The UMNO Race- Final Lap

We are about one week away from the UMNO D-day. That's the UMNO General Assembly. It is sometimes known as PAU- Persidangan Agong UMNO. The word 'pau' has its negative connotations. In sreet-speake- it also refers to fleecing of money, as in delegates asking money from candidates for some nights stay at a good hotel in KL. The fleecing can also take the form of candidates asking money from candidates for shopping expenses.

Let's not mince our words here. Delegates from Sabah for example want to be feted as special guests. They wouldn't want to if they know what the term 'special guest' meant to Aziz Ishak- a minister who served during Tengku Abdul Rahman's time. They want to be transported from the moment they touched down in limousines to their hotels. They want to stay at 5 star hotels and have money to spend. Most of the delegates don't stay at hotels assigned by their perhubungan negeri. Of course they want to partake in KL's nightlife. Hanya berapa tahun sekali ba.

Most of the time, candidates have no choice but to comply. There is a wry and rueful saying among candidates. Beri salah, tak beri kalah. Heads you lose, tails you lose too. There is a thin line distinguishing political money and money politics. Candidates ignore these pau at their peril. There is no guarantee that if one candidate refuses to entertain these pau, the others will.

So for the next few days, I will stop writing on economics. I will concentrate on political writings.

As the position of UMNO president is uncontested, there is little to be said about money politics there. UMNO people actually love to have contests. Besides the opportunities to make money either by way of political money or money politics, they loved the act of casting votes. As in the general elections, UMNO elections are also seen as a chance to exercise their democratic rights. The right to vote is seen as an irrevocable and natural right and the act of casting their vote symbolises a personal and very private ownership of a right not to be taken lightly. In that sense, by winning the post uncontested, DS Najib will never know the real extent of his support.

But we shall examine DS Najib's position some other time. As of now let us turn our attention to the number two.

For all intents and purposes, the Deputy President's post is a contest between TS Muhyidin and DS Ali Rustam. One is an economics graduate from UM, the other secured a degree through off campus study from USM. Ali Rustam made it to the papers when he completed his off campus studies. At that time he was serving as an assemblyman under TS Rahim Tamby Chik. RTC is contesting as one of the vice presidents this time. That's high and low tides of politics for you.

In this post, experience is essential but not critical. It depends on the type of experience. There is an African saying, a day in the life of a raven, is worth 100 days in the life of a leopard. The terra-firma experience of the leopard is no match with the ability to fly.

If delegates are looking at paper qualifications and experience, then TS Muhyidin has won 2-0. I am being objective and stating it as a matter of fact. A degree secured through in campus and through the conventional process is more favourably rated that a degree obtained off-campus. It's simple to differentiate and distinguish the two methods. Just look at the entry level requirements. Direct entry requires higher level entry requirements than off campus. I am discounting off whatever excuses that may be put up by the Ali Rustam camp here. Their man comes from a poor family or sacrificed to allow younger siblings to study first. Muhyiddin can also come up with the same sob story.

What about experience? Muhyiddin has the raven's to Ali Rustam's leopard experience. So, Muhyiddin still wins here.

Muhyiddin has a longer experience as an able administrator. He has served since the late 1970's as deputy minister. His contemporary at that time is Rahim Tamby Chik. In fact at that time, UMNO was watching the rise of these two. He then went on to serve in various ministerial capacities. He projects the image of a tireless worker, focused but publicity shy. He is lurking somewhere. That can also be unnerving for some people. But so far, Muhyiddin has stayed away from political controversies.

Ali Rustam's experience is noted more for his penchant of embroiling himself with controversies. That may indicate however a gung-ho approach to Malaysian politics which may endear him to supporters. But hearing him speak, one cannot help but conclude that Ali Rustam is twaddle. We don't know his thoughts or what he is saying at times. That he is not collected and focussed is the impression that he gives.

Be that as it may, Muhyiddin may have a tougher time defending his track record. He has been holding important posts in UMNO far longer than Ali Rustam. He has been vice president for UMNO for a far longer time than Ali Rustam. Indeed, he has even secured the top place in the VP race on one occasion beating even DS Najib. But it is also true at that time; his victory was tainted with accusations of blatant money politics. At the ensuing UMNO PAU, he was actually defeated.

He has also been an MB for Johore. During his watch, he was also reputed to have amassed huge amounts of wealth. The Johore water front project will remain a bugbear on his record and experience. I remember Musa Hitam used to joke around saying; the only land (tanah) that Muhyiddin hasn't sold or alienated is the land on his mother's grave.

To be continued of course.

