Categories
Economics

[1798] Of a case against pegging the ringgit

Any policy which pays too much attention to the symptoms of an issue while ignoring its root cause only deserves outright rejection. The Malaysian government’s typical response to shortage of goods is one such policy. The shortage is unambiguously caused by a price and supply control mechanism, which prevents prices from adjusting according to prevailing supply and demand, as well as incorporating other relevant information. Yet, time and again, the authorities blame smugglers for the problem. Not that smugglers deserve any defending, but they are but a mere symptom of a control regime. Addressing a symptom is an ineffective way of solving a problem. Another policy which conflates symptoms with root cause is the pegging of the Malaysian ringgit to some currencies.

The rationale of the proposed policy is simple: It is aimed to stop the ringgit from weakening further vis-à-vis other currencies.

The root cause of a weakening ringgit is the economy itself. Although I am unable to exactly pinpoint the causes, I do have a list of suspects and three of them are political uncertainty, fiscal deficit and windfall tax.

The political uncertainty which we are experiencing so far has a lot to do with it. After all, Credit Suisse did advise investors to stay clear of Malaysia due to the political turmoil. Apart from Pakatan Rakyat’s increasingly tiring poker face with respect to their claim of entering Putrajaya, the recent use of ISA continues to send unhelpful signals to local and foreign investors. As a result, money flows out.

The fiscal deficit of the Malaysian government is yet another factor which may encourage capital outflow. Several economists, among them Salant and Krugman, did suggest that persistent deficit may cause capital flight.

This happened to the Indonesian rupiah several years ago as the size of the fuel subsidy ballooned into the Indonesian fiscal deficit. The rupiah dropped to a frightening level and it only recovered after the Indonesian government decided to dramatically cut the size of the fuel subsidy. Unrest ensued, but in the eyes of advocates of the peg, the rupiah was saved.

Another reason for the lackluster performance of the ringgit might be the imposition of the windfall tax. Earlier, the government imposed significant windfall tax on independent power producers. The imposition is no laughing matter because approximately a fifth of the local bond market is made up of papers issued by the power producers.

Such a tax naturally spooked the bond market, shooing investors away together with their money. In the typical fashion of the current administration, however, the windfall tax was scrapped and replaced with something else. While the U-turn was celebrated, the damage had already been done.

Indeed, Malaysia is not the only destination for investment. Once the money is out, there is little reason for it to come back, especially when there are far better options out there. The financial fortresses of Singapore and Hong Kong are not too far away, if distance is an issue at all in this age of light speed communication.

All of the factors need to be addressed if the strength of the ringgit is an issue. A peg, however, does little to address these issues.

A peg basically acts like a wall. Unless the push factors are addressed, pressure against the wall would build up and it would depend on the strength of the wall to prevent a terrible flood. That wall is the reserve of the central bank.

In the case of the peg, the central bank would have to maintain a position with respect to the currencies which the ringgit is pegged against. In times of a weakening ringgit, the bank would need to shore the ringgit up to the predetermined level by reducing the quantity of money circulated in the market. In effect, this would raise interest rates.

During a period of economic crisis, it is typical for a central bank to lower the interest rates by providing liquidity to promote growth in general, or at least to cushion the effect of a downturn. A peg, however, does exactly the opposite.

Borrowing will become more expensive and create an environment not conducive for greater economic activities, with all else being equal. Whereas consumption is required to fuel a flattering economy, a signal for greater savings and delayed investment is sent instead.

Increased savings will, of course, bring the interest rates back down if it gets to the necessary level, but by the time that happens, the economy would probably find itself in better health, removing the urgency for greater consumption.

Besides, a peg assumes that a particular level or band of ringgit vis-à-vis some currencies is more favorable than any other for everybody on average. Though mainstream economics has been accused of simplifying the world through its models, this assumption goes frighteningly further by committing a hasty generalization.

An economy does not comprise of homogeneous members. A strong currency is not necessarily good for everybody just as a weak currency is not necessarily good at all. Exporters for instance would love a relatively weak currency while importers would love a strong currency. It really depends on which side one is on.

The best way to balance the competing demands of various players within the economy is to allow the market to consider all variables to churn out the right answer. Within this context, Governor Zeti Akhtar Aziz rightly dismissed the call to peg the ringgit to the dollar or any other currencies.

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 published in The Malaysian Insider.

