On my way home from the Freedom Film Fest 2008.
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Author: Hafiz Noor Shams
For more about me, please read this.
There is a suspicion that the Bank Negara bought a lot of ringgit today by selling the US dollar in order to defend the ringgit from further depreciation vis-a-vis the dollar.
KUALA LUMPUR, Sept 5 (Reuters) – The Malaysian central bank was suspected of selling dollars on Friday, joining counterparts in South Korea, Indonesia and the Philippines in defending their weakening currencies. [Malaysia c.bank sells dlrs to defend ringgit-traders. Reuters via Forbes. September 5 2008]
Why would the Bank Negara want to defend the ringgit?
Is it due to nationalism? Is it an order from Putrajaya? Is it to mitigate the more expensive import priced in dollar? Is it to fight more expensive crude oil due to strengthening dollar vis-a-vis the ringgit? Is it due to too much foreign-denominated debt, just like in what happened in 1997 in Thailand?
The simultaneous sales by four different central banks also raise question.
Is there a collusion by the four banks to stop the US dollar march upward? If the motive is so, would such collusion garner enough influence to affect the US dollar?
With (x,y), x is the payoff to the incumbent while y is the payoff to the challenger. Numbers are cardinal.
The challenger plays the first round. The incumbent plays the last round.
By martial law, I mean to indicate incumbent’s refusal to let go of power, eventually involving some kind of conflict greater than mere tongue war and successfully retaining power through the conflict.
By new government, there is a peaceful transition of power.
p/s — this model does not consider any discount from the conflict on the society. Such accommodation would likely change the payoff of the second round, making the model more complex.
This model stands on only one assumption: holding power is better than not holding power.
In the aftermath of the hijacking of two MISC vessels off the coast of Somalia, the Malaysian Royal Navy has dispatched two war vessels to the area.[0] The military has indicated that the two vessels will not intervene in the case but the ships are there to monitor the situation and protect other Malaysian interest around the area, at least for now.[1][2] Does this signal a greater willingness for Malaysia to flex its arms in the name of security in international waters far beyond Malaysian borders?
I am more interested in asking whether Malaysia should flex its arms at all.
The answer is, uncomfortably, I do not know. I say uncomfortably because I am unclear about the role of government in this issue.
The idea of small or limited government is based on the idea that the existence of a government is only to guarantee individual liberty of its citizens. The predicate necessarily limit the role of guardian of individual liberty to that if its citizens. Under this idea, sadly, tyranny abroad is no responsible of the state unless such tyranny clearly threatens the society which the state is answerable to.
In that sense, I am a dovish libertarians and this is how I rationalize my opposition to the invasion of Iraq by the United States and its allies. In a discourse with hawkish libertarian, I have made it clear that I have no problem with unilateralism because I firmly believe in non-aggression theorem. Aggression will be met with aggression and there is no question in that. My opposition to the invasion of Iraq is the lack of credible threat which Saddam Hussein presented to the United States or other states, not unilateralism though perhaps in the past, I have cited unilateralism as a reason.
The fact that Saddam Hussein ruled despicably over the citizens of Iraq is deplorable but it remains that well being of citizens of Iraq is not the responsibility of other states. Unless, of course, we are prepared to have a world police to preserve individual liberty all over the world.
Yet, the idea of a world police does not sound too libertarian.
I fully comprehend the moral implication of my position and the more hawkish libertarians reserve no mercy in assailing my relatively dovish position. Yet, until I have found a convincing argument for a more hawkish position, I shall remain a dove.
Before I digress further, the hijacks off the Somali waters clearly threaten individual liberty of citizens of our state. Due to the functions of government under libertarian tradition, the state has to intervene to ensure the safety of the victims, which are citizens of our state.
But, do we need the state? Why do we not just let the employer of the victims, MISC, to act deal directly with the hijackers in all the glory of Coase Theorem? In the case that MISC intends to keep this issue private, why not let it?
But does a decision of a private firm to deal with the issue directly without intervention from the state absolve the responsibility of a libertarian state to preserve the individual liberty of its citizens which are also the employees of the firm?
The whole mess could be bypassed if MISC request for aid from the state. If such request is made, then military intervention from the state will be justified.
Where does this lead?
Any military action by our state in this case may threaten the sovereignty of another state. Does this mean war?
If it is, it would be a righteous war.
Then again, would it not be silly to go to war just because of two ships?
The problem presented by this problem must truly be appreciated because acceptance of this line of thought necessarily means agreeing to various military actions around the world. Two examples would be the Turkish incursion into northern Iraq[3] and the Israeli action against Lebanon.[4] Even the United States would have ra oute to attack Pakistan in order to eliminate threats presented by Al Qaeda.[5]
We of course could request for permission to act freely but responsibility within the territory of those states but is there a government, for instance, in Somalia to start with?
