Category: Politics & government

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Economics Politics & government

[2940] Immediate fiscal agenda for the new (old) government

The next finance minister is unlikely to be thinking too far ahead since election is just less than 2 years away. It is short time to set any long-term agenda. There will not be enough time for learning and there will not be enough to start implementing. For the most parts, the new finance minister will likely be carrying on with established policy until the general election is called. Even if he or she dares introduce new long-term measures, there is a good chance it would be overturned once a new minister takes the Level 12 office in the Treasury Building in Putrajaya after the election.

Nevertheless, given the situation we as a country are in, the 2-year period is important. I think there are two items of concern during this period that could affect the long-term fiscal policy of the country:

  1. The 2023 fiscal cliff
  2. Fiscal consolidation.

The Perikatan Nasional government that Umno was committed to a quick fiscal consolidation exercise that necessitates a 2023 fiscal cliff and I think there is a question whether the same policy would be taken up.

What is the 2023 fiscal cliff?

To handle the Covid-19 crisis, the government changed certain law that allowed it to practically have a current deficit. Without the changes, the government’s current balance must always be in surplus, or in balance. In other words, total revenue must exceed all operating expenditure. Here is a restatement of: the government can only borrow for investment purposes (or in public sector jargon, development expenditure).

More specifically, the government created a Covid-19 fund that officially neither operating or development expenditure (but in fact, mostly operating expenditure). It was a necessary accounting trick that bends the law. Revenue dropped substantially during 2020 and 2021 relative to previous immediate years, while the need for spending rose dramatically. If the laws were not changed, we would have faced a worse version of this already bad recession. Even so, actual spending done was insufficient (the comic I drew below) due to the then policymakers’ naïve belief in V-shape recovery, and failure to adopt precautionary approach. This was the costly mistake of Budget 2021.

This fund is set to expire on December 31 2022. Upon expiry, the normal way of doing things—current balance cannot in deficit—becomes the rule again. This means any borrowing must be repaid (or from what I am seeing, I suspect it would be absorbed into development fund despite a large chunk of it is not developmental in nature. The 2020-2021 RM21 billion drop in Covid-19 is almost as large as the sudden RM19 billion increase in the corresponding development expenditure).

Based on Ministry of Finance publication, the fund had RM17 billion in it as of end-June 2021. It is likely higher given additional spending announcement made during the quarter. Expiry would mean (assuming it is not reclassified lock, stock and barrel as development expenditure) paying off that RM17 billion to meet the current balance requirement. It could also mean a percentage point worth of government spending unmade if it is paid off. That RM17 billion is roughly equivalent to a percentage point of 2021 deficit ratio.

So, if the fund expires in 2022 and the borrowing gets paid off (instead of reclassified as development expenditure), there will be a fiscal cliff: a stark drop in spending, which would take some steam off GDP growth, and more importantly, recovery.

Remember, economic recovery is not merely about growing again after a recession. Neither is it just about returning to pre-crisis level (which by the way, we are a risk of not doing so in 2021). A comprehensive recovery is one where current level would match the level it would be if no crisis had happened. Our insufficient spending had left the gap big, and catching up with that pre-crisis level and trend is hard.

Inappropriate time for fiscal consolidation

This is on top of fiscal deficit-to-NGDP ratio that the government might target. It is unclear now what the deficit ratio target is. Former Finance Minister Zafrul Abdul Aziz had stated that the figure for 2021 after accounting additional unplanned Covid-19 spending could rise to 6.5%-7.0% of NGDP, from the unrealistic Budget 2021 projection of 5.4%. It is unclear if this accounts for lower-than-expected GDP growth. If it does not, it will go higher.

If the new government (if it could be called new given the composition is… the same) insists on fiscal consolidation still, there will be pressure to let the Covid-19 fund expire while cutting services to keep spending under control.

Two immediate agenda for the next finance minister

Malaysia is clearly behind the curve by a big margin in terms of economic recovery. Getting recovery on track is the immediate concern. Unfortunately, as much as I hate to say it, the government is likely the main driver of growth in these times.

The government can start playing that role properly by first, extending the expiring date for Covid-19 fund and second, postponing any fiscal consolidation exercise. The second can be done by maintaining deficit ratio high, possibly in the range of 6%-8% in the next several years.

Ideally, this should followed by a long-term agenda of tax reform to increase government revenue, which the Pakatan Harapan government, and the previous Perikatan Nasional government, as I understand it, was willing to go ahead with parts of it.

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Politics & government Society

[2939] A unity government is a chance to rebuild trust among Malaysians

I prefer Pakatan Harapan to be the federal government. The 2018 general election gave the coalition the democratic mandate to be so, and there are plenty of reforms left to the completed. I know many are disappointed with the pace of reforms under the previous Pakatan government, as well as the incessant infighting. But as far as reforms are concerned, it is a long term project. It definitely cannot be done within less than two years. To expect so is naïve and unrealistic.

But my preference is an ideal, which must face the unattractive options in the real world. Realistically, only an election would reshuffle the deck, and allow Malaysia to start afresh. But a general election is out of the question for now. We have to live with our bad hands, instead of insisting of holding the cards that we do not have.