Categories
Economics

[1797] Of good intention is not good enough

Long ago as a boy so liberated from cares, I was on my way back home from school. Along the way, I saw a kitten looking so forlornly in a bush with a face so miserable as if she was in need of help. Without much thought, I took her home with the intention of nourishing her. Once home however, she refused to consume anything provided to her and went on to die only days later. Her death shattered my heart into pieces. In retrospect, she may not have required any saving. What she probably needed was her mother more than anything else. It was very likely that her mother was scouring for food somewhere, leaving the kitten temporarily behind. In most likelihood, despite my good intention, I separated the kitten from her mother and consequently, I killed her.

I am sure that my experience is not unique. How many of us had the good intention of giving up our seat in a train to someone whom seemed to be a pregnant lady only later to learn that she was not in the most embarrassing manner? How many of us began with good intention but ended up worse off?

Many of the policies aimed at enhancing welfare of the people began with good intention. As noble as it sounds, good intention is not always a good measure for a good policy.

If we are to derive only one lesson from economics, it has to be that individuals respond to incentives. Here is where the importance of price as a signal must not be understated. Any policy which does not take heed of this lesson is doomed to failure sooner or later and we have a long history of communism to prove that. The success of a policy depends on policymakers’ comprehension of that lesson.

Behind the Malaysian fuel subsidy policy stands a compassionate desire to alleviate the burden of the people. While many are swayed by this point, the policy distorts prices in the market and consequently affects behavior of producers and consumers for the worse.

In times of high prices under free market arrangement, conservation and investment in new technology as well as its widespread application should be the order of the day. In doing so, most actors would have adapted to the prevailing environment. In contrast, a subsidy policy — interventionist policy — isolates consumers and producers from the reality outside; it artificially lowers energy prices. State interference through the policy only garbles the signal that would otherwise call for a more measured consumption path. As a result, there is little need to adapt to a new reality.

For instance, a greater need for better public transportation is only immediately apparent when fuel prices are high. It makes no sense for anybody to utilize any kind of public transportation when driving a vehicle does not burn a hole in our pockets, with all else being equal. Likewise for carpooling; no amount of funky advertisements commissioned by the state could match the effectiveness of dearer fuel price in encouraging carpooling. So too goes with the need for greater fuel efficiency.

Furthermore, if one cares for the environment, the case for freer market is undeniably strong. Within the context of climate change, Malaysia has the honor of having the highest growth rate of carbon emissions in the world since the 1990 and without doubt, artificially low fuel prices made possible through state intervention has a lot to do with that. A refrain by the state from interfering in the workings of the market could go a long way in humbling our ugly but spectacular record.

Most of all, the downside this particular state intervention in the marketplace in the form of fuel subsidy policy is the weight well-intentioned electorates, bureaucrats and politicians placed on short-term gains at the expense of long term and structural improvement of our society. A freer market will recalibrate our carrot and stick model to be more forward looking instead of being one of instant gratification.

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

First published by Malaysia Think Tank’s WauBebas.

Categories
Liberty Society

[1796] Mengenai buang negara bangsa untuk nasionalisme yang terluas

Sering kali saya terdengar akan keperluan untuk rakyat Malaysia membentuk satu nasionalisme baru untuk mengatasi cabaran masa muka. Dengan mudahnya, nasionalisme ini mengimpikan satu bangsa yang merangkumi semua rakyat Malaysia, di mana semua memiliki hak-hak yang saksama tanpa pilih kasih. Ramai mengenali nasionalisme baru ini sebagai bangsa Malaysia. Walaupun saya mungkin bersimpati dengan konsep ini berbanding dengan apa yang sedang dipegang oleh pihak yang masih berselindung di dalam sangkar perkauman, saya berpendapat bahawa bangsa Malaysia berada tidak jauh dari tarikh luputnya.

Sebelum kita berbicara tentang mengapa saya berfikiran demikian, kita perlu memahami mengapa bangsa Malaysia lahir. Tidak perlu kita membelek buku-buku sejarah, politik ataupun falsafah untuk memahami perkara itu. Jawapan ringkas tetapi tepat boleh diperoleh dari batu asas kepada pemikiran kenegaraan yang memperjuangkan satu bangsa yang mengandungi pelbagai kaum untuk satu negara; batu asas itu adalah negara bangsa atau nation-state.

Negara di sini bukan yang segera difahami oleh semua. Bahasa Melayu — seperti apa yang akan ditegaskan oleh penyorak-penyorak bangsa Malaysia, bahasa Malaysia atau sekurang-kurangnya pembicaraan popular tempatan yang bersangkut paut tentang kenegaraan — gagal membezakan konsep country (negara, negeri atau wilayah boleh dilukis di atas kertas), nation (negara atau lebih tepat bangsa) dan state (negara sebagai satu institusi) secara memuaskan. Kekeliruan ini menjadikan perdebatan tentang negara Islam di Malaysia berganjak satu perkara yang penting kepada satu pertunjukan sarkas yang tidak bermakna. Susah untuk seseorang itu memastikan sama ada penyokong dan penentang negara Islam berdebat tentang Islamic state atau Islamic country. Ini sendiri membuatkan saya duduk jauh daripada perbahasan mengenai negara Islam di mana para pendebat tidak sedar akan perbezaan penting ini.

