Author: Hafiz Noor Shams

For more about me, please read this.

Categories
Economics

[2172] Of did we need the stimulus package?

The fourth quarter of 2009 saw Malaysian economy recorded strong recovery on year-on-year basis.[1] So strong it was that the monetary authority of Malaysia went for a rate hike, making Malaysia the second country after Australia to adopt a hawkish monetary policy.[2] The question that should be asked now is, did we need the big stimulus?

The question is particularly relevant because the main driver of recovery has been external demand. This is something I have been stressing from the very beginning and it is the thrust of my opposition to economic stimulus, especially in the fashion of fiscal expansion, given the effect of the expansion on fiscal deficit, effect on future taxpayers as well as its potential adverse effect on private borrowers and therefore the economy sans the public sector.

Growth for external demand for domestic goods almost doubled the growth of domestic demand for goods.[3][4] Add the fact that external demand makes up a very large part of Malaysian GDP, in fact approximately 100% in terms of exports-to-GDP ratio,[5] the stimulus seems unnecessary.

Without the stimulus, recovery might have been less impressive than what was registered recently; it would be a recovery nonetheless. This however assumes that the government spending has no affect on interest rate and thus, the exchange rate. This is possible if the monetary authority, which is the Bank Negara, colludes with the executive branch of the government.

But expansion of fiscal policy does affect interest rate and the exchange rate assuming independence of the monetary authority, at least within the typical IS-LM model under open economy.

With that model with that particular settings, recovery without stimulus could have been just as impressive. If the extraordinary fiscal expansion were absent — the factor inhibiting exports that is higher exchange rate due to fiscal expansion would be absent — external demand for domestic goods could have increased much more than the already impressive level we saw at the end of 2009.

Remember, a lot of people were pleasantly surprised by the fourth quarter growth.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — Malaysia’s economy expanded 4.5 percent in the final three months of 2009 from a year earlier, Prime Minister Najib Razak said yesterday. Economists expected a 3.2 percent expansion, a Bloomberg survey showed. Gross domestic product fell in the preceding three quarters as exports slumped amid the global financial crisis. [Malaysia May Beat Korea, India to Asia Rate Increase. David Yong. Bloomberg. February 25 2010]

[2] — March 3 (Bloomberg) — Malaysia may be the next Asian country to pull back monetary stimulus as its recovery strengthens, moving to raise borrowing costs or reduce excess cash in the economy ahead of neighboring Indonesia. [Malaysia May Pull Monetary Stimulus Before Indonesia . Shamim. David Yong. Bloomberg. March 3 2010]

[3] — The external sector performed favourably with both Exports and Imports turned over by 7.3 per cent and 6.9 per cent respectively. The improved demand for the products of Electrical & Electronics, Animal & Vegetables Oils & Fats and Chemicals have contributed to the increase in Exports. Meanwhile, the growth in Imports was due to the higher demand for intermediate goods and capital goods. [National Product and Expenditure Accounts Fourth Quarter 2009. Department of Statistics of Malaysia. February 24 2010]

[4] — Malaysia’s real GDP, population 29,992,577 in 2008 according to the World Bank, grew 4.5% compared to the same period one year ago. The impetus behind headline number was domestic demand (GDP minus net exports), +3.9% Y/Y and external demand (exports), +7,3%. [A tale of two recoveries: Malaysia vs. Germany. Rebecca Wilder. News N Economics. February 25 2010]

[5] — See trade profile of Malaysia at World Trade Organization. Accessed March 5 2010.

Categories
Personal Politics & government Society

[2171] Of a story of migration

A dear friend was in Sydney recently. For old times’ sake, he called me up and asked if I was free for the day. I said yes. How could I say no? Both of us are Malaysians and both of us attended Michigan. We had some good times together.

We had not met for a long time prior to that meeting in Sydney. The last time we had a meal together was in Singapore, when we visited yet another alumnus of Michigan. That was a good four years ago.

February is a good time to visit the city of Harbour Bridge and Opera House. Apart from the rain, the weather is generally just fantastic. There are tons of activities to do without the need to worry about the presence of morality police. When they are not cracking jokes and become all-sarcastic, which is cute, Sydneysiders will generally leave you alone. To find a close friend visiting Sydney should not be a puzzle.

We had a long chat, reminiscing the days in good old Ann Arbor, our spur-of-the-moment road trip into the heart of South Dakota and our childish arguments. And we updated each other about our mutual close friends. I learnt that one is working in Germany.

