Sunday, August 16, 2015

Are you bankrupt of ideas, Chin Tong?


YB Liew Chin Tong's piece - Five ways to save the Malaysian economy – is good but the recommendations are flawed, if not full of rhetoric.

Let's talk about numbers and not play with politics or emotions.

Because when we become emotional, we lose our ability to make rational judgement or decisions.

After my first article - Malaysians are now currency experts? - I have been labelled with all sorts of profanities when in fact the key message was Malaysia is not the only country that weakened against the US Dollars.

There are multiple factors for the weaker Ringgit which I've shown in my 2nd article ( Export-commodity prices and the Ringgit ) and the obvious factor of all is commodities prices - oil, palm oil and rubber - that crashed from their respective highs in 2011.

This is not about Government, Opposition or politics. We talk about facts, policies and numbers, and numbers don't lie.

Now, back to Liew Chin Tong's recipe to save Malaysia.


(1) Get Najib to quit as Prime Minister and (2) Name a new and competent Finance Minister

Let’s evaluate on how the Government handled this ‘crisis’.

Leave 1MDB aside for now, which let me be clear that I have slammed the Government and supporters since May 2015 in blogs and social media and I will continue to do so depending on the Auditor General's Report.

In a letter dated 26 December 2014, the Government ordered all Government departments, statutory bodies, GLCs and GICs to adhere to the following:

".. syarikat milik dan berkaitan Kerajaan serta badan berkanun dan syarikat subsidiarinya perlu memberi keutaman kepada pelaburan domestik serta menangguhkan serta merta pembelian aset di luar negara bagi mengurangkan pengaliran keluar dana"

Here's the letter:






The Government knew what was coming. Indicators were clear especially from the crash in commodity prices.

Three weeks later on 19 January 2015, the Prime Minister, Treasurer General and Governor of the Central Bank addressed the nation, analysts and media.

The Government slashed their operating expenditure and announced new measures to continue to boost the domestic economy.

As a result, look at our Q1 and Q2 GDP figures. Our economy grew at 5.6% in the first quarter, 4.9% in the second quarter.

Malaysia performed better than many other economies and we beat analysts' forecasts.

What would you have done differently, Chin Tong?

But if you ask me, if there’s something I’m unhappy about, it is the fact that some GLCs clearly ignored the Treasury Instruction and are actively scouting for, if not buying, properties and companies to acquire overseas. This puts pressure on the Ringgit, so, where’s the whip? I blame this on the weak leadership.



(3) Set GST at zero rate

GST is expected to contribute RM23.3 bil to Government. But we have abolished Sales and Services Tax that gave us RM17.2 bil last year.

We have also reduced both individual and corporate tax rates which will cost us perhaps RM1 bil - RM 2 bil in revenue.

We can expect lower revenue from the oil and gas sector of approximately RM27 bil.

So, by setting GST to zero, it will cause the Government to be short of close to RM70 bil for Budget 2016 and years to come if commodity prices stay at current levels.

Why make populist but irresponsible recommendations like this, Chin Tong?



(4) Halt big ticket crony projects

I am shocked that you want the Government to halt projects like Malaysia-Singapore High Speed Rail and MRT. We all thought you wanted better public transportation.

Of course, if Government cancels these projects that were meant for the people, it will be additional political capital for you.

You can then accuse the Government of wasting money on compensation and accuse the Government of not doing enough to improve public transportation.

By the way, which crony was awarded or won the contracts unfairly in both the projects - High Speed Rail and MRT?

You say there are other ways to boost the economy. If not infrastructure for the people, what are they?



(5) Halt intake of unskilled foreign labor

I like your recommendation that Malaysia must reduce foreign labour and push for mechanisation and automation.

But 70% of foreign labor work as maids, work in plantations, in constructions, in agriculture and services. Approximately 30% in manufacturing.

Government tried to limit the intake of foreign labour in 2010-2013 period and 'encouraged' automation in both plantations and manufacturing such as rubber gloves.

The Government communicates and work closely with the industries all the time and even gave incentives and organized international competitions just to source for ideas from the best.

But there are multiple factors that put off automation efforts especially terrain and costs.

And, we can't automate and mechanise maids, builders, or farmers, can we?

These are not excuses but innovation, mechanisation and automation are long term policies and they are already on the table, without even you suggesting them.



So, Chin Tong, any better ideas?

Wednesday, August 12, 2015

Export-commodity prices and the Ringgit

1.    If we look at the big picture, the Ringgit has been badly affected by confirmed as well as expected macroeconomic decisions in two of our major trading partners.

2.    The possible increase in US interest rates around September will strengthen the dollar further – theoretically investors will pull money out of other countries and invest in US securities with higher returns now.

3.    And yesterday when China devalued yuan against the dollar, Ringgit went down further.

4.    But our Ringgit to Dollar exchange rate has been declining since the good days in 2010/11.

5.    Commodities prices do contribute to the strength of our currency, especially when a significant percentage of our industries are either directly or indirectly linked to oil, palm oil and rubber.

6.    Since 2010/11, the prices of the most important commodities that we produce and export crashed. These commodities are crude oil, palm oil and rubber.


7.    Price of crude palm oil fell 47% since 2011. Palm oil peaked and was traded at RM3,811 per tonne in February 2011. In August this year, it is traded at RM2,034 per tonne.