The red line

The likeliest of all options on the table seems to suggest Umno back at the driving seat. Meanwhile, Pakatan lacks the seats to form the government, and an earlier option of that happening one involving working with the criminals of 1MDB. Both options push up the possibilities of 1MDB criminals and their collaborators escaping justice. That is the red line for me.

Yet, Umno’s road to the Prime Minister’s Office is not as smooth as initially expected, with Bersatu imposing conditions, which dissatisfied the Agong. That happened today or yesterday. The condition Bersatu imposes is the same red line I have: no Najib and his merrymen.

Given the political impasse (and before it gets solved with Najib as part of the power broker), the anti-1MDB force from Pakatan and all other sides should come together as a unity government. That unity government would have access to the best talent among the 220 Members of Parliament (there are few despite the big number) while locking out 1MDB men from power.

The additional benefit of unity government is a chance to rebuild trust among Malaysians, which is the reason I am writing this post.

Political elites, groups and values

When we discuss contemporary Malaysian politics, inevitably there will be a charge, with a resignation tone, that the political elites are serving their interest alone.

That is hard to deny, but it is an incomplete assessment of the situation. The truth is, the political elites do represent groups holding on to certain values. We live in a representative democracy, however imperfect it is.

These values differ across groups: upper middle-class urbanites in general hold on to certain values (and interests) they do not share with low-income Malaysians. There are other dimensions to consider: religion, ethnicity, geography, class, etc.

So, political elites are manifestation of the masses.

Distrust among us

We are at the point where trust between these groups is low. It has been low for a long time, and it interacts with other factors like our trsut in our institutions. The trust deficit in our institutions, I would argue, is partly due to lack of trust among us (I would like to add that I am writing a book and a chapter of the book explains this is greater detail).

There is a metric we could use to understand the state of trust in our society. The World Values Survey has a set of questions assessing trust level in a society, and it has been measuring Malaysian level since the 2000s. Well, three times: 2006, 2012 and 2018.

One out of several relevant questions has it, “would you say most people can be trusted?”

The question approximates trust level in Malaysia. In 2006 and 2012, about 9% of Malaysian respondents answered yes in both years. In 2018, it rose to 20% but there is every reason to believe post-election euphoria had a role in pushing the rate up. Regardless, the suddent jump, that is a pretty low percentage. In other countries as recorded in the 2018 edition, the rates typically fell in the 30%-60% range. In Thailand, 29%. In Singapore, 34%. In Japan, 34% too. In the United States, 37%. In Sweden, 63%.

There are of course other countries with even lower trust than Malaysia, but that should not be our goal.

An avenue to rebuild trust

With that in mind, and that the political elites (more specifically, Members of Parliament) representing groups of different values, a unity government here is chance to bridge the gap between different Malaysian groups.

Theoretically, a unity government should bring about a more cooperative environment to groups at loggerheads.

Yet, I am under no illusion such unity government would work in such a way. The gap seems wide that it that building a bridge sounds like a hopeless exercise. Yet, we have to at least try to rebuild that trust. And a unity government provides such opportunity under a democratic system, however low the odds are.

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Conflict & disaster Personal Politics & government

[2938] From political to personal

Favored mindless slogan among Pas, Bersatu and Umno members and supporters early during the incompetent handling of the pandemic had something to do with politics. Despite the deeply political nature of the whole situation, they would say “jangan berpolitik.” That roughly translates into “don’t politicize the issue.” Do not politicize Covid-19. Do not politicize the handling.

They repeat the phrase while politicking, and eventually causing the state-wide Sabah by-election. Coupled with uneven enforcement of physical distancing, we are here today: a nearly collapsed healthcare system and continuing rising number of infection cases.

Failures in managing the case, and actions worsening the situation persisted, amid the mindless slogan: don’t politicize the issue.

Hafiz Noor Shams. Some rights reserved

My grandmother died in her bed six days ago, a day before Eid. Initially, everybody thought she died of old age. She died in her sleep. Her death was shocking, but she was old. And she had a good life.

Post-mortem at the hospital revealed she had Covid-19.

She was unvaccinated. I am unsure why. I am just angry.

I could not go to her burial. I have not met her for nearly two years. No, too late. I had not met her.

Hafiz Noor Shams. Some rights reserved

Five days after her death, I received by second Covid-19 vaccine jab. A slot I had to fight for. Such an inequity, created by an unscientific hunch.

Hafiz Noor Shams. Some rights reserved

I am sure my experience is not unique. With nearly 8,000 deaths and counting, everybody must have known somebody who has died.
I wonder how they feel. Do they feel all those incompetence, mismanagement and failures political? Is 3-day quarantine political?

Is death of a family member political? Or is it personal, meant to be grieved privately?

Are these killings political, or are they a private matter?

Hafiz Noor Shams. Some rights reserved

It must be politicized. It is the only way to make irresponsible, incompetent and unaccountable men and women of this government accountable.