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More Money to Households please.

How bad is the economic situation in the country? We need forthright answers. Just as we need to know for instance why EPF can afford only smaller dividends this year, so too with the real facts about our economy. Why should we now believe that our economy will contract by just minus 1% and not more? The last time we were told our economy will grow at 3-4%. Why not cancel the RM5b loan to Valuecap and pay it out as dividends. What is our stock market now? How much is our unemployment and underemployment?

So, we are now looking at a RM60b stimulus.

Look carefully at the RM60b. Where is it going? How much goes into direct spending? How much goes directly to households. I have long advocated direct spending to households in the form of higher real wages, cola payments, pensions etc. They will spend and also save in the form of buying shares to earn higher returns. We must ask ourselves how much of the RM60b is going to help ailing businesses with bailouts and rescues. At the end of the day, ask also; how much will this stimulus cost us taxpayers per head?

Of course we hear that the stimulus, other than being applied to augment future capacity, aiding the private sector and all that, is also being directed to building roads, schools, and more. Class F contractors will get another round of boon. All in all, the stimulus will jump-start our economy, they say.

The consensus is we need a big shot in the arm. It has to be a very substantial package. That's all we seem to hear from politicians and pundits with the usual endorsement from economists for respectability- every economist agrees that this massive stimulus is the only answer.

But wait. Is it possible that government spending will only worsen the situation? What if, we ask the government to cut the stimulus? Our request is built on our belief that the government simply cannot spend its way out of a crisis. Let us ask the first question: How is it the government is going to be able to spend one Ringgit in such a way that it generates one Ringgit or more in value.

How did we get into this mess in the first place? In an earlier article I asked, how does being an export driven economy be that bad? Was it because we are exporting consumer durables? Was it because our industry has very high gearing? Was it due to economic mismanagement that repels consumer and investment spending? Was it due to overspending? Was it caused by financial indiscipline? Because careless spending got us into this mess, should we be trying to spend our way out of it?

How much of the RM60b is going to save failure businesses? If they are failing shouldn't we allow the market to correct them? For example that amount going to Khazanah is for what purpose? That RM29billion assistance to private companies means exactly what? To help crony companies? Unless more information is forthcoming, we have to shoot in the dark even with an AK47.

Indeed there is a rational reason why we can oppose the bailouts. For a market to recover, it must discover its true bottom and cleanse itself of poor investment decisions. So don't bail out failing companies, let them fail. Assisting them by giving preferential financing packages prevents market self-correction because it causes widespread uncertainty among investors. We don't know many things and the FM has not revealed much too. We don't know what the characters in the treasury, or khazanah or whoever his advisers are doing- which firms are going to be bailed out, and which ones are going to get an extra check. We must see them.

I think after so much credibility has been lost by the government, we have to be circumspect about the whole thing. We can be forgiven into thinking that maybe this RM60b is a means to re-bubble the economy. If the firs bubble was created by lots of debt, should the answer be more debt? Maybe the less costlier approach is to allow the bubble to completely pop and grow back on its own. The allocation meant for corporations is better directed to households in terms of higher real wages, pensions, or like what Australian is doing, direct payments to those retrenched workers.

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Politicians just love stimulations.

The government plans to inject RM60 billion into the economy. It will do so under 4 main thrusts as the finance minister says. The description is very apt- after you stimulate, you thrust. You might be forgiven into thinking our economic managers were doing something else when formulating our economic strategies.

In this short article, I am just trying to instigate some thinking. As we all know, the rage now is to embrace Keynesian economics. Starting from when Milton Friedman first uttered it to when Nixon famously rephrased the term, Keynesian economics is now on the ascendency.

Politicians and civil servants liked the ideas of Keynesian economics. They give them excuses and reasons to meddle in the economic system. In Malaysia, meddling into the economy can also be a means to make hay while the sun shines. All too often, bureaucracy and other regulations provide opportunities to make money on the side.

What is the basic idea of Keynesian economics? It is the idea of deficiency in aggregate demand. Simply put, it says that private citizens routinely spend too little. After working to produce to earn incomes they neither spend nor invest those incomes. According to Keynesian economics, it's this failure to spend and invest that keeps AGGREGATE DEMAND too low. And with total demand too low, businesses can't sell all that they produce. So the economy contracts and unemployment rises.

The solution recommended by Keynesians is for government to spend whatever private citizens don't — for government to buy what private citizens won't.

I am just curious; could all this be a red herring to give the government reasons to disturb the market? Is it possible that such an explanation is to also provide the excuses to hide the weaknesses and flawed economic policies? That really, the falling aggregate demand is the product of economic mismanagement?