Kembali kepada perkara pokok dengan harapan masalah penterjemaah tidak mengaburi apa yang saya mahu kongsi bersama, negara bangsa mengatakan bahawa sesuatu bangsa, satu kelompok manusia yang berkongsi warna kulit, bahasa, agama atau secara amnya budaya, berhak mentadbir dirinya sendiri. Pentadbiran ini direalisasikan dengan mendirikan satu institusi iaitu negara atau state.

Pemimpin-pemimpin Malaya dan kemudiannya Malaysia sendiri cuba mendirikan negara kita di atas konsep negara bangsa, di mana bangsa itu adalah bangsa Malaya (Malayan) and kemudiannya Malaysia (Malaysian). Bagi negara yang berbilang kaum, pelbagai bangsa, usaha untuk mendirikan satu negara bangsa akan bertemu dengan satu halangan yang besar: ketiadaan satu bangsa organik yang merangkumi semua bangsa; ketiadaan bangsa mengiakan negara yang mengandungi pelbagai bangsa organik; tiada bangsa yang organik yang menerima bangsa Melayu, Cina, India dan ”bangsa lain-lain” sebagai anggota dengan yakin.

Mungkin bangsa longgar wujud beberapa dekad setelah imigrasi besar-besaran ke negeri-negeri Melayu serta Borneo berlaku. Pendapat ini bagaimanapun terlampau bersifat subjektif dan sukar dibentuk di dalam minda dengan baiknya tanpa pencanggahan.

Walau bagaimanapun, jika kita melupakan sementara masalah definisi itu dengan semangat pragmatisme, bangsa yang baru itu tidak bernama dan hanya dirujuk sebagai satu apabila negara kita terdiri. Dalam usaha untuk mengesahkan negara ini dari pandangan negara bangsa, konsep kerakyatan tidak mencukupi. Keperluan untuk membentuk satu bangsa tiruan wujud di atas ketiadaan bangsa organik. Oleh itu, bangsa longgar yang tidak bernama itu mula dirujuk sebagai bangsa Malaysia, bersemperna negara Malaysia.

Tetapi, falsafah yang diketengahkan oleh negara bangsa berdiri dengan tanggapan yang satu bangsa itu berhak untuk mentadbirkan dirinya sendiri. Soalan yang perlu ditanya adalah ini: perlukan sesuatu negara itu berdiri dengan bangsa sebagai tunggak asas?

Malaysia sendiri berjaya dibentuk tanpa adanya bangsa yang satu. Penekanan terhadap bangsa Malaysia hanya berlaku selepas terbentuknya negara Malaysia. Ini adalah satu tanda yang mengatakan negara bangsa itu tidak menjadi satu syarat dalam pembentukan negara.

Yang lebih ditakutkan, konsep negara bangsa itu sendiri mungkin akan membawa kepada perpecahan negara. Malaysia mempunyai sekurang-kurangnya tiga bangsa yang berpengaruh besar. Jika konsep negara bangsa dipatuhi dengan taatnya, lambat laun Malaysia akan terbahagi kepada sekurang-kurangnya tiga negara. Ini belum lagi mengambil kira perbezaan agama yang boleh menjadi asas kepada pemikiran negara bangsa.

Di negara-negara lain seperti Perancis, negara bangsa tidak lagi memainkan peranan utama dalam pentadbiran negara. Malah, Kesatuan Eropah sendiri tidak memerlukan satu bangsa luas untuk mengemudi dirinya ke hadapan. Kesatuan tersebut ada masalah-masalahnya sendiri tetapi perlu diingatkan, pembentukan negara itu sendiri memerlukan masa. Apa yang ingin disampai di sini ialah konsep kerakyatan itu sendiri sudah mencukupi.

Tambahan pula, demografik sesuatu negara sering berubah. Pergerakan manusia serta modal yang semakin bebas sering menukarkan kandungan bangsa sintetik seperti konsep bangsa Malaysia itu sendiri. Apabila kandungan bangsa sintetik itu diubah disebabkan pergaulan di antara bangsa-bangsa organik dan lebih penting, para individu, apakah perlu kita mengembleng tenaga sekali lagi untuk mentakrifkan bangsa yang baru? Adakah perlu kita melindungi takrifan bangsa sintetik itu daripada berubah?

