Last summer, I found myself back in Ann Arbor. I was surprised at how happy I was to be there again.
This is Liberty Street, looking east, the end where the Michigan Theater and the State Theatre are. I watched The Fellowship of the Ring at the Michigan Theater when it first came out, in what seems like a lifetime ago. Here, the Theater was showing re-runs of Hayao Miyazaki, the perfect thing to do during a midsummer night.
Do you remember, a time before the new millennium, before the internet was a real thing, when a movie or a series you were watching that you liked very much, were coming to an end, and you wished it had not? Its end created a feeling of loss inside of you that could only be filled up with a replay. Yet, there was no chance for that, because it was on TV, or playing at the cinema, or it was on a rental tape you must return today.
If you were lucky, you would own the tape and replay it to your heart’s content. I remember moments when I had it and kept replaying a particular scene or two. I had Disney’s Aladdin, and became an expert at rewinding em to almost the exact time when A Whole New World would start. When I was even younger, I had a Walkman filled up with Sesame Street’s songs, that I kept shooting for C is for Cookie a hundred times or more.
I have been going through that feeling again recently after watching the final episode of First Love, a short Japanese series inspired by Utada Hikaru’s song of the same title. That song was widely circulated via illegal mp3 (was there ever a legal mp3?) among adopters of the 1990s internet, downloaded maybe from Kaaza, or mIRC, or Napster, or from some random server in wild wild web.
The series is full of beautiful shots, and moments, but the one I have been returning over and over again, thanks to Netflix, is the final scene of Episode 8. Spoiler here (a big one indeed), but it is the scene where Yae Noguchi, a victim of memory loss, finally remembers Harumichi Namiki’s significance in her life, and tears up. Her sudden recollection is triggered by a song of their first kiss from two decades ago in the late 1990s.
All the best threads of the series end at that particular scene, which, I think, can move the hearts of stone.
Episode 8, The Proust Effect On A Certain Afternoon, is not the final part, but I think it should have. The final episode tries to create an and-they-live-happily-ever-after ending, but I feel it is an afterthought. As somebody said to me, most first loves, ends sadly. That makes Episode 8 all the more powerful, and closer to reality.
So, I pretend Episode 9 does not exist.
p/s — the guy is from Samurai-X!
For the past few days, I have been thinking about the 2020-2022 roles reversal in the Malaysian version of soft-budget constraint, but ended up trying to trace the history of SBC in Malaysia.
First off, a short primer on SBC: soft-budget constraint is usually a problem between a government, and its state-owned enterprises. In Malaysian parlance, those enterprises are government-link companies. It is called soft-budget constraint because the budget of those enterprises is hard to be fixed; company revenue does not provide a hard limit on company expenditure. The government ends up financing those companies beyond what the latter’s revenue provides. That financing comes in the form of subsidies, loans, tax breaks and grants, and designed to meet various political, social or even economic objectives.
This problem is most prevalent in command economies, but it also exists elsewhere where the market is more open, like Malaysia.
Now, let us dive into the history of SBC in Malaysia.
From the 1970s until the 1990s: NEP and privatization
Malaysia had several influential state-owned enterprises prior to the 1980s and this made SBC a common problem, especially with the New Economic Policy running at full steam.
Luckily for Malaysia, raw material prices—petroleum, rubber, tin—were high at that time, making budget constraint problem manageable. These companies’ budget constraint was soft, but government revenue was bountiful.
Troubles came in the 1980s, when global recession depressed commodity prices. Budget constraint suddenly became very pressing, when government coffers could no longer support growing expenditure needs. Here, Mahathir Mohamad, addressed it through rapid and widespread privatization. Market discipline was instilled, and these companies found their budget constraints becoming stricter than in the past.
During the 1990s, through rapid modernization and super economic growth, along with privatization, SBC seemed like it had been consigned to history. SBC became a curiosity. The government enjoyed large growing surplus, and there were fewer companies requiring government support, save several instances where Mahathir insisted on import-substitution industrialization (Perwaja?).
When the Asian Financial Crisis hit Malaysia, all the bailouts meant the return of SBC.
SBC of the 2000s
The 2000s is significant in this telling because it was during this decade that off-budget spending took off earnestly. Government revenue did not grow fast enough to meet the country’s rising spending needs, especially so soon after the late-1990s recession. The government overcame its finance gap by devising clever methods to circumvent various accounting rules, and expand its spending capacity enormously. The methods are complex, and I will not go through it here except by sharing a post I wrote several years back, which explains various liabilities the government carried, but previously undisclosed.
Expanding off-budget obligations necessarily means growing SBC problem. Off-budget approach gave the government extra leverage, but it does not mean the government not having to fund them.
Off-budget approach, and SBC, came under intense scrutiny when 1MDB corruption came into the picture, and brought onto the government severe public demand for transparency. That demand, along with other concerns, led to collapse of the Barisan Nasional government, and the rise of Pakatan Harapan administration.