Let us see. Keynesian economics says that after people work, they neither spend enough nor invest enough. The question then, why should they? We have already defined and determined that people don't spend enough or save enough. So why should they earn higher income when they will not spend and invest? I can put it more graphically by asking why would people strive and take risks to accumulate pieces of paper that they stuff under inside their pillows.

Savings of course can be translated into investments. People don't save by hiding them in pillows. They save by placing them in banks, or loaned them to governments when they buy treasury bills and other bonds or other government IOU's. Savings can be invested in many other ways to earn returns for those who save.

Here is the poser. Could it be that the reason why people neither want to spend it now nor to invest any portion their savings is because too few trustworthy banks or other potential users of these savings exist?

Our next question therefore is what repels the investors? Or what can prevent banks from lending to investors who can earn returns for depositors? The common answer given by Keynesian economics, is because there's little demand from people, investors won't want to produce things. This reasoning may not be the only one or even the correct one. Investors shy away because it is also possible that government policies are excessively hostile to investment and enterprise.

The forms by which government policies are hostile to investments take many forms. In some countries, governments can nationalize industries and that scare investors away. In less extreme examples, investors' enthusiasm is often dampened by assaultive economics policies. Examples of these include high capital-gains taxation, burdensome regulations, lack of transparencies, and too much red tape, arbitrary regulations might well scare investors away.

I am willing to concede that they be grounds to accept falling aggregate demand as the reason for this recession. But I would also like the government to examine that maybe the slackening aggregate demand is the product of their assaultive economic policies- in the manner that I have outlined above? Could it be that the reduction in aggregate demand be caused by the government trying to circumvent the market? For example, why should the government intervene in the market by lending Valuecap RM5 billion so that it can save itself? Wouldn't it make more economic sense to allow the market to correct the anomaly known as Valuecap? Is it sound economic policy for government to save Valuecap by entering the market lending it RM5b? In my opinion, that's not sound policy because to do so would divert scarce resources from other uses more valuable to people and the country.

Could it be then, this RM60b stimulus package is the excuse for politicians to justify meddling further into the economy? And they can justify it intellectually by saying that's what Keynesian economics prescribes? In that process, the normal corrective adjustments in the market which could allocate resources more efficiently are thwarted? It will also mean that government's power over the private economy grows dangerously. In our country as the government becomes more invasive in a market economy, private investors get more intimidated. As government grows bigger, the power and patronage of politicians will too.

I am just thinking out loud, that maybe, this unholy alliance between Keynesian economics and opportunistic politicians is fueling today's enthusiasm for fiscal stimulus. Are we being suckered? I hope not for this country's sake.

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More on the RM60b stimulus plan.

I have wanted to post this article since two days ago. The internet service in my area seems to have broken down which I hope is only temporary. So here I am, posting from one Old Town white coffee in Kuantan.

It's time now for a more sobering analysis.

Let us begin by asking why the Asian economies such as ours are susceptible to the contagion effects of bigger economies. Many of us have heard the saying- when America sneezes; the rest of the world catches a cold. Probably no economy is more impactful than the US economy on the affairs of mankind. At first our economic managers refused to acknowledge the imminent dangers. They said our economy has the resilience to withstand the onslaught of the American financial disaster. As the realities set in, our economic managers became less voluble. Notice how conciliatory the tone of our leaders sounds when they can no longer tai chi the bad news. The usual explanation is that our economy is heavily dependent upon exports. This is of course true. But if I may ask- why is being dependent on exports so especially bad for an economy like Malaysia's?

Probably our vulnerability is caused by the type of products we sell. One answer is that our exports like that of other Asian exports are often consumer durables. This makes purchases of such goods especially easy to postpone. But suppose our exports are more of the services kind? They have proven to be more robust. Maybe, it's time to look into that dimension?

If our economy is designed to that direction, that would require anticipatory planning. Let us say, we have certain types of industry we want to embrace. That would entail preparing our resources to accommodate that direction. Example: I read with keen interest, how Singapore prepares for its gaming industry. Years before the facilities are completed; Singapore's learning institutions started courses relating to the casino business. I don't know anything about the gaming industry, but I presumed it demands a wide range of servicing skills from people involved in it. This is an example of anticipatory planning.

Our economy is also vulnerable perhaps because our producers have chosen high fixed costs in a way that requires steady or rising revenue over time. The usual way of incurring high fixed costs is by excessive borrowings with little collateral. That is their version of being highly leveraged without taking on much explicit debt.