Perubahan itu bagaimanapun tidak meminta konsep kerakyatan berubah, jika asas kerakyatan itu bersifat liberal dan buta kepada idea negara bangsa.

Saya sebagai seseorang individu mahu mendekati satu bentuk nasionalisme yang lebih unggul dan luas daripada yang berasaskan negara bangsa. Kita perlu melihat lebih jauh dari konsep bangsa. Ini tidak bermakna kita harus menghapuskan bangsa-bangsa organik. Kita semua adalah seorang individu dan setiap individu itu berhak menentukan cara hidup mereka sendiri dengan syarat tindakan mereka itu tidak merampas hak-hak yang sama yang dinikmati oleh orang-orang lain.

Sebagai satu negara yang kecil, kita harus cergas menerima apa yang terbaik daripada tamadun manusia. Sudah hilang waktu di mana kita boleh melihat kepada kaum kita sendiri untuk mencari kekuatan. Kita harus menjemput mereka yang ingin berusaha untuk membina kehidupan yang terulung walaupun mereka orang asing. Negara atau masyarakat yang mengandungi individu-individu ini akan menaikkan taraf kehidupan masyarakat itu sendiri. Selamat datang diucapkan kepada mereka yang ingin menyumbang dan sanggup menghormati hak-hak individu terhadap kebebasan.

Nasionalisme saya berkisar kepada pembukaan sempadan kita kepada mereka yang terlatih untuk membangunkan negara. Sebelum itu berlaku, kesaksamaan hak-hak terhadap kebebasan perlu dijamin. Nasionalisme ini perlu melindungi semua dengan sama rata, tanpa mengira kerakyatan. Negara yang menjamin semua ini akan menarik yang terbaik di kalangan manusia dan seterusnya membolehkan kita membina satu tamadun yang hebat tanpa sekatan yang terbina atas nama ketakutan.

Konsep negara bangsa merupakan satu sekatan untuk kita maju ke hadapan, jauh meninggalkan yang lain yang masih terkongkong di dalam pemikiran lama.

Saya yakin, inilah nasionalisme yang tertinggi dan terbaik, di mana bangsa itu adalah bangsa manusia. Tidak perlu kita mewujudkan bangsa yang sintetik untuk bersatu. Hanya yang diperlukan adalah kesanggupan untuk kita untuk hormat-menghormati hak-hak asasi individu tanpa memilih kasih.

Nasionalisme yang terluas inilah yang akan mengatasi nasionalisme yang lain.

Baiklah.

Saya mengaku.

Ini sebenarnya menuju ke arah liberalisme.

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

Satu versi tulisan ini telah pertama kali diterbitkan di Bolehland.

Categories
Conflict & disaster Liberty

[1795] Of zero tolerance for piracy is the answer

While I am happy to learn that the two MISC ships hijacked by pirates off the Horn of Africa earlier have been freed, the method — USD4 million was reportedly paid — to secure the freedom of the ships as well as its crew is far from ideal.[1][2] There is no guarantee for the episode not to repeat itself.

It seems clear that the pirates based in Somalia are purely in it for the money and are not driven by some ideological struggle. Several other ships from different countries of origin have also been hijacked and the pirates’ demands are clear and consistent. They want money. Indeed, when the pirates hijacked an Ukrainian ship ladened with military equipments, the demand remains the same: money. They are uninterested in the cargo of the ship, at least, so far.[3]

The act of succumbing to the demand of the pirates pays off the pirates’ effort. Piracy of the kind off the coast of Somalia will continue to occur as long as there are profits for them. For them to enjoy profits, their revenue from piracy has to keep coming in while the cost of doing so continues to be under control.

Revenue will continue as long as there are entities like MISC which pay off ransom and cost will continue to be controlled as long as no one fights back.

To stop piracy, piracy has to be turned into an unprofitable industry. Victims need to persistently refuse to meet the pirates’ demands while upholding private property and individual liberty. In other words, there is a requirement to fight back. Failure to fight back increases the cost of trade and affects economic growth.

France so far has been the only state resorting to force against the pirate. Their operations have been successful.[4] The French did request for Malaysian aid in one of its operations but Malaysia turned down due to ongoing negotiation between MISC and the pirates.[5]

There is already a multinational force patrolling the area. Among them are the United States, Russia, Germany and France.[6][6a] There are also talks that South Africa — a regional power — might might be joining the force.[7]

Malaysia had three military vessels active in the area after two MISC ships were hijacked but with the release, the Royal Malaysian Navy vessels are escorting the MISC ships back home.[8]

Being a victim, Malaysia should really join the multinational force to convey to the pirates that Malaysia does not intend to see a repeat of the episode and that Malaysia is prepared to fight back. Presence in the area could also give Malaysian vessels passing through the Red Sea extra protection since we would have a say in the multinational force. Extra attention could be given to Malaysian vessels.

