Get real on economic facts
It is interesting that Datuk Seri Idris Jala, CEO of Pemandu, presented an upbeat “growth story” as the new reality in Malaysia, “Surviving the new reality” (The Star, Oct 5).
However, Pemandu’s economic update has to be more transparent and balanced. This is because Idris’ views were based on his stated consultations with “eminent government figures” and the three international ratings agencies who are not on the ground. There is the possibility of a credibility gap and a serious disconnect between the Government’s and the people’s perception of the country’s economic situation and the people’s own sense of wellbeing and their future prospects.
Firstly, Idris bravely stated that it is erroneous to conclude that “the depreciation of the ringgit is entirely due to 1MDB and political funding issues”. With respect, I wonder who and why anyone would claim that the falling ringgit is “entirely” due to 1MDB and political funding, although no one can deny that these factors contributed to the ringgit’s slide.
I would agree with Idris that the currencies of other countries have also depreciated. His graph shows that the ringgit’s depreciation was the second largest, at -16.5%, among the 15 countries he highlighted. Over a five-year period from Sept 18, 2010 to Sept 18, 2015, the ringgit fell by -25.9%. Most objective observers would agree that this severe drop would have been far less if not for the purported current Malaysian financial scandals.
I am concerned by Pemandu’s tendency to defend the indefensible which is causing a credibility gap and public pessimism.
We have to recognise that all Malaysians, especially the bottom 40%, are feeling the painful pinch of inflation. This is no doubt partly due to the shrinking ringgit. Yet, inflation is not even mentioned in Idris’ article. Is it not an economic fundamental worth mentioning? It is the selective treatment of economic analysis like this that raises more doubts, uncertainty and less trust.
Secondly, I do not think that any right-minded person feels foreign investors are “no longer investing in Malaysia” but I would agree that some foreign investors are losing confidence. With the rise in uncertainty and inflation, slower economic growth, high corruption and political, racial and religious uneasiness, would investors not be less ready to invest in Malaysia? When foreign investors see that those making racist remarks are getting away with it, will they not wonder where we are heading? Will they feel secure when the crime rate remains high? And if foreign investors are cautious, domestic investors will become wary too.
The shortage of skilled workers and even reliable general workers is also a serious problem.
Thirdly, no one seriously says that ratings agencies have lost confidence in Malaysia and that they are contemplating a downgrade for this country. It is true that many investors disagree with the ratings standards of these international agencies and this is a situation which these agencies have to address or they risk losing their credibility.
Hence, I believe that it will not be long before Malaysia’s international ratings is reviewed more realistically. We should note that a large portion of our own bonds have been withdrawn by foreign investors upon maturity. Does this signal that we may even now be having some junk bonds from some foreign investors’ point of view?
Bank Negara, the Treasury, EPU and Pemandu will need to monitor our bond market more closely to make the necessary adjustments in time.
Fourthly, domestic capital flight can and will occur whenever there is foreign capital flight. It may be less volatile but it’s not averse to flying out if there is fear of economic, financial and social instability. Capital is not subject to emotion, loyalty or patriotism. It only searches for and seeks good returns and profits.
We already have the largest capital outflows, including domestic capital, so how can we be so sure about our domestic capital flight? The public will appreciate hard facts rather than mere official assurances. When facts are available, confidence will rise. Today’s Internet-savvy public knows, hears and sees better. So Pemandu, please be more upfront in the economic updates for better public understanding on the economic and financial fronts.
What people perceive is that public debt and the budget deficit are getting worse. We see revenue declining due to low commodity and oil prices. We also note that expenditure is increasing with rising inflation and heavier development expenditures and wonder how the budget deficit can go down. If the deficit worsens, we will be forced to borrow to finance it. It’s like our personal budgets – we have to pay for what we buy on credit.
It is true that the introduction of GST and reduction of oil subsidies have helped to reduce the budget deficit. But don’t forget that the Government is giving away billions of ringgit in BR1M. Don’t also forget the billions in contingency liabilities the Government has incurred and built up over many years. If some huge government contingency liabilities or debts are not settled on time, the Government will have to undertake bail-outs. That will be disastrous but hopefully it won’t happen.
We would need to take heed that even in the “no-holds barred conversations during the Economic Update 2015”, we Malaysians and close foreign friends tend to be just too polite.
Messages, like those from the World Bank and the international ratings agencies, are usually so subtle and mainly concerned with the short-term outlook that we may get and give the wrong signals to the public. We then take a cavalier attitude and inadvertently play King Canute who, it will be recalled, ordered the high tide to recede but it did not and so the poor man was drowned.
I hope we will be more alert and swim strongly against the rising tide of numerous socioeconomic and political challenges, as reflected in the falling ringgit!
May God bless Malaysia.
Article published in The Star.