Perhaps, as another lesson, the finance minister may want to instruct his economic officers to study the many different ways there are to leverage businesses?

In other words, I am requesting our economic planners and managers to be careful when giving reasons why our economy is vulnerable. Just by saying, oh! It's because we are export driven may not be satisfying any more. That also shows, that your explanations are no longer absolutely believable.

Actual money into the economy?

One commentator applauded the step taken to provide a financial guarantee scheme for credit facilities that will encourage banks to lend. This he hopes will induce banks will be more willing to lend and companies will start to spend more and that will have a multiplier effect.

Ok, I second the motion. Even though I am not sure whether guarantees are actual injections of money into the system or are just illusory to induce lenders to part with money. We do this to instil confidence- the one commodity that is sorely lacking with the government at this present time. It is like someone commented- the RM60 billion is a mix of some real money and just guarantees - to throw for the next two years to keep jobs and confidence for those in the danger of losing one or both, particularly the politicians.

But how about considering my above suggestions? I said the ones who hoard money are the banks. To induce them to be more charitable, let's impose a tax of excess reserves and stop paying interest on reserves. These can have the effect of making money that stays idle and less productive untenable. It's better to let money circulate and earn revenue by applying them to businesses.

What I am saying is, maybe a more assertive action taken by the government rather than reliance on a relatively passive way of financial guarantees is a better way to induce lenders supply money into the system.

Let's play with some theory here. The monetarist looks at the world in through the eyes of the Quantity Theory of Money.

All over the world, the rage now is we are all Keynesians. Meaning we accept that government's role via their spending is more important than in the variation of interest rates (monetarists prescription) to goose up the economy. Let us view government spending as shocks to the economy. That is, it influences the operation of the V as in Velocity of Money.

Many of us are not doctrinaire economists in the sense that we insist only our way of doing things is correct. Always, our question is, will this policy work? This should be the mantra of policy makers rather than aligning themselves with doctrinaire schools of economic thought. But let us indulge in ourselves and see how this thing about government spending figures in a monetarist framework.

In the realm of theoretical debate between Monetarists and Keynesians for example, it is still possible and reasonable to discuss fiscal policy in a monetarist framework. The monetarists have their quantity theory of money MV=PY, money times velocity equals prices times real output.

In the long run we know that real GDP is pinned down by real factors (labor, capital, technology, institutions and so forth) so increases in M will increase P proportionally. That means in the long run, increases in money supply leads to increase in price only without impacts in output (GDP). But in the short run there are plenty of reasons to think that increases in M can increase Y. That is the principal reason too, why the government wants to inject liquidity into the market. At least they know this part.

But in the equation we also have V which is how fast money turns over. Changes in V can be looked upon as shocks in spending. Now, spending shocks can be caused by consumers and government. This is because government behaves like a consumer too. Its eagerness to spend pulls the economy into a high-employment, high-pressure boom.

M and V in the equation operates in identical fashion and thus logically must have the same effects for the same change. In other words, when you accept that (M) is potent then V must be potent as well and V is fiscal policy. In the short run, just as the supply of money influences GDP, so it is with V that operates in the same manner. Reduction in money supply (credit squeeze, tight monetary policies) withdraws financing ability from the system. Hence, in the current recession for example, apart from decreasing (M), (V) too has fallen by a lot and it is dragging down Y. So what do we do?

We can counter with an increase in M (monetary policy) or by an increase in V (fiscal policy). So even in a monetarist worldview which revolves around the equation MV=PY, fiscal policy is not impossible. This is because MV=PY is not a true model, but a way of looking at things by an economist of a certain persuasion.

Our only reservation is that V driven by government is maybe too slow or too wasteful to work well. The government cannot replace the market system to bring about economic changes. But as we have said above, we won't be caught out in doctrinaire debates. We are talking about livelihood here, jobs, revenues and earnings.

What the finance minister is doing now, if I am looking at it from MV=PY is making V an endogenous function of Y. In other words, he accepts and the rest of us, agree, in these trying times, government spending is the answer to our problem. So we have him saying equally boldly: "We cannot depend on orthodox economic recovery policies. We must be bold in formulating innovative approaches to deal with the crisis."

Will he be tolerant about some unconventional thinking such as this? Providing financial guarantees is not exactly out of the box thinking.

Therefore in order to invigorate the economy, the finance minister must make sure the government delivers. That calls for a sound delivery system. Has he addressed this issue?

Further, the V part will be influenced by good governance, transparency and so forth. Government actions must as far as possible imitate free market actions. It must address the issue for instance the lack of details and monitoring system to track spending of the allocations.