Several are living in the United States. Another is just due west in Melbourne.

The conversation went on innocently until I felt that something was amiss. He asked, “How are they toward you?” He was referring to Australians.

The question slightly took me aback. I figured he was concerned with reports of racism in Australia. The country does have issues with racism. It is not as prevalent as in Malaysia but it is a problem nonetheless.

Yet, his tone was one not of interest in current affairs, or a concern for me. It is a tone reserved for the motive of self-interest. I became suspicious of his motive and began to challenge my assumption that he was here for vacation.

“Why are you here, exactly?” Jokingly, I added, “Do you really miss me that much?”

His answered forthrightly. He already had his application for permanent residency approved by the Australian immigration. All he needed was to have his passport stamped at an Australian gate. He needed to do that to activate his permanent resident status. “And here I am.”

I have friends who have decided to live abroad, or who have left Malaysia for good. I have heard and read stories of strangers, Malaysians nonetheless, doing the same. It is not a rare phenomenon but to hear it from him”¦ somehow, his answer surprised me.

My reaction to those who find solutions in migration had been, please, do not go, or if you do go, do come back.

It is almost a plea, because more often than not, those who chose to migrate share my values: liberty and equality. The more Malaysians holding these values leave, the harder will it be to man the dike against the tide of illiberalism, a hodgepodge of racism, religious bigotry and lack of trust in individuals that Malaysian politics is known for.

Under the bright sun, I did not find myself making such plea to him. I myself am unsure what the future holds for me any longer. Such act of convincing appeared futile to me, when I can hardly convince myself of it.

For a short moment, my mind raced to another occasion, where an Australian friend asked what I would do after earning a Master’s degree. I told him what I told so many others, “I don’t know.”

“Why don’t you just stay here? There are so many problems in Malaysia. I can’t find a reason why anybody would want to be there. Even you, as a Malay, get discriminated simply because you refuse to blend in. Besides, the pay here is much better, don’t you think so? What is the PPP per capita for Malaysia? Australia’s is over thirty thousand US dollar.”

At yet another occasion, a Malaysian who has been residing and working in Sydney for some time asked me the same question. I told him that I do not know but I would return to Malaysia.

“Why?”

I said because it is home.

“It is good that you still have the notion of home. As for me, it means nothing anymore.” He said that with incredible nonchalance that I almost took it as an insult. Deep inside of my heart however, I know that home is where liberty is.

My mind returned to the moment. Kids in school uniforms were flowing out of a building. Near the door, there was a banner, suggesting that these kids were there for some sort of recital.

The plaza besides the Town Hall is always buzzed with activities. Just days ago, a group of Iranians were there to remember February 11, the 21st anniversary of the collapse of the Pahlavi dynasty.

The Islamic Republic of Iran rose over the ashes of old Persia soon after that. I am unsure which one of these two is worse but I know for sure that they do not have the same liberty in Iran to hold public gatherings. Or in Malaysia for that matter.

I had to return to the moment.

“Will you apply for citizenship?”

“No,” he said.

“Why not take the extra step and be done with it?” I was the devil’s advocate.

“Malaysia is a good country. Only those who are managing the country are not.”

He did not see me rolled my eyes. I was not dismissing his opinion.

On the contrary, I share his sentiment. All I wanted to do was to let go a silent sigh.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

This article was first published in The Malaysian Insider on March 2 2010.

Categories
Economics

[2170] Mengenai apabila kerajaan mencipta masalah, salahkan pasaran bebas

Bekas Presiden Bursa Saham Kuala Lumpur Salleh Majid menulis tentang dialog yang beliau hadiri di dalam Utusan Malaysia hari ini.[1] Beliau menyenaraikan pelbagai masalah yang dihadapi Malaysia, masalah yang diakui kewujudannya oleh kerajaan Barisan Nasional hanya selepas Pilihanraya Umum 2008. Masalah-masalah ini kemudiannya dijadikan sebagai alasan untuk mengaminkan campur tangan kerajaan di dalam ekonomi negara serta polisi Barisan Nasional. Walaupun masalah-masalah ini wujud, ia tidak boleh dijadikan alasan untuk campur tangan yang lebih hebat kerana kerajaanlah yang menjadi sumber kepada kebanyakan masalah-masalah ini.

