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[2875] There is no austerity in Malaysia

Post author By Hafiz Noor Shams
Post date Monday, October 15 2018
3 Comments on [2875] There is no austerity in Malaysia

The term austerity is gaining currency in some Malaysian circles. The press and several brokers have mentioned it to describe what they think the Malaysian government is doing in light of various renegotiation or cancellation of megaprojects.

Austerity is a sexy term to pull in some eyeballs but really, I think the term has been used rather loosely to a point that it is inaccurate enough and starts to lose its meaning.

So what is austerity? How do we define austerity?

The first pass-definition should be an overall cut in absolute government spending. In other words, austerity happens when the government runs contractionary fiscal policy. A slowdown in government spending growth itself is insufficient to qualify as austerity. It has to be a cut in spending itself.

The refining factor to work with the first-pass definition is a significant tax hike that discourages spending and contributes to economic contraction. For those with knowledge in macroeconomics, I am thinking of a simple shift to the left in the IS curve in the IS-LM framework, which results in economic contraction.

Yet another refining definition is if these two contractionary policies – reduced government spending, higher tax or both – happen during a period of economic contraction. In tighter language, austerity is when fiscal policy works pro-cyclically during a downturn.

In Malaysia so far, that has not happened. Neither fiscal policy and the economy are in contractionary mode. Public data shows January-August government spending increased by 6.1% this year versus the same period last year. For the May-August period, government spending rose 1.1% YoY. From GDP perspective, public investment and spending rose in the first half of 2018 versus the first half of 2017. Meanwhile, the economy expanded 5.8% and 4.9% in both nominal and real terms in the first half of 2018 versus the same period last year.

And we must not forget, Malaysians received a significant tax cut in the form of 3-month tax holiday and the replacement of value-added consumption tax GST with the less burdensome production tax SST.

Meanwhile, the government has made public statements that Malaysia is not embarking on any austerity program, although it has committed itself to cleaning up its accounts due to years of off-budget abuses and opaque dealings.

Under this situation of continuing economic growth, public spending expansion and the absence of a tax hike, I think it is clear there is no austerity in place.

The truth is, many of the renegotiation and cancellation do not lead to absolute cuts. Rather, the changes are there to make way for other spending that are aimed to be more productive than, for instance, merely servicing overpriced debt for financially and economically unsustainable megaprojects negotiated incompetently by the previous corrupt government.

What is happening is a reallocation of resources. Not absolute cuts. Definitely not austerity.

Tags austerity, fiscal policy

Politics & government

[2874] The true test of this Pakatan Harapan government

Post author By Hafiz Noor Shams
Post date Tuesday, August 21 2018
No Comments on [2874] The true test of this Pakatan Harapan government

Critics rushed to assign the new Pakatan Harapan government grades for its 100-day performance. MCA had the cheek to give the government a D grade. Others gave a B. If Pakatan Harapan had its own Pemandu, I am certain grade A+++ would have been announced in a pompous self-congratulatory parade.

I am unsure what grade I would give the government because of the subjective nature of the whole business. One could make it more objective by having a sheet tallying the weighted score, but I just won’t do that. Looking at my desk, I have many other things to do.

As I take a breather, all I can say is that I have my share of disappointment. Government action with respect to the recent child marriage case has been so underwhelming that I feel it is best for me not to think of it. Meanwhile, the official attitude taken against the LGBT community is not something I could defend. There are other problematic decisions, but all that points to the fact change does not happen overnight. It takes time, especially when it comes to culture.

In a democracy, changing the government alone is not enough. What is required is a change in the attitude of the people. At this moment, we need a leader who can make that happen without worrying too much about his or her approval ratings. But as I have been told, that is easy for me to say because I do not have to face the voters.

Yet, all those disappointments do not at all make me regret for doing what I did on May 9. In the days after it became clear there would be a Pakatan Harapan government, I think I understood early on how difficult it would be for change to happen and disappointment was something to be expected. Larger change needs time to happen.

And at the end of the day, before we rush to judge this government on its 101st day, I think it would be good to remind ourselves that at the very least, this government has a 5-year mandate. I would reserve my judgment until close to the end of that mandate.

This however does not mean the government should be free of criticism. Criticism is important to remind this government what is important, and to me, the most important agenda is the promised institutional reforms that will make sure the likelihood of past abuses repeating itself is low. The rest of the promises are secondary.