The government has a window of an opportunity to do something with the RM60b( our money by the way). It has the option of fortifying its old ways of doing things- through government agencies execute economic development on behalf of the people or it can shore up freedom of choice for the people. I am only concerned that for people who think it's their money they are spending on us, the little napoleons will be salivating at the prospects of handling the huge amount of money. If that happens, without the monitoring apparatuses which we pointed out above, then the whole stimulus package will be a restatement of Malaysia's old, government-knows-best policies. And like the very apt comment given by an analyst- "It's the opposite of what Malaysia really needs, which is to ditch this thinking and shift to a business climate that encourages private investment and entrepreneurship".

The finance minister has said much about his economic philosophy. (If he has any), but all indicators point to the almost certain fact Najib Razak is no free-market reformer. How so? We have not seen much in the way of steps taken to release money directly into the hands of private spenders- the consumers and investors. He hasn't done much to address the issues of reduction in personal taxes, corporate income taxes that could have released more liquidity into the market directly. We have not seen much about assistance in the form of tax cuts or cash grants. Singapore and Taiwan for example are up and about implementing corporate tax cuts to boost corporate earnings as well as income tax cuts to help boost disposable household income. Not much here in Malaysia- the finance minister has shown little about the means to boost earnings by way of corporate or personal tax cuts. By not doing much in this department, the government misses the opportunity of immediately releasing money to Malaysian households.

Hence its back to the system of father knows best for us. The finance minister is no great reformer in this sense. He has not recognised the profound importance of giving the people freedom of choice. A democratic government such as ours, must conduct is economic planning in a manner which preserves the maximum possible freedom of choice to the individual citizens. Let's see more money directly in our hands.

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Initial thoughts on the RM60b Stimulus

The finance minister has unveiled his stimulus package plan. It is RM60 billion. The size of the outlay is good. It is almost 10% of the GDP. That’s bigger than Singapore’s RM50b.

There is no dispute to that figure. Indeed it turns out to be bigger that what the experts were expecting which was around RM 25-30b. On this point, the finance minister has over-achieved his target. I would say it is always better to have a bigger stimulus than a smaller one. Reason? Bearing in mind that our forecasters and experts are nor prescient, an over stimulus package takes care of their less than accurate calculations. There is more fat to subsist on in the event they turn out that way.

I have always been taught about this maxim. The shortest path between two points on a plane is a straight line. The straight line is not only the shorter distance but is also economical. I can already hear the protests- well life is not a plane. Well then the applied mathematicians have this maxim that the shortest route between two points is an interconnected network.

Translated into economics, this maxim means the better way to commit benefits to the recipient is a direct one. Take the present case of our stimulus package. Many of us now know it as the mini budget. It is RM60b. How do we ensure that this 60b reaches its terminal points? First, if it’s a plane, via straight line to the terminal points. If it has to travel through a network of distributing points, make sure these distributing points are a network where the leakages to the flow are minimal. Accordingly, if our attention is to make more money available to the spending public (whether they are investment and consumer spenders), our focus must also be directed to avoiding actions that slow down that flow.

So why then do I have the feeling that this 60b stimulus fund is reaching the terminal points through a circuitous network of distribution points? And then the RM60b, is not a single shot in the arm. Its spread over two years. Where does the RM30b position itself in the 2010 budget at the end of this year? It’s back to the same old way of doing things- just a variant of legislating our way through. Its back to the system of father knows best central planning.

Let’s ask some other questions. Who hoards up the cash? Banks naturally is the answer. How can we induce the banks or other financial intermediaries ( khazanah and what not) to ease money flow? Probably the monetary authorities can look into possibilities of (a) stop paying interest on reserves. This reduces the demand for reserves releasing more money into the market to stimulate aggregate demand. (b) Impose a tax on excess reserves. Again, inducing banks to hold just the right amount of reserves and force them to apply loans to profitable business ventures.

Just one month ago, the finance minister and everyone connected with managing the economy, say our economy is growing. We are definitely achieving a growth rate of 3.5%. There were similar prognoses from people who think they manage the economy. Those who think they know economics were also saying similar things. Until of course the government produced its 4^th quarter growth figure. The economy grew by just 1%.

Suddenly, boom turns to gloom. Our leaders now say, we are in for a rough period, the finance minister is now saying, and the Malaysian economy will contract by -1%. When our finance minister presented his first stimulus package of RM7b, he was still looking at a growth rate of 3.5%.

