Wednesday, June 11, 2008

Pak Lah... The Most Astounding Finance Minister In The World

Pak Lah has already achieved the impossible by his singular contribution to democracy in Malaysia as he continues to prove that ANYONE could be our Prime Minister.

However, in his most recent acts, over just a period of weeks, he has outdone all other Finance Ministers from any relatively open economy across time and geography by departing from both major schools of economic thought of the last century.

On Thursday, the Bank Negara chief, Zeti Akhtar Aziz, admitted that the central bank needed more time to assess the extent inflation would rise to this year. This was barely 1 week after her expressed view that inflation can be managed with confidence, even if it hit a 10-year high this year. In my view, there are 3 elements likely to cause such high inflation expectation here:

  1. Government policy that have direct or indirect impact on prices. (Due to conflict of interest on my part, I'll let you draw your own arguments for and conclusions on this)
  2. The on-going negative impact of government policy flip-flops, resulting in reduced interest in investments or even retained deposit savings, both foreign and local, for fear of instability
  3. Government's competency (or incompetency rather!) in mitigating the negative impacts of the global financial crisis, that now may have a found a second contributor as the UK and Spanish property bubbles have burst (notice how there are no more 'Profitable Plots' ads anymore on TV?)

Note the strong influence of government on domestic inflationary pressures? It would appear Pak Lah has managed to defy the monetarist priority of managing inflation so much that even Bank Negara has had to revise its earlier confident view of inflation management within days! Eat your heart out Milton Friedman! Imagine if Bank Negara is forced to try to manage things with higher interest rates?

But then one wonders... perhaps Pak Lah is planning to go Keynesian? After all, this theory whereby government spending (fiscal policy) helps pump-prime the economy, a Tun Dr M favourite, has been used with great success globally since the 1930s depression era. Pak Lah can even get political points by distributing 'pump priming' projects to UMNO leaders prior to the general assembly.

However, Pak Lah had earlier announced, in response to the ever-ignorant opposition calls, to cut government spending by about RM2 Billion. No, no, no, no, no! This is not Keynesian! Sure, there is a benefit in the government cutting ministerial allowances, but cutting back on functions and small projects is counter-Keynesian! The government should instead re-allocate long-term spending to increase the number of projects, large and small, with high, immediate impact!

OK, I admit, some of the cut-backs are good, besides being good politics, like cutting back on the allowances for outfits for events (why did we have this in the first place?!) and budgets for restructuring (aren't these supposed to save money??!!). However, as spending on new assets, conferences, etc. increases circulation and business activity, the net benefit of cancelling many of these to the national economy, even if the funds go to subsidies support, may be negative!

Rather than cut back on small projects, why didn't Pak Lah cancel silly long-winded, slow and low return on investment projects like the 2nd Penang Bridge and re-allocate the savings on this to projects like the one he launched yesterday on increasing padi production. Instead, he has just cancelled a collection of small projects to fund another collection of (otherwise rather excellent) small projects, with a net loss from the effort to re-allocate the funds as a minimum!

Surely Pak Lah's friendship with Patrick 'Badawi' Lim is not worth spoiling Pak Lah's Keynesian efforts to boost the local economy! Pak Lah has already made monetarism unworkable in Malaysia by pushing inflation potentially beyond the control of Bank Negara. Will he now defy Keynesian economic theory by only half-applying it for the benefit of his friends and family?

If he does so, Pak Lah will certainly earn another accollade worthy of inclusion in the history of world finance, for being the first PM & Finance Minister who is both Anti-Monetarist and Anti-Keynesian... shall we call it Economic Irrationa-Lah-ism?


azlina said...

he never even know how to sell goreng pisang or even took any economic paper. how do you think he know how to manage the country monetary policy. dia cuma tau cakap saja and tido la. which pillow the best for him he know la

tombiruo said...

what do we expect from a man who fail economics compounded by sleeping sickness?

A Voice said...

