Category: Economics

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Economics

[876] Of the independence of Bank Negara

After running through the 2007 Malaysian budget earlier, I’d like to touch on an issue and it concerns Bank Negara. Bank Negara is of course the Malaysian central bank. In the budget tabled last Friday, the Prime Minister announced that Bank Negara will establish a fund worth MYR 200 million to invest in “integrated agriculture and livestock projects”. I’m shocked to find out that Bank Negara is getting itself involved in agriculture!

Before I go on, I want to clarify that I’m neutral on the current administration’s stress on agriculture. Despite all the political gimmicks, I do see the rationale behind the stress on agriculture. Malaysian economy after all is undergoing structural shift and there’s a need to reassess its bases. Malaysia at the very least need to find the sectors that it has comparative advantage in as our regional competititors are outdoing us. I myself — perhaps due to the limits of my knowledge — am not confident enough to say which sectors Malaysia look into.

Nevertheless, having Bank Negara involved in agriculture is another story altogether. I’m not sure if this is the first time ever the central bank has seriously ventured outside the area of central banking but in my short term memory, this is certainly the first.

Bank Negara is first and foremost a central bank. Therefore, it should act as a central bank. Its business is central banking. It should only focus on monetary policies.

I don’t know if this is an outside-the-box thinking by the government but why couldn’t the existing Bank Pertanian — the main function of Bank Pertanian after all is promoting development of the agriculture in the country — take the job instead?

It does seem to me that Bank Negara is being used by the Prime Minister to advance his political agenda, for better or for worse. Even if that isn’t true, this venture into agriculture is not part of monetary policies and thus, not the responsibility of the central bank. This agricultural venture could distract the central bank from its real responsibilities.

More importantly, through my eyes, Bank Negara doesn’t have the independence that it needs to operate as a central bank. With the lack of independence, imagine if the executive branch of the government suddenly found out that it ran out of cash and decided to resort to seignorage?

Categories
Economics Politics & government

[872] Of bye bye Chad, hello Venezuela

It’s likely that many Malaysians and others have already read that Petronas – the giant Malaysian state-owned oil and gas company – has been kicked out of Chad. In a rather suspicious way too. The Chadian president alleges that Petronas fails to pay taxes to the Chadian government. After doing some reading, I feel the expulsion of Petronas is an exercise by Chad to forcefully nationalize part of Chadian oil and gas industry. That taxes stuff is simply a red-herring:

The surprise move followed Chad’s decision to create a new national oil company, which it said should become a partner in the country’s existing oil-producing consortium, led by U.S. major Exxon Mobil and including Chevron and Petronas.

If you’re a Malaysian and you haven’t heard of the expulsion, then you’re probably too busy talking about a wedding between a Malaysian pop star and er, somebody.

Interestingly, the People’s Republic of China seems to have a hand on the Malaysian explusion given that the PRC stands to directly benefit from Malaysian loss. So, it’s kind of hard to shrug off the idea that the PRC might have a hand on this.

Whatever PRC role in this expulsion is, if Petronas is kicked out, Chad is stealing from Malaysian citizens. But then, given the fact that Chad was the world’s most corrupt nation according to Transparency International last year, we should have seen this coming.

While that happens, here comes Hugo Chavez to the rescue:

KUALA LUMPUR: Venezuelan President Hugo Chavez received a red-carpet welcome in Malaysia on Monday ahead of talks expected to focus on politics in the Middle East and cooperation in the oil and gas sector.

Socialist or not, black gold is still black gold. I’m sure even commies understand what that means.

Who needs Chad, eh?

Welcome Hugo Chavez.

Categories
Economics Environment

[864] Of Coase theorem and global warming

Global warming deniers have lost the debate. However, recognizing the problem and arresting it are two different things . An article by Sunstein at WaPo talks on one of the obstacles of combating global warming:

The obstacle stems from the unusual incentives of the United States and China. As the world’s leading contributors to climate change, these are the two countries that would have to bear the lion’s share of the cost of greenhouse gas reductions. At the same time, they are both expected to suffer less than many other nations from climate change — and thus are less motivated to do something about it. And while the international spotlight has rightly been on the behavior of the United States, China will soon present the more serious problem.