Even then, that figure was disputed by many people, most notably by Tengku Razaleigh Hamzah. TRH was hinting at a growth rate substantially lower than 3.5%. It would be around 0.5 per cent and 1.5 per cent. Of course TRH’s counterpoint was dismissed by many. After all he is but a has been finance minister. His views were also dismissed as just verbiage from someone who failed to secure nominations for the UMNO presidential race.

But serious minded economists did not share the Finance Minister’s enthusiasm. The logic behind a more pessimistic prediction is quite clear. The Malaysian economy is trade driven. Our economy depends on the economies of the developed world. We produced and manufactured and the developed economies consumed. If their economies are suffering, we can anticipate reduced trading with them. That would result in lower earnings.

The worsening economic data from Malaysia’s main trading partners and export nations were quite evident. .The World Bank said that the world is facing its worst performance since the Great Depression, with developing countries bearing much of the economic pain.

1. Global industrial production will only be 85% of what it was in 2008 by the middle of this year.

2. World trade is predicted to experience its largest decline in 80 years, with the sharpest losses expected in East Asia.

Financing declining trade will become more difficult:-

1. Many institutions that have provided financial intermediation for developing country clients have virtually disappeared.

2. Developing countries that can still access financial markets face higher borrowing costs, and lower capital flows, leading to weaker investment and slower growth in the future.

But why was our government not forthcoming with the gloomy economic scenario? At one time, one leading banker was even thanking god that our economy is insulated by the worsening global economy. That’s an economics premature ejaculation.

Singapore which is heavily trade driven economy was more circumspect. It quickly acknowledged its technical recession and set off to carry out remedial measures. It committed SD20b in as a single shot in the arm.

Ah, because, says the government; the structure of the Malaysian economy is different from their neighbour down south and not as exposed to the gyrations of the global economy.

In addition, until recently, there was little evidence that recession would visit Japan and several other markets for Malaysian goods and services so quickly and in such a devastating fashion.

In simple terms, the Malaysian government did not prepare itself. It says, this will come to pass.

This is what you get when politics rule the day. People think that bad news should be managed well to prevent a plunge in consumer spending. The attitude of the government is that Malaysians are by nature a pessimistic group and could overreact. If they do, announcing a recession would induce a self-fulfilling prophecy.

In other words, the Malaysian public is not so smart.

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An Afternoon with Tengku Razaleigh Hamzah- final part.

You know Tengku, the unemployment figures are worrisome. Singapore is sending back 200,000 of our workers. Here you have maybe 100,000 or more. Our government don't even have the figures. Then you have to be mindful also of the new entrants into the job market- College and university graduates and those with courses not marketable immediately. You can have an explosive situation in hand. These people have got to live.

What raises the ire of the public is the deception our leaders poured on us. Tell us the bare facts. Because when our leaders sell us an alternative reality, they are only undermining its own credibility. Even more serious, leaders only raise the suspicion that they have no ideas for coping with it. Policymakers in Singapore appear far more alarmed than our own. They didn't mind going public announcing that Singapore is undergoing technical recession. What do we do here? We do the foot shuffle. We beat around the bush.

I know TRH has said this:-

Economic plans should be transparent and discussed openly so that the public and the business community can respond to them. The US stimulus package was debated heavily before it was passed. The world knows what the US, UK, China, Singapore, Australia and South Korea will do in response to this crisis, but not what Malaysia or North Korea will do. We need greater clarity, and quick, transparent decision making. There is no need to politicize growth estimates or to time stimulus announcements as if they were political goodies. This is a rescue we are talking about, and our future is at stake.

 

We haven't been doing enough to increase our productive capacity. I would regard as steps increasing our productive capacity those measures to allow retraining, acquiring value adding skills, new knowledge, way of organising things etc.

I agree when you said Tengku, that maybe we are deluding ourselves as to our productive capacity. Our illusion that we have increased our productivity and working incomes has been masked by an influx of cheap labour. So when these people became economic actors and we are able to export, we think we are productive. So like you have said, cheap labour has become another crutch for us.

The government must exhibit a very standard of professionalism and efficiency. When economics resources are scarce, when we don't have sufficient resources, things will depend of how efficient we are. What do I mean by that?

Look for instance at how the organizational capability of government to learn and re-organize is set up to deal with fast changing economic landscapes. How can the government for instance qualify itself to deal with economic crises for instance? They have not scored well for example when it comes to acknowledging the impending economic crisis. You earn credibility when you project a quality of trust. When people trust you, you earn that credibility. Like you have said, the government's credibility was damaged when it did not tell the public the truth.