The last thing we want is to get entangled in their civil war. Malaysia under a United Nations peacekeeping mission has a painful experience in Somalia and I think some Somalis would remember the Malaysian role in back in 1993.[6]
[0] — Malaysia will send two naval vessels to the Gulf of Aden after pirates hijacked two tankers operated by MISC Bhd., the country’s largest shipping line, in less than a fortnight. [No military ops yet to free crew. Bloomberg. September 3 2008]
[1] — “We sent two warships there (the Gulf of Aden) last Saturday but only to monitor the situation,” he said. [No military ops yet to free crew. The Star. September 3 2008]
[2] — “We sent two warships there (the Gulf of Aden) last Saturday but only to monitor the situation,” he said. [Najib: We need to protect four other vessels sailing in the area. The Star. September 3 2008]
[3] — ISTANBUL, Oct. 9 — Turkey took a step toward a military operation in Iraq on Tuesday, as its top political and military leaders issued a statement authorizing troops to cross the Iraq border to eliminate separatist Kurdish rebel camps in the northern region. [Turkey Authorizes Troops to Enter Iraq to Fight Rebels. New York Times. October 10 2007]
[4] — See the 2006 Lebanon War. Accessed September 3 2008.
[5] — WASHINGTON (Reuters) – Democratic presidential candidate Sen. Barack Obama said on Wednesday the United States must be willing to strike al Qaeda targets inside Pakistan, adopting a tough tone after a chief rival accused him of naivete in foreign policy. [Turkey Authorizes Troops to Enter Iraq to Fight Rebels. Reuters. August 1 2007]
[6] — See the Battle of Mogadishu at Wikipedia. Accessed September 3 2008.
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[1762] Of it is big but not that big
I like Tony Pua. And I damn love graphs. Graphs are the real reason why I picked up Economics 101 at Michigan during my freshman year. The second reason why I picked up Economics was that I wanted to help the poor (yeah, right).
When he posted a graph at his blog, I began to really like him.[1]
This is the graph and the figures are in RM billion.
Unfortunately, I spotted a problem when I checked the figures which he based his comment on: his year 2005 figure of RM89.1 billion as visible above exactly matches with the figure read by the Prime Minister in 2005. The figure for budgeted operating expenditure in 2005 as stated in the 2005 budget document is exactly RM89.1 billion.[2]
If the figures are the same, which it is, that means whatever analysis which Mr. Pua carried out fails to account for inflation.
Mr. Pua said that the budgeted operating budget has increased by approximately 189% between year 2000 and year 2008. True but only in nominal terms.
Comparison made in nominal terms is always unhelpful in times when inflation is high. Without accounting for inflation, it is really hard to know if any increase or decrease in spending is due to actual increase in quantity of goods or services (i.e. real spending) or simply an increase in price, i.e. inflation.
And thanks to Mr. Pua, I cannot continue with my readings until I know how much the Malaysian government opex has increased between year 2000 and year 2008 accounting for inflation.
Assuming inflation rate was steady at 2% for the whole period, there would have been an increase of roughly 142% only. Assuming the rate at 3%, it would have been 121%. Assuming at 4%, it would be 103%.
Below is a table which I have created to illustrate the effect of inflation on the figures as well as the increase of opex under three different inflation rates.
If you love graph, like me, here is a gift for you.
Figures are in RM billion at 2009 prices.
Lest I be misunderstood, I am not trying to defend the Barisan Nasional government. I only believe that the right perspective has to be put in place before any analysis or criticism is leveled at.
The context which to the deficit took place in has to be considered. The fact that crude oil, food as well as other commodities had become dearer as part of a larger trend has to be factored in for any of us to understand the increase. This is on top of the fact that the opex, if I am not mistaken, also included subsidies. With more expensive food, fuel and commodities, the larger would the subsidies be.
That said, the real increase is still huge and I would prefer to see a more modest opex. I am unsure how much of those increase is attributed to leakage and corruption but I think removal of subsidies would help a lot in slowing down the bludgeoning opex.
Finally, Mr. Pua said:
This rapid expansion of operational expenditure has deprived the country of sizeable funds for development expenditure which has greater economic multiplier effects.
Multiplier effects, sir?
Come back to the light, sir!
[1] — [Budget 2009: Skyrocketing Operational Expenditure. Philosophy Politics Economics. September 2 2008]
[2] — 13. To implement the above strategies, the Government proposes an amount of RM117.4 billion be appropriated in 2005 Budget. With revenue estimated at RM99.2 billion, the overall Federal Government deficit is expected to be reduced to 3.8 percent of GDP. Of this, RM89.1 billion or 75.9 percent is for Operating Expenditure and RM28.3 billion for Development Expenditure. [The 2005 Budget Speech. Office of the Prime Minister of Malaysia. September 10 2005]