Categories
Economics Politics & government

[2804] TPP exit clause makes sovereignty concerns irrelevant

Text to the Transpacific Partnership came out today. I have yet to go through it fully. It is massive and it can be technical. It is worse than Sejarah Melayu. It will take time.

Nevertheless, I attended a briefing at the trade ministry earlier today and I think I understand the gist of the most important chapters. My somewhat initial impression: there are damn lots of exemptions.

All these exemptions — including the continued maintenance of the Bumiputra policy, flexibility to government procurement for up to 25 years after signing/ratification much to the benefits of local firms and even what appears to be status quo for a lot of GLICs and GLCs — should allay nationalists, protectionists and anti-globalization groups’ fears that Malaysia is surrendering our policy space to foreign governments and multinationals.

In fact, there are so many exemptions that I am unsure I should support the agreement as strongly as I did previously, notwithstanding progress made on market access and tariffs. I have always understood that any FTA is not a real free trade. We live in a imperfect world and I realize that much, but the exclusions Malaysia won exceed my expectations. Hence, my surprise.

But the one clause that blows those ”sovereignty” concerns out of the water is the exit option stated in the last chapter of the agreement. The TPP allows any country to quit the group unilaterally by giving a 6-month notice without incurring any penalty.

The easy exit clause means most of the requirements under TPP, like the extension of copyrights from 50 to 70 years and protections for biologics, are reversible by simply quitting the TPP. I reject the sovereignty argument but, if joining the TPP means losing national sovereignty, then the ability to quit and to reverse those policies must mean Malaysia is always be in control of its policy space.

(Not everything is reversible however. For instance, as I understand it the WTO disallows import tariffs to go up from any point of time and it does seem the TPP’s lower tariffs would be applicable even in the case of exit… I am unsure how post-TPP-exit discriminatory tariffs would work within WTO settings however. We need a trade law expert to answer that hypothetical.)

At the very least, the exit option lowers the cost and risk of joining the grouping.

Whatever it is, I come from the perspective we should always strive to create a rules-based world and then makes the rules as transparent as possible. To say it differently, we should reduce the discretionary powers from the authority as much as possible whenever it makes sense. I suppose, this originates from my libertarian tendency to control powers, be it states, companies or individuals.

In any case, I am a bit disappointed with the concessions Malaysia won, especially in terms of government procurement, state-owned enterprises and Bumiputra policy. I had believed TPP could liberalize Malaysia further more than local politics would allow it. Politics won.

Yet, I think I can stomach that. All this is a process and there will be another time. And right now, the TPP as it is seems okay to me. As I told somebody earlier today, better in than out.

Or, better we set the rules from a position of strength instead of wanting to join later and having to accept the rules from a weaker position.

Touching on the exemptions again, perhaps in retrospect we had too much strength at the negotiating table.

Categories
Economics

[2803] Troubling tales from Uber drivers

Unlike cabbies whose occupation is mostly driving (save for the minority), most Uber drivers drive part-time. I have had engineers, civil servants, doctorate students and advertising people as my Uber driver.

That occupational diversity makes conversation during an Uber ride much more interesting than that during a typical taxi journey. I have heard fascinating tidbits across industries as Uber transports me around Kuala Lumpur. This makes Uber a gold mine for economic anecdotes, giving colour and warmth to hard cold data.

These conversations have turned depressing lately.

The economy is going through a rough patch and official data tells you just as much. No citing of how well Malaysia ranks in the WEF Global Competitiveness Index — an index that does not measure economic cycles — can overcome concerns over the economy at the moment.

We are not in a recession but recession as a concept can be a statistical abstract. I would suppose in personal terms, you are in a recession if you lose your job and then struggle to meet your financial obligations. It is within this context my Uber conversations took place.

The worst stories almost always come from oil and gas professionals. With low petroleum prices and spending cuts by Petronas, the whole Malaysian oil and gas sector is in a recession of their own.

This has led one geologist to drive Uber. He used to spend months at sea and all around the world on lucrative contracts looking for oil and gas for big companies. But he has not been out of Kuala Lumpur for a while now. There is no new contract to sign. Nobody is exploring anymore.