The government must restore confidence in the rakyat by showing they know what to do. Your slowness to implement counter measures is not going to convince people that you know what you are doing. If you tie up what you want to do according to political timetables and political expediency, people will catch you out.

I am in full agreement when TRH wrote:-

Government now needs to be smarter, tougher and more responsive than before to engage on equal footing with business. We need leadership to change the operating model of the civil service from last century's centralized planning approach, driven by budgetary plans, to a model of government as facilitator, aggregator and convener of business. Government that targets economic outcomes rather than accounting quotas. We need to demand as much talent and organizational ability in our public service as the private sector does of its own people. Today the quality government is a core component of national competitiveness. However there is nothing strange about the expectation that the civil service should be a high performing organization led by an intellectual elite. It is how the Malayan Civil Service Real confidence is hope based on an apprehension of the truth. It is social capital and trust in society and its future. It is inspired by leaders willing to take us through an unflinching evaluation of where we are today to a vision of what we are capable of tomorrow. It means owning our own story and banking on it.used to operate. Many of us remember it.

I asked TRH on the areas where the government can profitably spend. I said I read in his article mention about how in the 1930's, the Americans built their national highway system and the Germans built the Autobahn. So maybe spending on infrastructure remains an attractive avenue to support economic growth? I once heard you talked about constructing a new highway linking Gua Musang to KL. To me that would integrate rural economy with mainstream economy. Do you still believe in that?

 

I agree with you spending on items with the largest multiplier effects. Infrastructure is one of them. But you must also be mindful of the more significant concept of the long term multiplier. That is nothing less than the improved capacity of the entire system. For that you need to dispense with the business as usual ad hoc pork barrel expenditures. You do public investment projects. But our action must be guided by a vision, designed around a strategy and governed with integrity.

And you mentioned something on housing Tengku....

I don't mean the present housing system like we have at the moment, SPNB and all that. Do something like what Singapore does. Look at how the HDB does its job. People will always need housing and so start a program to bring home ownership to the whole country.

But the mere mention of taking the cue from Singapore raises morbid xenophobia Tengku...I said.

You follow and take lessons from what is good. If it's good and effective why not? It's always for the greater good.

Yes, I remembered you said, of all the national projects we could undertake, few could have such a large social as well as an economic multiplier effect as housing.

Indeed in one of his articles TRH wrote:-

Housing builds powerful social capital and gives substance to citizenship. A national housing project allows us to design entire communities and townships with their transportation, communications, educational and recreational infrastructure with a strong set of standards and social objectives. It lets us plan the housing stock to cater to the lifecycle of home ownership, with a good mix of options for different localities and life-cycle requirements. It is a way to grow racial harmony, build integrated schools, and help the poor without creating a crutch. Let's commit ourselves to having each and every Malaysian family own their own home. This vision is a radical challenge to the nation to do better. It will require extraordinary improvements in our ability to design, construct and finance housing projects. It will require the setting up of a statutory board to oversee housing development, administration and management. As land governed by the State powers, the States will have to implement these projects. This will require, and hopefully force, improved coordination between the Federal and State governments, especially now that we might no longer expect that the same party is in power in both places.

I thought our conversation had ended. I rose to shake his hands and this time, mindful that his advisor had kissed his hands, I did too. Like the gentleman of the Old School of Malay etiquette, TRH quickly withdrew his hands.

Then, he continued sitting down.

It's basically the question of sound leadership. I hope the leaders do their first important function which is to lead.

Tengku, for all our efforts to discuss, to debate and to deliberate on these issues, I still hold to the feeling- that come this UMNO general assembly, UMNO's leadership will be determined in the toilets of PWTC. You know, that's where the ample liquidity is. And the only kind of leadership that comes out from there is a stinking one.

TRH managed a controlled laughter...I like that comparison.

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An Afternoon with Tengku Razaleigh Hamzah(7)

TRH on Economics.

Even though I am tempted to write something on the RM60 billion stimulus package( spread over 2 years), I promised myself to complete my talk with YM Tengku Razaleigh Hamzah. But briefly though, if RM30b is slotted to be spent next year, wouldn't it be part of next year's budget?

Tengku please....can I ask you this direct question I have been waiting to ask you for a long time?

Do you not feel it a personal defeat having been sidelined a few times from becoming the PM of this country? To you- a personal defeat, to this country, a great loss. I mean, back in 1987, the whole country knew you had won. At that time in 1987, I was working at Shell Malaysia- I heard that Daim Zainudin was already acting bizarre for he knew Dr. Mahathir had lost.