But are the presence of military ships in Somalian waters a violation of sovereignty?

No. These foreign vessels are there because the United Nations Security Council grants permission for foreign warships to enter Somalian waters to fight piracy.[9] In fact, even the de jure government of Somalia allows these foreign vessels to operate in Somalia to fight piracy.[10] This easily alleviates my concern regarding violation of sovereignty.

Whether it is a matter of time before the growing presence of heavily-equipped foreign navies around Somalia will reduce the incidences of piracy there, the state of anarchy is Somalia is beginning to adversely affect the neutral others. No longer countries like Malaysia which are reliant on international trade could sit idly and watch from afar. Active participation in effort to combat the piracy is required; the new Defense Minister which is also the Prime Minister needs to flex some muscle.

The surest way to reduce the threats of piracy is to have international force in Somalia, on the ground, or at least in the ports which these pirates operate from. Effective controls over these ports is a necessity in combating piracy.

Resorting to settlement with the pirates as MISC had done does little in protecting private property and individual liberty for Malaysians as well as for others. In fact, MISC will only establish a reputation of succumbing to ransom demand for itself, possibly making its vessels popular targets in the future. And since the MISC vessels fly the Malaysian flag, the implication is not pretty for any vessel flying the Malaysian flag.

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

[1] — Hassan slammed Malaysia’s local media for speculating that a total ransom of US$4 million was paid. [Pirates off Somalia free second Malaysian ship. International Herald Tribune. September 30 2008]

[2] — The release of MT Melati Lima on Sept 28 and MT Bunga Melati Dua yesterday brought about relieve and joy to millions of Malaysians and Muslims worldwide, preparing to celebrate Hari Raya Aidilfitri tomorrow. [MT Melati 5 release brings joy and relieve to Rizal’s family. Bernama via New Straits Times. September 30 2008]

[3] — Pirate Sugule Ali told the AFP news agency by satellite phone that his group wanted a ransom of $20m (£11m) and were not interested in the weapons. [Warships surround Somali pirates. BBC. September 29 2008]

[4] — France, which has troops in nearby Djibouti and also participates in a multi-national naval force patrol in the area, has intervened twice to release French sailors kidnapped by pirates.

Commandos freed two people whose boat was hijacked in the Gulf of Aden earlier this month and in April, six arrested pirates were handed over to the French authorities for trial. [US destroyer nears Somali pirates. BBC. September 28 2008]

[5] — KUALA LUMPUR: Malaysia’s help was sought by the French navy in Tuesday’s daring rescue of a French couple held by Somali pirates on their luxury yacht in the Gulf of Aden.

The Royal Malaysian Navy, however, had to turn down the request for fear of jeopardising ongoing negotiations to free two hijacked Malaysian vessels — the MT Bunga Melati Dua and MT Bunga Melati Lima, owned by Malaysian International Shipping Corporation (MISC). [France sought our navy’s help. Adrian David. New Straits Times. September 29 2008]

[6] — See Combined Task Force 150 as well as Piracy in Somalia at Wikipedia. Accessed October 1 2008.

[6a] — A Russian warship headed for the seas off Somalia Friday after pirates seized a Ukrainian freighter carrying 33 tanks, munitions and other weaponry, officials said. [Russia sends warship after Somali pirates. Japan Today. September 29 2008]

[7] — Pirate Sugule Ali told the AFP news agency by satellite phone that his group wanted a ransom of $20m (£11m) and were not interested in the weapons. [Pirates die strangely after taking Iranian ship. Andrew Donaldson. The Times. September 28 2008]

[8] — The Malaysian government later dispatched three Royal Malaysian navy vessels – KD Lekiu, KD Inderapura and KD Pahang – to escort MISC ships home. [MT Melati 5 release brings joy and relieve to Rizal’s family. Bernama via New Straits Times. September 30 2008]

[9] — The UN security council has unanimously adopted a resolution allowing foreign warships to enter Somalia’s territorial waters to fight piracy. [Warships to combat Somalia piracy. Al Jazeera. June 3 2008]

[10] — See Piracy in Somalia at Wikipedia. Accessed October 1 2008.

Categories
Economics

[1794] Of Intrade for Malaysian politics?

Intrade is gaining reputation for predicting the future. At its center is the idea that prices reflect all available information.

Wouldn’t it be good to have Intrade for Malaysia?