Petroleum professionals like him are used to big pay and those in the industry did appear to be among the best paid compared to the rest. And this geologist in particular was used to big spending. He bought a property in a good neighbourhood along with a car last year through bank borrowings. Then, the repayment seemed insignificant.

But the times are changing. With no job on the horizon and no money coming in, his personal finances are not in a great shape currently. He is not alone. ”My friends are trying to rent out their places. They did not need the money before but now every cent counts,” he insisted.

I fear what this portends. These are highly qualified and well-paid members of the middle class. Upper middle class perhaps but they are now at risk of losing that status.

There has always been somebody struggling with their finances even during good times. But the idea a person with a fine education such as the geologist could fall so far down so rudely because of something out of his control made me shrink in my seat as he drove me towards my destination.

There might be some comfort the petroleum industry employs just a small segment of the Malaysian labour force.

Yet, it is not the only one in trouble. Retail is not doing well too. It is unclear if the tough time there is temporarily caused by the GST or due to something bigger and more lasting. Meanwhile, euphemisms like downsizing, voluntary separation scheme and ”having to let you go” are making its rounds in the banking sector.

Another sector I have had anecdotes to share is advertising.

One person running a small production house told me he drove Uber because there were fewer and fewer advertising jobs available for grabs these days. ”In tough times,” he said when the lights were red, ”businesses would cut advertising spending first. It is the easiest thing to do for them.” Indeed advertising expenditure has fared badly so far, contracting 9 per cent in the first eight months this year compared to 2014.

Before we parted ways, he joked driving was his full-time job now judging by the hours he spent on the road instead of at the desk doing creative work.

I only hope these are mere anecdotes.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malay Mail on October 29 2015.

Categories
Politics & government

[2802] I am ashamed to be a Malaysian

I think I am well-exposed to foreigners’ opinions about Malaysia beyond the editorial stance of various foreign newspapers. I have friends of diverse national origins and I work for a global organization where many of my colleagues are not Malaysians. I keep in touch with them regularly and so I get to learn of their personal and professional views about the country.

Everybody has an opinion. But do they know Malaysia?

They might be able to tell you where it is on the map. They would know the Petronas Twin Towers. They might know who Mahathir Mohamad or Anwar Ibrahim is.

But if you dig a little deeper you will realize most of them usually do not track our news closely.

Sure, they would remember reading some odd news like how naked hikers supposedly angered the spirits up on Mount Kinabalu. Sometimes, some third-rated politicians — even ministers — would say the darnedest thing and make it to the news.

These friends and colleagues would turn these trivial snapshots of Malaysian life into joking jabs at me. I would not protest too much as these embarrassing episodes would pass quickly. These kinds of news are light reading of no real consequence written to amuse the world on a slow news day.

But something more serious and lasting is hogging the headlines of some of the world’s finest newspapers in the past few months. Our prime minister and his troubled brainchild 1MDB are regularly mentioned in the context of corruption and power abuse across the world. As the prime minister’s reputation is left in tatters, so too is Malaysia’s.

Foreigners are becoming more aware of the grave trouble besetting Malaysia. A London colleague told me his unsophisticated English mother living all the way up north in Newcastle had begun asking about 1MDB and Najib. That is a sign of how widely known the corruption scandal is.

My friends from abroad have also begun asking me about the situation here. The questions asked make me feel ashamed of being a Malaysian.

Not too long ago, I always felt a little bit proud talking about Malaysia. We have achieved so much over the years. I sensed a kind of economic optimism that might even match the 1990s boom years. Socially, politically and economically, I felt we were almost there with the challenges ahead of us very surmountable. As a member of that generation who sang the song Wawasan 2020 at the top of our lungs every Monday morning during our school assembly, ”there” was well within our lifetime.

Sadly, that optimism is fading fast. Whenever I talk about Malaysia today, it is no longer about that country on the cusp of something grander. Instead, I feel like I am referring to a Third World country with its Third World regime where power abuse is common and might is right.

At one time, it was the in-thing for government supporters to say that Malaysia was better than many Third World countries and we should be grateful for that. The joke now is we are directly comparable to some corrupt Third World regime out there.

