like the most economists in these private banks, they are professionals and most of them are completely reasonable. The issue is really the line of command; there are government appointees somewhere up there with a big stick who cannot take political analyses that do not favor their side.
And, yes, research publications by these banks are licensed and monitored by Ministry of Home Affairs. So, the issue of press freedom also affects these banks although to a much lesser extent compared to the media. After all, analysts and economists at these banks have very little reason to write something about race and religion, the powder keg of Malaysian society.
One example of how politics can be a taboo involves one of the biggest domestic investment banks in Malaysia and a prominent federal opposition member of parliament.
The research arm of the investment bank invited the MP to join them on a roadshow to talk to its clients in Singapore about the latest political development in Malaysia. The bank’s clients were interested to know because politics affects their returns on investment. They needed to decide and they needed information. This was a chance to get the information straight from the horse’s mouth.
The bank was later criticized for inviting the opposition MP to its program, by a major pro-Barisan Nasional newspaper. That was the end of it.
As an economist, I also had a report that was mildly political in nature for circulation. The management did not give the publication their green light, however, because they deemed it as too politically sensitive.
The publication was not political rhetoric, which is inappropriate for an investment bank. It was a summary of the finding of a closed door discussion held at the bank earlier, which was about the potential outcome of the next general election. Yes, many banks are concerned about uncertainty surrounding the outcome of the next election.
The management was skittish about organizing it because of the profile of the speaker. Still, the forum was held anyway because the bank thought the clients would appreciate it. They clients did appreciate it.
The worst case proving the existence of the taboo so far involves an economist at Bank Islam. He has been suspended by the management of the bank for predicting that Pakatan Rakyat will likely win the next general election and describing such scenario.
His presentation that landed him in hot water does not appear like campaign material. It was more of a mild, measured opinion of an economist instead of a raging, campaigning politician.
As has been reported in the news, the bank has distanced itself from the opinion of its chief economist. That only highlights how averse the bank is to politics.
To be fair, however, the chief economist at Bank Islam, Azrul Azwar Ahmad Tajudin, is not exactly a politically neutral person. He is associated with Parti Keadilan Rakyat and he does advise the party on economic matters. His active participation in politics may have worked against him.
While the fear of losing millions of ringgit and the publication permit is real (perhaps overstated maybe but one can never know), the sensitivity is counterproductive to the industry and those whom it serves. Owners of funds ultimately demand returns to their savings and investment. Having critical and frank analyses on business, the economy and politics are crucial to making the right financial decisions.
Since politics does affect policies and these policies do affect the economy and the financial market, having political discussion as taboo in the financial markets makes making the right decisions harder than it should be.