Sistem pendidikan yang lemah disebut sebagai satu punca kepada struktur ekonomi negara yang tidak menyakinkan. Siapakah yang mempermainkan sistem pendidikan kita? Siapakah yang mengikat kaki dan tangan pelajar serta tenaga pengajar? Siapakah yang memperbodohkan beberapa generasi rakyat Malaysia demi kepentingan politik? Kerajaan.

Karenah birokrasi kerajaan adalah satu lagi faktor yang diketengahkan. Adakah birokrasi tersebut disebabkan oleh pasaran bebas?

Kemudian disebutnya masalah korupsi dan rasuah. Ini adalah perkara yang kelakar. Siapakah penyebab utama perkara tersebut berleluasa? Pasaran bebas? Bukankah bahagian eksekutif kerajaan yang dikuasai oleh Barisan sekian lama yang telah meluaskan kuasa mereka sehingga sistem timbal balik hilang reputasinya? Bukankah kerajaan persekutuan dan negeri Barisan Nasional yang sewenang-wenangnya menggunakan duit rakyat untuk kepentingan parti? Bukankah punca korupsi itu adalah kerajaan?

Kewujudan kartel dan monopoli adalah masalah yang besar. Tetapi, siapakah yang menggalakkan pembentukan monopoli ini? Siapakah yang menggalakkan industrialisasi secara penggantian import di Malaysia? Siapakah yang menyekat pemberian lesen? Kerajaan! Kerajaan! Kerajaan!

Beliau akhir sekali menyebut beberapa negara yang mengalami masalah ekonomi yang kononnya disebabkan oleh sikap free for all. Beliau menyebut tentang Sepanyol, Portugal, Itali dan Greece. Tetapi, bukankah masalah negara-negara ini adalah saiz defisit fiskal yang besar yang disebabkan oleh perbelanjaan kerajaan yang tidak terkawal? Adakah kemampuan kerajaan-kerajaan ini untuk mengawal keadaan fiskal mereka disebabkan pasaran bebas? Mereka yang memperjuangkan pasaran bebas kebanyakan mahu saiz kerajaan dikurangkan. Penyokong pasaran bebas mahukan perbelanjaan kerajaan dikurangkan lalu mengatasi masalah defisit.

Jadi, mengapa salahkan pasaran bebas apabila kerajaan yang menyebabkan semua ini?

Ini penipuan yang tidak boleh dibiarkan.

Yang lebih mengarut lagi, masalah-masalah ini ditulisnya akan menjadi lebih teruk jika pasaran bebas dilaksanakan. Kerajaanlah penyebabnya, tetapi beliau tidak mengakui akan kebenaran ini. Malah, menurut beliau, kerajaan perlu campur tangan untuk mengatasi masalah ini.

Ini adalah satu pegangan yang mungkin lucu, jika ia tidak pernah memusnahkan negara ini.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — BEBERAPA kumpulan pertubuhan bukan kerajaan (NG0), usahawan Bumiputera Semenanjung, Sabah dan Sarawak telah berpeluang memberikan pandangan mereka tentang Model Ekonomi Baru(MEB) kepada Pengerusi Majlis Tindakan Ekonomi Negara, Tan Sri Amirsham Aziz pada hari Khamis 25 Februari yang lalu. [Dialog dengan Majlis Tindakan Ekonomi Negara. Salleh Majid. Utusan Malaysia. Mac 1 2010]

Categories
Photography Travels

[2169] Of paradigm shock

I spent the last week of my holiday vacationing in Queensland. One of the days involved cruising and snorkeling around Moreton Island. Dolphins and turtles were there too.

Some rights reserved. By Mohd Hafiz Noor Shams.

At the helm of the boat, the skipper had a map laid out on a platform but I did not see him consulting the map. He has everything that he needs to navigate the waters in his head.

That scene along with its relaxing atmosphere is vanishing fast. It feels unreal now.

The first email I read from my university account has the name Romer mentioned in it. What a contrast.

Categories
Economics

[2168] Of no to the policy of One Price

Prices of the same tradable items in different places tend to converge in a perfectly efficient market. Theoretically, motivated by profits, individuals and entities act as arbitrageurs. They will continue to arbitrage until there are no more profits to be made. That is when prices equalized and that is the essence of the law of one price.