The joke hurts because it is true in a substantive way. All those joking jabs are no longer petty. It saps our pride away.

I know who to blame for that. I put the blame squarely on the prime minister and 1MDB. They are an acute source of embarrassment for me.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malay Mail on September 28 2015.

Categories
Books & printed materials Economics Humor

[2801] Insurance and moral hazard in Ankh-Morpork

They jogged on through the crowd of frightened people leaving the area, while the wizard took great mouthfuls of cool dawn air. Something was puzzling him.

“I’m sure all the candles went out,” he said. “So how did the Drum catch fire?”

“I don’t know,” moaned Twoflower. “It’s terrible, Rincewind. We were getting along so well, too.”

Rincewind stopped in astonishment, so that another refugee cannoned into him and spun away with an oath.

“Getting on?”

“Yes, a great bunch of fellows, I thought — language was a bit of a problem, but they were so keen for me to join their party, they just wouldn’t take no for an answer — really friendly people, I thought…”

Rincewind started to correct him, then realized he didn’t know how to begin.

“It’ll be a blow for old Broadman,” Twoflower continued. “Still, he was wise. I’ve still got the rhinu he paid as his first premium.”

Rincewind didn’t know the meaning of the word premium, but his mind was working fast.

“You inn-sewered the Drum?” he said. “You bet Broadman it wouldn’t catch fire?”

“Oh yes. Standard valuation. Two hundred rhinu. Why do you ask?”

Rincewind turned and stared at the flames racing towards them, and wondered how much of Ankh-Morpork could be bought for two hundred rhinu. Quite a large peice, he decided. Only not now, not the way those flames were moving… [Page 88-89 The Color of Magic. Terry Pratchett. 1983]

Categories
Economics

[2800] What is the fiscal deficit status now?

Back in January, the official deficit projection for 2015 was revised up by the government to 3.2% of GDP from 3.0% due to the falling energy prices. I concluded then the new target was achievable if government revenue would increase by at least 1.2% YoY. It was a reasonable target eight or nine months ago.

Unfortunately, a lot of things have happened since then and that 1.2% YoY revenue growth does not look easy anymore. That means, the current deficit target seems incredible now.

I have updated my sensitivity analysis. I think the fiscal deficit this year will likely be around 3.5%-3.9% of GDP. I did a tighter projection for work but I can afford to cast a wider net here.

Below is a table of deficit-to-GDP, dependent on revenue and NGDP changes this year. I have highlighted several cells in red corresponding to my expectations.

2015 Fiscal deficit sensitivity analysis

The assumptions (projections?) are:

  1. 0%-2% revenue contraction
  2. 4%-5% NGDP growth.
  3. For government spending growth, I imputed 1.2% YoY into my model, which is the exact increase the government announced from its budget revision back in January. I do not expect any spending cut due to… hmm… some political imperatives and I suppose, Keynesian tendencies within the government. I am unsure how the Monday announcement would affect spending as details are scarce so far but my gut feeling says it will not matter.

The weaker revenue is mostly due to depressed petroleum tax collection, lower petroleum royalties and lower dividend. I am a bit unsure how other taxes, especially company and individual income taxes, will change. But what we do have is the first half data and individual income tax collection is already down by 33% YoY, partly, I guess, because of the earlier tax cuts. Company income tax collection rose strongly however, increasing 43% YoY but judging from earning reports so far, I think the second half will be very different.

The 1MDB Minister Prime Minister Finance Minister will table the government budget on October 23. We will know more then.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
p/s — It would be interesting to compare current assumptions with past ones:

  1. My current expectation is based on 1.2% spending growth, 0%-2% revenue contraction and 4%-5% NGDP growth. These are part of the three assumptions listed above.
  2. Back in January 2015 during the revised budget, the assumptions were 1.2% spending growth, 1%-2% revenue growth and 4%-5% NGDP growth.
  3. The original 2015 official projection, shared in October 2014, was 3.2% spending growth, 4.5% revenue growth and 9% NGDP growth.

You can see the drastic change in projections and assumption since October 2014. Maybe a table will be clearer for comparison:

Malaysian deficit ratio target change