Harun al-Rashid, the celebrated ruler who appears in the Tales of a Thousand and One Nights, reigned over an immense empire that stretched right across the Middle East and into Asia. He also won renown as poet and a lover of scholarship. When he was declared Caliph, Harun opened the treasury and distributed prizes to his friends and relatives. He hoped to receive a visit from Sufyan, his former teacher. When Sufyan failed to appear he wrote him a letter and sent a messenger named Abbad to deliver it. Abbad found Sufyan sitting with his companions inside a mosque. When he presented him with the letter Sufyan refused to touch it and instead asked one of his companions to read it for him. The letter said: ‘We await your coming to visit us; we are mindful of the friendship that binds us.’
Sufyan said to his companions: ‘Write my answer on the back of the letter.’ his disciples said, ‘Master you must write to him on a fresh sheet.’ ‘On the back of the sheet,’ he said again. he then dictated the following words: ‘To Harun the misguided, deprived of the sweetness of the Koran. You have opened the treasury of the believers and distributed its funds to gratify your desires. Have you asked permission of the widows and the orphans?’ and so on in this manner, concluding: ‘as for friendship, we have broken it off; no tie or affection binds us now. Do not write to us again; for if you do, we shall neither read your letter nor reply to it.’
After seeing this, Abbad went to the market, where he replaced his clothing with cheaper clothes. When he returned with the letter to al-Rashid, the Caliph understood the meaning of Abbad’s change of appearance and cried out, ‘The messenger has succeeded where his master has failed.’ When the Caliph read it he burst into tears and wept in the most piteous fashion. His courtiers said, ‘Sufyan has demonstrated his impertinence; have someone fetch him here.’ ‘Silence,’ said al-Rashid, ‘ for you are the ones who have misguided me.’ Harun preserved Sufyan’s letter and would take it out from time to time to read it. [Page 43-44. Chapter 4: The Servant State. Good and Bad Power: The Ideals and Betrayals of Government. Geoff Mulgan]
Category: Economics
There are a lot of things to be optimistic about. The recent increased in Malaysian net exports however is not one of them.
The increase is due to fallen imports. That is generally bad and especially so within Malaysian context. So, I will find my blood pressure spikes slightly whenever I read in the news and other writing of a slew of bad things only to read a negating adverb like, ‘however’, ‘nevertheless’, ‘nonetheless’, etc. to introduce the fact that net exports increased due to fallen imports. And it really pains me to see words like ‘fortunately’. There is nothing fortunate about it for heaven’s sake, unless you are a some kind of neo-mercantilists.
Why is it bad?
In the accounting of gross national product, the component imports is subtracted from exports because it is redundant to another component that is consumption. Imported goods, with the exception of intermediary goods which are meant to be reexported, are consumed locally.
For the reexported goods, it would be reflected in the exports component. For the imported and locally consumed goods, it will be reflected in the consumption component.
For the sake of clarity, the simple form of GDP is Gross Domestic Product = (Consumption + Investment + Government Spending + Net Exports), where Net Exports = (Exports – Imports).
Increased net exports due to lower imports, means consumption is suffering. That cannot be good for the economy, with all else being equal.
Ladies and gentlemen,
The most anticipated report of the year has come out. Before you can read them, below is one of the conditions which you must adhere to:
You are not authorised to use or rely on the Report to arrive at any conclusion [PKA Report. PricewaterhouseCoopers Advisory Services Sdn Bhd. Accessed on May 28 2009]
PwC (or is it PKA), can you go to hell please?
Whatever the results may be for the gross domestic product growth rate for the first quarter of the year, let us be clear about one thing. The two fiscal stimulus packages have only insignificant impact, if not at all, to Malaysian economy in that period.
Any effort to paint the stimulus packages as having helped to cushion the impact economic slowdown we saw in the first quarter should be received with extreme skepticism.
One has to remember that, while the first fiscal stimulus package was announced by the Abdullah administration in November 2008, there was no real spending done even as February 2009 passed us by with the speed of a tortoise. The government at that time was still scrambling to distribute money to various ministries and not actually spending it.
This has been admitted by the Second Finance Minister himself. In early March, he was reported as saying that barely half a billion ringgit from a total of RM7 billion had been spent.
Two months later — by May 12 2009 — according to a website established by the Treasury to inform the public of the status of the two stimulus packages, only a further quarter billion ringgit was spent from the RM7 billion.
Given the horrifying demand gap caused by weakened external demand, actual spending derived from the first fiscal stimulus is very much irrelevant to the GDP growth figure for the first quarter of the year.
If one insists that the RM750 million did cushion the fall that certain Ministers claimed it would earlier in the year, perhaps I am obliged to share the following analogy: it is only akin to preparing a mattress on the ground with the intention of saving a person who has just jumped off from level 88.
One also has to remember that the second, much larger, stimulus package was only announced on March 10 2009, which was already close to the end of the first quarter. Furthermore, it is impossible to believe that the second stimulus package came into effect immediately, especially accounting for the kind of lag suffered by the first stimulus package.
How much of the second stimulus worth RM15 billion of government spending has been spent is unclear. The same website commissioned by the Treasury is coy about divulging the same information it shares when it comes to the RM7 billion stimulus package. Nevertheless, experience tells us to be rational and not to expect too much.