Prices may not actually converge to one price due to several factors however because market can be inefficient. Limited access to information crucial for the purpose of arbitrage may prevent convergence. Transportation cost as well as government intervention in terms of taxation and subsidization are two of several other important frictions. Instead of prices equalizing, a price spread exists to reflect those frictions even as market participants exhaust arbitrage opportunity.

This is essentially the reason why there is noticeable price differential for the same tradable goods sold in eastern and western part of Malaysia. With the South China Sea separating Malaysia into two parts, it is only natural for prices to differ between the two regions. Even under the price and supply control mechanism that exists in Malaysia, a kilogram of sugar for example, is sold 10 sen cheaper in Peninsular Malaysia than in Sabah and Sarawak. Transportation cost is a considerable barrier preventing actual convergence.

This is a source of discontent for some. Member of Parliament for Kalabakan, Abdul Ghapur Salleh of UMNO said in November 2009 said, “We’re talking about 1Malaysia, but we don’t even have one price” while alleging that the price differential is more insidious in nature — discrimination against Sabah and Sarawak — rather than simple economic friction.

It is unclear how exactly he wants effort at standardization to proceed but the approach by the federal government is clear. In the same month, Minister Koh Tsu Koon supported the idea of standardized prices across Malaysia and proposed that transportation cost be shared by all; in other words, introduce subsidy. Nearly a year earlier, Domestic Trade and Consumer Affairs Ministry wanted to do the same: subsidize transportation cost. In Sarawak itself, perhaps a harbinger preceding a possibly wider similar nationwide policy, the same ministry plans to subsidize transportation cost with the intention of standardizing prices of essential items sold in urban and rural areas under its “One Sarawak, One Price” campaign.

They are turning the law of one price on its head. Rather than letting market forces find its equilibrium where a particular price fits a particular landscape through a narrow band, the government intends to impose unnatural standardized prices for all situations everywhere to force convergence. The government intends to introduce more inefficiency to standardize prices.

The discontent over price differential is overrated. Two economists — Lee Chin and Muzafar Shah Habibullah of Universiti Putra Malaysia — published a paper in 2008 showing that prices of tradable goods between Peninsular Malaysia, Sabah and Sarawak are converging. Furthermore, the recent liberalization of cabotage policy — a protectionist policy that contributed to persistent price differential between eastern and western part of Malaysia — will likely further strengthen the natural convergence trend.

Convergence aside, to iterate the idea of how the difference is natural, the price differential has nothing to do with discrimination between the two parts of Malaysia. It is a reality that there is a large body of water separating the two parts of Malaysia. It is likely that if the transportation cost is brought down either through liberalization or improvement in technology, prices are likely to equalize, all else being equal.

The price differential due to transportation cost or distance has nothing to do with the idea of unity as much as it has something to do with the idea of discrimination. In the United States for instance, gas prices in Michigan and in California are very different. Even in the same state, prices of gas in one town can be different from another town a mile away. That does not make the person who pays higher price as less American than the other person who pays lower price for gas.

This idea can be expanded to Peninsular Malaysia. The government should not standardize prices within Malaysia. This is not to say just prices between Peninsular Malaysia, Sabah and Sarawak, but within those regions as well. What a free Malaysia needs is not a Price Control Act, but a Competition Act or antitrust law to fight collusion among businesses in order to encourage competition — the most effective method at encouraging convergence and low prices — without suffocating entrepreneurial spirit.

On top of that, maybe, just maybe, the move of having manufacturers based in Sabah or Sarawak is a cheaper and a more profitable option compared to the option of transporting goods from Peninsular Malaysia or from abroad even after accounting for various other effects like clusterization.

If the subsidization program goes through, it removes that incentive and hence, the possibility of developing industries in eastern Malaysia. If a business owner could transport his or her goods free from western to eastern Malaysia, why would the business owner locate his or her factory in eastern Malaysia? There are better ports, roads, financial services — practically everything that matters in business — in Peninsular Malaysia than in Sabah and Sarawak. The subsidization program would continue to industrialize the Peninsula while leaving Sabah and Sarawak farther behind in terms of development.

Besides, the Prime Minister recently said that private initiates and market forces have to be given freer rein while subsidies be phased out. The standardization of prices across Malaysia through subsidization of transportation cost by the government clearly contradicts that. Is this a proof that there is no coordination within the government? Or does words mean nothing to the government?

For the answer to be no on both accounts, the policy of “One Price” must be rejected.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

A version of this article was first published in The Malaysian Insider on February 22 2010.