If we managed to set our institutions straight, then we would have a great foundation to build on in years to come beyond the 5-year period, regardless whichever side may come to power later. For me, that will be the true test of this Pakatan Harapan government.

Tags democracy, institutional reforms, Pakatan Harapan, reforms

Economics WDYT

[2873] Guess the 2Q18 Malaysian GDP growth

Post author By Hafiz Noor Shams
Post date Tuesday, August 14 2018
1 Comment on [2873] Guess the 2Q18 Malaysian GDP growth

I have been extremely busy and I have just realized the last time I updated this blog was just slightly more than 3 months ago.

I still want to keep this going, except this time, no real commentary. But the second quarter was quite a quarter, externally and especially domestically. These events had added significant short-term uncertainty that might have affected growth.

How fast do you think did the Malaysian economy expand in 2Q18 from a year ago?

Below 3% (8%, 1 Votes)
3.0%-3.9% (8%, 1 Votes)
4.0%-4.5% (23%, 3 Votes)
4.6%-5.0% (38%, 5 Votes)
5.1%-5.5% (15%, 2 Votes)
5.6%-6.0% (8%, 1 Votes)
More than 6.0% (0%, 0 Votes)

Total Voters: 13

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Tags GDP, Malaysia

Economics Politics & government Society

[2872] Lasting change needs more work, more time and wider support

Post author By Hafiz Noor Shams
Post date Sunday, May 13 2018
3 Comments on [2872] Lasting change needs more work, more time and wider support

We have the right to celebrate May 9. It is after all the first time in Malaysian history change at the very top happened. For years we were only chipping at the edge. Progress felt irrelevant. But now, here it is. Change.

Yet, not all or even most of the changes Malaysia needs will be instituted quickly. It will take time and work for these changes to happen. There will be residual resistance to change and perhaps using the adjective residual understates the problem at hand. After more than six decades of Perikatan/Barisan Nasional in power – seven decades if you go all the way to the first Malayan general election in 1955 – there is a kind of deep state the new Pakatan Harapan government will need to win over and even fight.

There will be disappointments, and Pakatan supporters and sympathizers will accuse the new government of betrayal and hypocrisy.

But before any of us levels those accusations, we must understand that the government will have to pick their battles. Some will be won. Some will be lost. Pakatan and their supporters will need to be smart in which battles they want to win.

More importantly, before throwing those accusations in the future, we need to understand the long arc of history all of us have to deal with. Malaysia’s deep multifaceted history – with dimensions of race, religion, Peninsula-Borneo, federal-states, urban-rural, national origins, class, gender, etc – is the proper context to judge the new government in the next few years. No action could be judged in isolation.

And the future is just as important as the past in understanding this new Malaysia and the new government.

Our demography and culture are changing at glacial pace. It is slow but the inertia is massive: our society is set to become less diverse in a meaningful way. By 2050 the Bumiputras will form 70% of total population from about 60% in 2014. So would be the Muslims. The Malay population share will rise to 60% from 50% in the same period.

At the same time, we will be an aged society by 2050, from our low median age of 28-29 years old and low dependency ratio.

I fear the two demographic shifts could make our society less open and less progressive in our values. It is not the Malays and the Muslims per se that I fear. It is the increasingly monolithic nature of our society, and hence, the possible intolerance of differences. I fear that future where the Malaysian mind would narrow to a point that leaving is the only reasonable option for too many people.

This is the reason why the 2018 election was the last chance to change in time. The trends are pushing against us, especially against the liberals. It is not simply an election rhetoric. It is a real long-term concern about the fate of Malaysia. This is why I feel spoiling your votes or not voting is unwise: the advocates of the tactics (who wanted some kind of change) are ignorant of history and blind to demographic changes.

It was also the last chance to change because substantive changes that Malaysia needs could not be made by the same side that benefited from the closing of the Malaysian mind. Najib Razak tried it in 2009-2013 and he failed. All his attempts were in the end reduced to mere silo economic targets that stood alone outside of multifaceted Malaysian contexts, making them utterly dissatisfying as a vision. So dissatisfying that we had to go back to the 1990s to move forward.

And substantive change will need more support from Malaysians. While the Pakatan victory is the first step, we have to remember Pakatan won only plurality in popular votes, not majority. Lasting change would require Pakatan to get more Malaysians on board.