Consider this: if the government faces trouble in spending RM7 billion even after approximately 7 months have passed, how exactly does one expect the government to spend another RM15 billion within just over 2 months?
That skepticism should be strengthened further with the knowledge that the government only began to borrow massively in April. We know that the second fiscal stimulus needs to be financed through borrowings. And we know that April is not part of the first quarter.
The best hope of making the second stimulus relevant is the RM3 billion tax cuts as well as the loan guarantees attached to the second fiscal stimulus, or the mini-budget in the language of the government. Alas, information about that is not so forthcoming for us to move beyond mere speculation.
Hence, the effect of tax cuts and guarantees notwithstanding, the effect of the two government spending-based stimulus packages has to be largely discounted if we are interested in explaining the results of the first quarter for the year 2009.
What might make the two stimulus packages all the more irrelevant is the manner which the economy behaved in the first quarter. While the jury is no doubt still out there, early indications do not bode well for proponents of government spending as the heart of fiscal stimulus.
The reason is that the economy — as indicated by various indicators — is arguably performing better with each passing month since January, on the margin. It is better in a sense it has been less bad than before; to be precise, the change of sign of the second derivative.
This happens in spite of the lack of significant interference in the economic cycle as planned by the two fiscal stimuli. The significance of this is that it may prove to those who lack confidence in the market that the economy does not desperately need government spending. This also provides a damning evident that we do not need a third stimulus package at all.
So far, the best factor to explain possible turning of the economy may be the very factor that brought the economy to a tailspin in the first place: external demand.
It is hard to resist connecting the improved local condition with the health of the blessed Chinese economy. Even in the US — another major destination for Malaysian goods — talks of green shoots are aplenty.
If the trend continues, we may see a bottoming out soon enough even without additional government spending as allocated by the two fiscal stimuli. Indeed, the chances that the economy gets better before the full effect of the stimulus packages kick in are becoming brighter now than anytime before.
As it may turn out, the billions of ringgit of government spending may only increase our public debts. That will increase the cost of borrowing in the future and possibly later, the imposition of higher taxes for all, on average.
First published in The Malaysian Insider on May 26 2009.
Visiting the shopping malls of Kuala Lumpur can be a confusing experience. It is always full of happy people with friends and lovers. And probably businesspeople with their clients too.
As I patiently await my opportunity to take a break from this crazy country, I find myself with an employment that is physically located close to Midvalley Megamall, one of the largest shopping malls in Malaysia. This means I visit the mall on every working day.
I do not notice any let up on visitors to the malls. Amid talks of pessimism regarding the economy and ugly reports, the shopping does not seem to relent.
Perhaps, Midvalley Megamall is an aberration, filled with those belonging to a certain class that is by and large not affected by the economic pain even as experts are predicting that the economy could suffer as much as 4% contraction for the first quarter of 2009. After all, the main victims of the ongoing economic slowdown are those from the manufacturing sector. Most frequenting the mall do not seem to belong to the manufacturing sector.
But I can never be sure without data. It could be that I am looking for pattern that I want to see, even if it is not there.
The Department of Statistics today confirms that the trend in Midvalley Megamall is neither aberration nor isolated. I am not dreaming. Based on year-on-year comparison, the retail trade sector actually grew by almost 8%, in defiance of other sectors.
RETAIL TRADE
1. Sales Value
The retail trade sub-sector posted an increase of 7.8 per cent from the comparative quarter of the previous year. The main catalyst was the group of non-specialised retail trade in stores (such as department stores and supermarket including hypermarket) which registered a double-digit growth of 44.4 per cent and retail sale of food, beverages and tobacco in specialized stores of 16.2 per cent. On a quarterly basis, this sub-sector contracted 1.3 per cent.
2. Employment and Salaries & Wages
The number of persons engaged rose 8.4 per cent from a year ago followed by a 9.9 per cent expansion in salaries & wages paid out. A marginal increase of 0.7 per cent in the number of persons engaged and a 3.3 per cent in the salaries & wages was recorded quarter-on-quarter. [Distribution Trades First Quarter 2009. Department of Statistics. May 26 2009]
I think the growth is likely caused by MNC hypermarket retailers’ aggressive expansion nationwide. As a person once employed in the supply chain industry, I can say with certainty that that expansion is true. The expansion of TESCO for instance and especially, was amazing. Their latest expansion plan includes a superlarge distribution center in Bukit Beruntung.
Indeed, the retail sector has been the most impressive and resilient sector so far. In the fourth quarter of 2008, it grew by over 15% based on year-on-year comparison.
It is true that based on quarter-on-quarter comparison, there is a decline but I think that is mostly due to seasonal effect.
It might have been likely that if there was no expansion, there might be a contract in the retail sector. Expansion in a way opens new market. This expansion may have overwhelm any reduction of sales faced by pre-existing outlets. In any case, this raises two questions: if the expansion factor is controlled for, would the retail sector suffer a decline in line with other sectors? Given the expansion, how good is the retail sector — which typically a good barometer of the real economy — in being an indicator of the real economy?
Regardless, that however does not explain Midvalley Megamall still. Perhaps, like I have mentioned above, class of profession plays a large factor as far as Midvalley Megamall is concerned, thus helping the sector to continue to grow in spite of the environment.