8.    Price of SMR20 rubber fell 69% since 2011. At its peak, SMR20 rubber was traded at RM16.89 per kilo in February 2011. In August this year, it is at RM5.16 per kilo.






9.    As we all know by now, price of crude oil (Tapis Blend) crashed as well. For the period 2011-2014, crude oil was traded at above USD 100 per barrel, peaked at USD 119 per barrel in 2012. In July this year, it was USD 59 per barrel, which represents a 50% drop in crude oil prices.

10.    Notice how the change in prices of our commodities relate to the exchange rate.

11.    In 2011 when crude palm oil price was trading at a high of RM3,811 per tonne and rubber was RM16.89 per kilo, the value of exports from these two commodities alone were RM74 billion.

12.    Again, today, the prices of both commodities - palm oil and rubber - are 47% and 69% lower.

13.    When crude oil was above USD100 per barrel in years 2008, 2011, 2012, 2013 and 2014, the value of our crude oil and condensates export were between RM32 bil - RM 44bil.

14.    Again, the price of crude oil per barrel in July has halved from the previous years, and should come in a few percentage lower in August.

15.    The above does not include export value of derivatives and value added products as well as supporting and related industries that supply goods and services to other commodities-producing countries also.

16.    Prices of commodities are not the sole factor for the fall in Ringgit value against USD but it is a contributing factor.

17.    You may continue to read and believe emotional posts on social media and the politicians that by removing Najib or Barisan Nasional, things will be better. That is your democratic right.

18.    But the next time you see such posts online, why not ask yourself, your Facebook friend or the politicians a few questions?

19.    If you are sworn in as Prime Minister tomorrow, will the Ringgit strengthen by itself, will commodities prices swing upwards or what exactly are your plans to strengthen the Ringgit?

20.    Discuss or have a good laugh.

Tuesday, August 11, 2015

Malaysians are now currency experts?


Today, the Ringgit breached RM4.00 for a dollar.

When I logged in to my Facebook and Twitter accounts, 9 out of 10 posts that appeared on my timeline were slamming the Government on the Ringgit.

To sum them up, youths who dominate social media today were posting comments as though tomorrow spells the end for Malaysia.

And in just the past month, I saw how Malaysians transform from being constitutional experts, to aviation analysts and now economics.

Some even went as far as pushing the blame on UMNO and Najib. There's this group called Suara Rakyat who likes to say "other countries are doing better because UMNO is not there in their country".

Of course, when you have a narrow, myopic view, you will tend to miss out the fact that over the 5 year period,


•    Russian Roubles lost 114% against USD
•    Indonesian Rupiah lost 51% against USD
•    Indian Rupees lost 38% against USD
•    Norwegian Krone lost 37% against USD
•    Australian Dollars lost 24% against USD
•    Euro lost 20% against USD
•    Thai Baht lost 10% against USD

Do I need to go on?

One of the contributing factors faced by these countries is the drop in oil prices. Crude oil was trading at US$70-80 / bbl few years ago and today it has fallen below US$ 50 per bbl.

Also, US is not our only trading partner and the performance of our Ringgit is not measured against US dollars alone. When we look at the Ringgit, 



•    we strengthened against Canadian Dollars (2%)
•    we strengthened against Indian Rupees (10%)
•    we strengthened against Japanese Yen (14%)
•    we strengthened against Indonesian Rupiah (18%)

I don't need to name more currencies, do I?

Do you know that the value of our trade with India, Japan and Indonesia is close to 20%?

Understandably, we are quick to feed on negative news and quick to comment like an expert on our Facebook and Twitter. That's how things work these days.

Of course, none of you made reference to 1998.

No one remembered the time when the Ringgit crashed to as low as RM4.725 for a dollar on 7 January 1998 (BNM selling rate, over the counter was more than RM4.80).

All of you, who were quick to comment about the state of our economy on your Facebook, were still in school.

So none of you knew, none of you remembered, none of you experienced what happened in 1998 when Anwar Ibrahim was Finance Minister.

Back then

a)    People were losing jobs or had difficulty in getting jobs
b)    Households were squeezed
b)    average lending rate was 12.16%
c)    Inflation was close to 3% without subsidy removals.


If any of you doubt the 2-3% inflation numbers today and felt it is way higher, apply the same thought to 1998-1999.

And yes, average lending rate was over 12%. Those were the days.

You may say it is history and you may continue to slam the Prime Minister, the Central Bank and the Government for today's numbers.

But the next time before you get upset and share your anger on Facebook or Twitter, ask yourself whether or not the Ringgit - Dollar exchange rate affects you, and how.

1.    Do you shop online from US websites?
2.    Are you planning to fly over to US for a holiday?
3.    Are you a Malaysian studying in the US?
4.    Do you import goods to be resold in Malaysia?
5.    Do you buy necessities and food from the US to use here?
6.    Do you at all use the US dollar in your daily life?

Because my dear, only if you answer yes to the above, you are affected. Otherwise, what are you shouting and so worried about?

Your salary is still denominated in Ringgit and you don’t buy necessities with US dollars.

Sure, no one can deny that it has some impact to some segments especially imports and our plans to travel to US, UK etc. I am also of the opinion that there are many things Najib can do (which he isn't at all now) and I will share more soon.

And guys, the international ratings agencies - Fitch, Moody's and S&P - have all maintained Malaysia's outlook as stable. There are no economists out there who are saying that Malaysia's economy will collapse, only politicians are saying this.


PART 2: Read Export-Commodity Prices and Ringgit