Categories
Politics & government

[2965] Anwar Ibrahim and Pakatan Harapan are a means to an end

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.

Categories
Economics WDYT

[2964] Guess the 3Q22 Malaysian GDP growth

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?

  • Slower than 8.0% (64%, 7 Votes)
  • 8.0%-9.9% (0%, 0 Votes)
  • 10.0%-11.9% (18%, 2 Votes)
  • 12.0%-13.9% (18%, 2 Votes)
  • 14.0% or faster (0%, 0 Votes)

Total Voters: 11

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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.

Categories
Economics

[2963] Is inflation the reason behind BNM hikes, at a time when the output gap is big?

Bank Negara raised its benchmark rate yesterday, from 2.50% to 2.75%. While the general reasoning is fighting inflation, I am not that convinced of it. My primary reason is, Bank Negara’s own analysis shows inflation (demand-push) is not a problem. Yes, consumer price index has been rising high, but most of those price increases are not something monetary policy can address without exerting damage to the economy.

The central bank regularly published estimates of output gap in the economy. Looking at the output gap is the easiest way to understand the economy quickly. To put it simply, the gap tells us about the capacity utilization of the whole economy. It is the difference between total (or maximum) capacity, and capacity used. When the used capacity is well below max, then inflation should be relatively low with unemployment high. When resources are not used up, there will be slack in the economy which is reflected in inflation and unemployment numbers. The same is true vice versa.

And based on the latest estimates published by Bank Negara back in March 2022, there is a huge slack this year (and estimated to be bigger than last year’s):

When the gap is big and when there are no other concerns, you would want to encourage the economy to keep going. You would want to close the gap, and approach full capacity (which is another way of saying full employment). And you can do this without much concern for inflation. That means, rates could be left low.

When you raise rates in these circumstances (as Bank Negara is doing), it means widening the output gap. You would lower demand-pull inflation (if there any), but since you have no control over supply-push inflation, you are just targeting the wrong part of the economy. You are pulling demand down almost immediately, but do nothing to the supply side, which is out of your immediate control (in fact, low rates improve supply, but not in the short term). Hence, widening the gap.

Beyond domestic considerations and on top of the current gap situation, there are concerns the global economy will go into yet another recession so short after the last. The US economy is close to experiencing one although its growth resilience so far has surprised many economists (and demand-pull inflation is problem there). Europe is almost certain to enter recession next year (war and gas supply are exacerbating supply-push inflation). Growth in China has been weak but there is some hope it would provide some cushion in an otherwise sullen world. When we look ahead, Bank Negara’s rate hike feels even more jarring and lags behind expectations, when they should be ahead of the curve.

So, when I read the Monetary Policy Statement and the references to inflation, I am not so sure inflation is the primary driver for the hikes. I have been suspecting so for a while now.

In my opinion, there are two other things at work that convinced the Committee to do what they did yesterday:

  1. It is about the ringgit. The currency along with many others out there have been under severe depreciation pressure due to US Federal Reserve’s series of drastic rate hikes. The end of easy money is upon us. And domestic benchmark rates are a big lever to relief the pressure partially: rising domestic rates would keep the difference with those in the US smaller than it would have been otherwise. And smaller difference means less depreciation pressure on the ringgit.
  2. The problem of zero-interest rate policy (ZIRP) and liquidity trap. Many conventional economists (of the 1990s?) believe monetary policy loses its potency the lower the rates go. And since Bank Negara Rates is already low by historical standards, maybe they are concerned about losing monetary influence and hoping to build up ammo for the next crisis.

In both cases, the cost of pursuing the goals will widen the gap today.

The relevant question is (especially with respect to the ringgit), how big would the gap be if the ringgit is allowed to depreciate beyond what the rate hikes allowed? Supply-pull inflation does hurt demand after all, and weaker ringgit means more imported inflation. Comparing the two gaps would help determine which policy to take.

I would love to read the minutes and see references to the gap, if any.

Categories
Politics & government

[2962] 2022 manifesto represents progress in PH policymaking

Going through Pakatan Harapan’s latest 94-plus pages manifesto reminds me how far things have progressed over the last 10 or so years. By things, I mean the current component PH parties’ ability to churn out policy documents, and overall sophistication in promoting policies. Ten or 15 years ago, PH struggled to produce such policy documents.