And then way back you were the most senior VP of the three then. But you made way for Dr Mahathir. Why Tengku?

True I was the youngest among the three. After Tun Razak died, Captain Hussein Onn wanted to appoint Ghazali Shafie as the deputy PM. The three of us went over to see Captain Hussein to discuss the matter. We told him, if none among the three of us VPs is chosen as deputy, we will resign from UMNO.

Hussein Onn accepted the robust stand by the 3 UMNO VPs. He asked who among the three of you are suited to be the deputy. Tengku Razaleigh gave his opinion.

Ghafar Baba was the most senior in age but lacked sufficient education to become a suitable deputy PM. As he himself was younger than Dr Mahathir, he told Hussein Onn Mahathir would be the better choice. So fate intervened to deliver the decision.

It is part of Malay tradition that the elder one is given earlier passage over the younger. I am a firm believer of (Malay) etiquette.

I did a little research on TRH's explanation. The above sounded so simple to me. I felt there must be some other compelling reasons. I would discover the following story.

Days before Tun Razak died, TRH was summoned by Tun Razak at the hospital in London. Tun Razak told TRH that he has made arrangements which he hoped TRH would come to terms with. The so called arrangement was to have Dr Mahathir be the next deputy en route to becoming the PM. The tacit understanding was after Mahathir,TRH was to become the next leader.

After the 3 VPs saw Captain Hussein, TRH doubled back to talk with Captain Hussein. TRH relayed the entrustment which Tun Razak made to him. I can only guess that TRH must have agonised greatly for having to give an unverifiable story. How could he prove that Tun Razak actually said that? A man and a politician at that can either be a complete liar and an opportunist to do that or he can be absolutely truthful. I do not doubt, that for TRH, he is honour bound to tell the truth. Honour and integrity defines the man.

Tengku, let's talk about economics.

I am very surprised to not see any response from our leaders on the speech you gave at the ASLI forum. I believed you have outlined some economic measures to shield us from the economic downturn. I specifically remembered that you cautioned the government from being over optimistic about the rate of economic growth.

But the government is adamant about having growth in excess of 3.5% kan? Just look at the grown in Q4 in 2008. It was 1%? Now do you think that decreasing rate can be pulled back?

I responded. Tengku- the incredulous thing is the government is not forthcoming about the real facts. They have access to figures, they have access to data from all over the world, yet they have chosen to be duplicitous about it. Don't you find it deceitful that the leaders are now asking us to brace ourselves for hard times? From over optimism to a sense of hopelessness, that would suggest that government does not have a plan to tackle the economic downturn.

Tengku- we have had 2 stimulus [packages actually- the first one on Valuecap, the other the RM 7 billion package.

The first thing I want to ask you- stimulus for whom? Or stimulate who?

Well you know, the other finance minister just announced that they had only spent close to RM600 million only...that would suggest what?

Before he could finish, I asked...Tengku, in your estimation, do we have the money to finance our stimulus?

I believed there's NO money. You have to finance your spending. We have borrowed money from EPF and Tabung Haji, or Khazanah. We can't be borrowing from external sources. We most definitely can't tax our way through.

No money. That can be the only plausible explanation why the government has been slow to spend. What are we waiting for? As you know, there's always lag time from government expenditure to fruition of the effects. Implementation takes time so on and so forth.

Where do you find the money? Our income has been hard hit. Our economy is export driven. Look at the earnings from petroleum. It's now USD 50. Look at our palm oil prices. That too has dropped.

We have a combination of two evils now- dropping revenue and income and stubborn consumer prices. It was a mistake to allow consumer prices to rise. You know prices are sticky downwards. Even as the cost of oil is dropping, prices of consumer products are not falling as fast as falling commodity prices.

Next, the government has to look at what type of industry they want to spend on. Look at specifics. Do a proper analysis. Prioritise them.

Tengku: can we cut down on implementation time, if we insist on transparency and open tenders and what not? That would cause inordinate delays. The other alternative is to choose winners. But that would open you up to charges of cronyism..kan?

You know, we can still have open tenders and apply above board selection process. How do you think, this cronyism started? You must begin eliminating cronyism from yourself first. It must begin with the top decision maker. If you yourself have vested interest, then you condone and even support cronyism. What do you get then? You get a system where the top decision makers select those who can in turn feed them. I know this is a harsh term, but that's how it is.

Unless you eliminate vested interests and hidden personal agenda in yourselves, you will have cronyism. FDR's new deal gave rise to worries of corruption and abuses. But the new deal worked because there were oversight apparatuses.

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