PH attempted to solve the problem by instituting greater transparency (this is part of the RM1 trillion debt and liabilities controversy), putting some off-budget spending back on budget (this partly raised the 2018 fiscal deficit ratio) and adopting accrual accounting, to make sure all financial obligations get recorded properly. But the SBC problem, intertwined with complex off-budget method, has become so big that it needs time to be addressed. And PH fell short of two years into office.
Reversal of roles during Covid-19 pandemic
The fall of PH coincided with the Covid-19 global pandemic. The new government needed to expand its spending fast to save lives and to preserve the economy’s productive capacity. But those in power were reluctant to boost government spending, possibly out of inexperience while facing a steep learning curve. With that reluctance, they looked to state-owned enterprises for solutions.
This caused a reversal of roles between the government and its companies. The government leaned on its GLCs to support its spending needs, instead of the other way round in the normal SBC problem. This made government budget to be softer than it was. GLC’s capacity became the government’s capacity.
Those financial supports from GLCs to the government come in the form of extremely long delayed payments. More specifically, the government throughout 2020, 2021 and 2022 engaged in massive subsidies and these subsidies were financed by the GLCs. The GLCs were supposed to be reimbursed immediately but that did not happen. To put it more plainly, these GLCs ended up financing the government.
For proofs, I would encourage everybody to inspect some of the largest utilities-GLCs out there. Check their growing receivables listed in their balance sheet (receivables refer to amount owned by buyers to suppliers).
There is another way to understand the roles reversal: these companies’ budget constraint becomes stricter than it was during normal times. Soft-budget constraint at the GLC level becomes really hard-budget constraint.
The problem became more complex in the post-Covid recovery, where subsidies ballooned tracking surging commodity prices.
2023 and into the future
Unlike the government, companies have troubles going over their budget constraint without outside support for too long. The cash crunch is coming.
The new Anwar Ibrahim administration will have the misfortune of having to address the roles reversal problem. It will be painful, involving large payments to be made/reimbursed by the government. Anwar Ibrahim the Finance Minister does not have much time: the cash crunch at several GLCs is coming.
That will add pressures for a broad tax hike, that Malaysia needs even before the pandemic.
It has been a long wait. Anwar Ibrahim is finally the Prime Minister of Malaysia.
Many have remarked how he deserves it. Or that he has been cheated out of it before. Or everybody has had their chances and now, it is Anwar’s turn to rule. Or he suffered to get here.
But, I tell myself that it is never about Anwar Ibrahim. Anwar, and Pakatan Harapan for that matter, is a means to an end.
The end is something much bigger than any one of us. The end is a Malaysia where everybody has a place under the sun, living in dignity and as equal, prosperously.
It will not be easy to achieve that, especially when even such a goal is not quite concrete. It is fluffy. It is intangible, at least the non-economic part. In fact, it is clear not everybody will agree—vehemently disagree at that—to the kind of equality envisaged in that kind of Malaysia.
The first step towards that end, is clearly reconciliation between major groups in the country, and some kind of compromise. But that reconciliation cannot be about making everybody happy. There are principles and ground rules to be adhered to. That we are all Malaysians, that we all have dignity that must not be violated. Reconciliation does not mean reconciling everything. Something, like deep fascism, cannot be reconciled with inclusive values.
The meeting ground has to be reasonable.
Ultimately, the core of that inclusive values, to me are (among several others) the end to the means that are Anwar Ibrahim and Pakatan Harapan.
It is almost certain the third quarter growth will be massive as far as year-on-year calculations are concerned. Consensus compiled by Bloomberg has it at 12.1%. What do you think the number would be? The official figures will be released this Friday.
How fast do you think did the Malaysian economy expand in 3Q22 from a year ago?
Total Voters: 11
Loading ...Big as it will be, it will not inform us much about the state of the economy. At least, not by itself alone. So, do not be taken by it and read it with extra context.
It is important to remember what happened a year ago: the third quarter 2021 real GDP dropped by 4.5%, as shown in the chart below (in the same chart, you could see another instance of massive base effect in the second quarter of 2021, responding to the drop the year before).
One simple way to avoid the problem of base effect altogether is to look at quarter-on-quarter growth, and compare it with historical numbers.
For 2015-2019, quarter-on-quarter growth for the third quarter averaged around 3.5% (range: 3.1%-3.9%). Let us ignore 2020 and 2021 due to the usual circumstances those years represent. Since 2022 appears to be a more normal year (as far as normality is concerned, we could probably take the first quarter of this year as the beginning), 2015-2019 appear like a reasonable for casual comparison.
Now, if third quarter growth is indeed 12.1% year-on-year, then quarter-on-quarter growth would be 2.9%.
That 2.9% is below the quarter-on-quarter average of 3.5%, and misses the lower bound of 3.1% (see the second chart above). This also means, if the year-on-year growth figures is to be truly impressive, third quarter growth will have to be significantly higher than 12.1%. Maybe 13% or 14%. Else, it would be either bad, or normal at best.
The quarter-on-quarter growth is something to watch out for, especially at a time when the global economic outlook points toward recession in Europe and the US, along with a weak China. Ignore the year-on-year one for the time being.