This is of course, like what Prof. Mankiw said, is relevant to the Coase Theorem. Coase Theorem is also related to the transboundary haze in Southeast Asia.

Categories
Economics Politics & government

[858] Of minimum wage and unemployment rate debate in Malaysia

According to the New Straits Times on August 9, there’s a plan to introduce minimum wage “for three categories of workers“.

KUALA LUMPUR: Minimum wages are on the horizon for three categories of workers, a little over 25 years after the initial attempt failed largely due to flaws in the system.

A total of 250,000 private security guards, private clinic assistants and casual farm workers will soon be the first people in the country to enjoy a minimum wage.

If all goes well, they are expected to take home guaranteed monthly wages by the end of the year.

The article focuses on the benefits of minimum wage but it fails to be neutral by highlighting the other side of the coin. The article in fact only quotes bodies and individuals that are for minimum wage – labor unions and politician within a government that already have strong interventionist tendency. Therefore, allow me do a public service by raising the ugly side of minimum wage.

In a free market, prices and wages – for the sake of simplicity, let’s call prices and wages as simply prices – are the points where demand and supply coincide. That prices are at equilibrium. If we impose a price ceiling below the equilibrium prices, according to the law of supply and demand, supply will decrease while demand will increase. Artificial shortage will occur and this describes the current artificial sugar shortage in Malaysia. If the ceiling is above equilibrium prices, chances are, nothing will happen as the ceiling doesn’t affect the market. Remember, price ceiling simply means the “less or equal than” operator.

Price floor on the other hand is the “more or equal than” operator. So, if we impose price floor below the equilibrium points, nothing will happen because the restriction doesn’t affect the point itself. However, an introduction of price floor above free market prices will artificially decrease demand and increase supply. This last scenario is very relevant to minimum wage.

In other word, less employers will want to employ more workers while more employees will want to work. Hence, higher unemployment rate, ceteris paribus .

There are already talks of high unemployment among Malaysian youth. Despite that, unemployment rate of Malaysia as of the first quarter of 2006 is 3.8 according to Malaysia Department of Statistics, which is quite respectable in my opinion. Germany and France are used to around 10% unemployment rate while the US and most European nations currently suffer above 5%. Regionally, Brunei has 4.8% (2004), Cambodia 2.5% (2000), Indonesia 11.8%, Laos 2.4%, Myanmar 5.0%, Singapore 3.4 (2005 by Singapore Department of Statistics) and Thailand suffers 1.8% unemployment rate according to 2005 The World Factbook by CIA.

As for me, I oppose minimum wage. I prefer the market to decide on it, as long as market failure doesn’t occur.

Regardless of what I think, the introduction of minimum wage will reignite public discourse in youth unemployment as unemployment as a whole will go up with imposition of minimum wage above equilibrium wage.

Categories
Economics Liberty

[856] Of censorship of blogs and its possible impact on web hosting industry

I bought a hosting plan from a Malaysian web host provider a year ago and it’s going to end later this month. I don’t plan on quitting blogging any time soon. Furthermore, I’m pretty much happy with the current service that I’m receiving; I don’t have too much complaint against my provider. So, it makes sense for me to renew my contract with them. However, with talk of censorship of blogs abound, I’m having a second thought; I’m thinking of relocating my server out of Malaysia.

As I’ve said again and again, I’d like to recognize myself as a libertarian. I hold liberty close to my heart. I will disagree to any infringement of my liberty and censorship is an infringement of my liberty. Therefore, it’s only natural for me to scorn the idea of censoring of any kind.

If the Malaysian government is going to censor blog, I’d like to preserve my liberty. It seems to me that the easiest way to preserve my liberty is to move my server out of the Malaysian authority’s sphere of influence. That means moving my server out of Malaysia and thus physically removed the threat of censorship off me. Australia sounds like a good country where free speech is relatively guaranteed. They speak English – well, sort of – and the time difference between Malaysia and Australia isn’t too perturbing.

I’m sure I wouldn’t be the only person in Malaysia to think of this. I’m sure if censorship of blog becomes a reality in Malaysia, many would move their server out of Malaysia. This would mean, less business for Malaysian web hosting providers.

What I’m trying to say is that censorship of blogs would hurt Malaysian web hosting industry with all else being equal. Government intervention would reduce the growth and probably the size of the industry .