The inability to do so was among others due to lack of manpower or professionals in various fields within party ranks and volunteers. In the past, most professionals or even experts stayed well in the private sector. If they had political ambition or interest, they would join Barisan Nasional. Contributing to parties like DAP and PKR (or then Pas) then meant career suicide. Few were willing to sacrifice their living standards for partisan politics.

That has changed as the urban middle class now relies less on  government largess, and with private employment opportunities well diversified beyond the reach of partisan hands. That trend, I think, comes as multiethnic urban voters shift their party preference from that of BN to PKR, DAP and their various allies over the years. Now, PH has access to those professionals and experts.

Even when DAP and PKR were weak during those years, they were measured on a harsher scale versus the one faced by BN. BN would be allowed to play on noob mode, but the public insisted DAP and PKR played only the hard mode. Where is your manifesto? Where is your alternative budget? Where is your shadow cabinet? That BN never took their own manifesto seriously was never questioned.

Prior to the 2010s, this was perhaps understandable because most would ask, why change when things are going okay? Reading We Are Marching Now recently, most voters then were interested in stronger checks and balances, but not a change in government. Voters were scared of change and if they were to be convinced of change, then advocates of change would need to surpass a very high bar before any convincing could take place. The status quo was easier and familiar.

But by the 2010s, changes are no longer something scary. And PH is more than capable of providing policy alternative to back its overall rally for federal power.

As for the PH manifesto itself, there are measures that I disagree with. Furthermore, I do feel there is an element of kitchen sink in it. Nevertheless, I suppose I need to remind myself that this is the nature of coalition politics, a compromise between equals. Messy but that is democracy. What is important is that, there has been progress over the years, and that progress as represented by the latest manifesto is not small by any measure.

Progress in developing policy-making skills among PH members have been so significant in the past 10 years that the corporate sector no longer could ignore PH manifesto.

Categories
Politics & government

[2961] Umno’s calls for stability is a racketeering slogan

Stability is Umno and BN’s rally cry for this general election. But it is a disingenuous political messaging given that all recent instabilities are directly caused by Umno and their allies.

Umno’s argument for stability is akin to racketeering. Wikipedia has a concise definition: when somebody offers “a service that solves a problem that would not exist without the racket.” One concrete example involves a shop paying protection money, which the protection is from violence perpetrated by the fee collectors. Yet another concrete example is, well, Umno’s version of stability.

Umno and their allies, and this included Pas until recently, manufactured ethnic tensions throughout the 2018-2020 Pakatan Harapan administration. The manufactured inter-ethnic crisis brought instability to the country, all with the hope that Pakatan Harapan would fall, and be replaced with a government that Umno would be part of. Pakatan Harapan government collapsed under the pressure as Bersatu—naive and shortsighted as they are—fell for the racket.

Ethnic tension quietened once Umno were back in power, which highlights the fact that high ethnic tension during that period was unnatural. It was manufactured by partisan forces that were Umno and Pas. It was a racketeering done at the expense of the country: a dishonest scheme to obtain power and money. To more than a few people, it was a scheme to avoid jail time.

Despite being part of the federal government after the fall of Pakatan Harapan government, Umno members were unhappy that they played second fiddle to Bersatu. To address their unhappiness, Umno sabotaged their own government for their own partisan benefits. Instability ensued until they won. Stability is something Umno want only when they are at the apex of power. When they are out of it, stability is a liability to them and must be pushed aside, regardless the cost to the country.

And the country paid the cost: Malaysia lost anything between 2 to 6 weeks of reaction time during the Covid-19 economic and health crisis. While Umno maneuvered for private partisan gains, thousands paid the price with their lives. More than 36,000 deaths in Malaysia are linked to Covid-19 up to this day. Millions more suffered economic hardship due to incompetent and late handling of the crisis, as the Umno raced to secure their political positions.

Ultimately, the 2018 change in power itself was, in a large part, caused by Umno and their corruption. 1MDB was the straw that broke the camel’s back. It was the final factor that made public anger go bubbling. Without the 1MDB corruption and the subsequent power abuses to cover up the crimes, Malaysians would not have been so angry to do what they have done in 2018. And the people did not make a mistake in 2018 as Umno alleged. The people went out of the their way to make sure the check-and-balance mechanism worked, in spite of all the institutional abuses by Umno.

If Umno really want to label the 2018 democratic change as instability, then everybody should see through the veil: that the source of the so-called instability is Umno themselves. Truly, Umno has no moral authority to campaign for stability and their calls for stability is nothing but a racketeer’s slogan.