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Politics & government Society

[2929] Malaysian democracy dies and we forgot to mourn it

In 2017, political scientist Thomas Pepinsky claimed that life in authoritarian states was mostly boring and tolerable (that is tolerated by the people). He cited Malaysia where life was quite normal, despite it being an undemocratic country and mildly authoritarian. But his audience were not Malaysians, but Americans, many of whom found themselves in opposition to Trump and his illiberalism.

Pepinsky argued authoritarian states did not necessarily mean “jackbooted thugs, all-powerful elites acting with impunity, poverty and desperate hardship for everyone else, strict controls on political expression and mobilization, and a dictator who spends his time ordering the murder or disappearance of his opponents using an effective and wholly compliant security apparatus.” Life on the ground in such a state could be indifferentiable from a democracy of comparable economic development.

He was not defending authoritarianism. Instead he was warning that authoritarianism arrived more subtly that most people realized. It does not come with a bang. He wrote:

It is possible to read what I’ve written here as a defense of authoritarianism, or as a dismissal of democracy. But my message is the exact opposite. The fantasy of authoritarianism distracts Americans from the mundane ways in which the mechanisms of political competition and checks and balances can erode. Democracy has not survived because the alternatives are acutely horrible, and if it ends, it will not end in a bang. [Thomas Pepinsky. Life in authoritarian states is mostly boring and tolerable. Vox. January 9 2017]

Forward 4 years later, Malaysia has lost its democracy and we are now ruled by a dictator.

When Prime Minister Muhyiddin Yassin and his allies in 2020 wrested power from the victors of the 2018 Malaysian General Election without going through any election, his action arguably was still done within the gray ambit of democratic practices. Gray because of the 2009 mistake that began in Perak legitimizes an obscure process of selecting a government over the usual transparent process of letting the contenders prove their support in the Dewan Rakyat. The same untransparent process contributes to or exacerbates the political instability that we suffer today.

Muhyiddin’s government was never stable from the get-go. Now when it became clear he did not have the majority needed to remain in government, he carried out a self-coup through the declaration of emergency. The excuse was the COVID-19 pandemic but we know he was just pulling the wool over our eyes. As if giving more power to a government that mismanaged the pandemic was a good idea. More will die sadly. In a better situation, we would be replacing this incompetent Cabinet with one of better caliber.

That self-coup has firmly placed this government into the realm of authoritarianism. The Prime Minister is the Dictator of Malaysia. There is no democratic mandate to speak of anymore. There is only the will of the Dictator Muhyiddin Yassin.

And that happens without loud protestation.

The pandemic is to blame no doubt. Perhaps the economic devastation worsened by this government’s complete incompetency is sapping energy away from the population. Perhaps they are tired of the failure of the Pakatan Harapan and their allies in opposition to do what was right back in November during the tabling of the 2021 Budget. The failure and disillusion breed ambivalence. Everybody is tired of the national political chaos.

All that leads to us tolerating authoritarianism. This is more so when the Dictator defends his self-coup by stating life will go on as normal, however disingenuous that sounds. The Dictator is telling us authoritarianism is tolerable.

Such a disappointment.

Categories
Politics & government

[2928] Rationalizing the camps in Umno

I had a conversation yesterday, where we tried to make sense of the political situation in Malaysia. It is a confusion situation all-around and the intricacies could only be understood by understanding the disputes in Umno, the one of the major sources of instability in Malaysia.

A systematic way to understand the troubles within the party is to ask two questions:

  • One, do they want Zahid to remain as the party president?
  • Two, do they want to remain part of Muhyiddin’s government?

The combination of the answers provides a clean division of the camps in Umno. See the graphics below:

Theoretically, there should be 4 camps.

But realistically, there are 3 camps only. This is because if a person prefers Zahid to remain as the party president, chances they would parrot his position. That means if they said yes to Zahid, it is likely they would also want out of Muhyiddin government. To signify that, I have struck one of the boxes out.

The 3 camps are:

  • Najib-Zahid camp (Yes to Zahid but no to Muhyiddin). This is the camp suffering from multiple corruption charges.
  • Hishammuddin camp (No-Yes). Hishammudin was one of the Sheraton Move architects.
  • Tengku Razaleigh camp (No-No). Possibly the weakest camp among the three.

The names listed might be inaccurate because it is based on my readings and possibly their sentiment as reported in the press.

Additionally, there are names I put in the unknown brackets, but if the questions are right, then they would eventually be pigeonholed into a camp once the time comes.

And clearly from the chart, it is not exhaustive. It is difficult to know beyond the top names who sits where. This is especially when some of these people like Noraini Ahmad and Zahida Zarik Khan seem awfully quiet, and in some ways irrelevant despite being part of the party leadership.

Finally, some people in DAP have told me it is all about power (who has what and those without are making noises). However when I look at the problem closely, it is a bit hard to systematically rationalize the division through “power.” “Power” does not reveal the camps as clearly as it should. Nevertheless, it is difficult to dismiss “power” as a factor. It might very well be an underlying dimension beneath the two questions I am proposing for benchmarking purposes.