What do you meaa he failed economics, tombirou?

He couldn't enter the economic faculty.

Cannot even pass simple statistics, which is merely learing the simple bell-shaped distribution.

His understanding of economics is still ZERO!

whackthembugger said...

It hurts, really hurts that blunder made by our Minister of Domestic Trade and Consumer Affairs in recommending the unbelievable 41% price hike in petrol prices, similarly diesel prices and abolishing the subsidies. A matter of such serious social economic consequences should have been contemplated well in advance and put to discussion in great detail by the entire cabinet with input from the various equally important Ministries on how the burden should be resolved and tackled. What happened?

Brought out from the cold was Shahril to head in revamping (reforming) current market practices starting with the removal of the many types of subsidies. Thus when the present petrol crisis erupted, he took the lead in abolishing the petrol subsidies, raising petrol prices by 41% causing unimaginable hardship to the Rakyat and the causing the start of inflation never to be felt before. Didn’t he has in his thick head that little sense to increase petrol prices in stages so that the people could gradually adjust to realities of the day? Increase prices of diesel definite will directly instigate inflation.

Could you imagine the financial impact in raising 5 kids (two in IPTA and 3 in schools) when we are just in the middle income group? Yes, we were following the advice of the Government then to have an apt family of 5. My petrol expenses will increase by say an addition RM200- RM300 per month (RM 2.4 to 3.6K per year), sustenance of 2 kids in IPTA and 3 in schools will increase at minimum RM200 per month (RM2.4K per annum), other living expenses including electricity (to adjust for expected price increases of basic necessities, before house and car mortgages and income tax) will increase by easily RM600 to RM1000 per month (RM7.8K to RM12K per annum). All in say RM1000 to RM1500 per month.

Where can I get such substantial increments in salary, net of taxes, to match my expenses? Sell my house? Starve ourselves i.e eat ubi kayu? Tightening belts and change lifestyles can only be recommended by those who do not feel the pain of the Rakyat especially those Ministers who travel free with unlimited petrol paid by the Government and not paid by themselves personally, with hefty allowances. Talking is surely easy for them!!!

PM who know nuts about good governance, what more of good or effective economics and monetary management, is being advised by an inexperienced Shahril bent only to reform to open market practices irrespective of the consequences; anybody can do that. Reform, reform and reform the whole socio-economic-political structure of the country to ensure PM has a distinct legacy to leave behind. That vision stands foremost before the interest of the Rakyat.
Malaysia PM vows to speed reform after poll setback
Malaysia's prime minister vowed on Tuesday to speed up economic reform after voters gave his government a sharp wake-up call at elections this month.
Prime Minister Abdullah Ahmad Badawi pledged to review his economic plans to ensure they benefited the poor and said he would further reform the bond and stock markets and also overhaul the state's extensive subsidy system to eliminate waste.
"The result of the election was a strong message that I have not moved fast enough in pushing through with the reforms that I promised to undertake," Abdullah said in opening Invest Malaysia, the country's main annual investor conference, in Kuala Lumpur.
"I thank the Malaysian people for this message: point well made and point taken."
Don’t ever expect any expertise in Keynesian or Monetarism policies or any type of economic-monetary policies to come into play under today’s flip flop governance. My greatest fear is still yet to come - the proposal by the defacto Law Minister to amend Article 121 (1A) of our constitution which he intends to table to the cabinet and then to Parliament at the next sitting in his quest to have our judicial system equivalent the epitome of the world.

Abdullah to announce judicial reforms, says Zaid.
Prime Minister Datuk Seri Abdullah Ahmad Badawi will announce soon the Government's measures to institute judicial reforms.
Minister in the Prime Minister’s Department Datuk Zaid Ibrahim said although several details had yet to be decided on, the Government was fully committed to the task of returning the public’s trust in the country’s judiciary system.
Our country is indeed heading towards doom; Flip Flop PM must go NOW

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