Thursday, April 23, 2009

Has Najib And UMNO Copped Out On Malay Rights?

When DS Najib announced that 27 services sub-sectors were being liberalised, meaning specifically that the 30% Bumiputra equity quota requirement was to be rescinded, the response was varied across the nation. As intended, the news rippled out and is already affecting the regional as well as international business and political communities' perception of Malaysia.

However, as is always the case in Malaysia, discourse on the immediate economic benefits of this surprise move by DS Najib so soon after taking power is being slowly drowned by the furore over what this means for Malay and Bumi Rights. Some have even directly questioned whether DS Najib, and by extension, due to the muted response, whether UMNO has abandoned Malay Rights.

I wasn't actually planning to write on this as I did not expect people to be surprised, but they are! There seems to have been the following different types of responses:
  1. The normal pro-government media stance... but informative at least.

  2. The pro-view, which is typically from the business community, both Malay and non-Malay!

  3. The anti-view, which is being held by many ultra-Malays... interestingly, many who are vocal on this view are not involved in business!

  4. The opportunist view, as usual the PKR boys think this was all DS Anwar's idea in the first place and that DS Najib is stealing it... grow up!

Why was I not surprised? Because even if we aren't too bound by the WTO due to the on-going breakdown of trade talks and there being worse offenders, Malaysia has signed up to AFTA, the ASEAN Free Trade Agreement, and being a leading light in ASEAN, we have to open up these sectors to ASEAN competition by 2010 anyway! Doing this early, at a time when our economy is arguably stronger than Thailand's and Singapore's has its advantages.

Being an ultra myself, and even knowing the above, I was still a little taken aback at how zen I was when the announcement was made. I know I'm not a pro-Najib fanatic, so I have done some soul searching about why I'm so relaxed about this... then it occured to me... for many of these service industries that are being liberalised:

  1. Even if international competition wants to come in, IT CANNOT SUCCEED WITHOUT LOCAL PARTNERS! This includes industries such as transport and tourism.

  2. There are some services in these sectors that MUSLIM MALAYS/BUMIS DON'T WANT TO BE INVOLVED IN ANYWAY AS IT IS PARTLY NON-HALAL! So, removing the 30% cap doesn't cause any loss to Malays, as we would not be interested in participating anyway. In fact, if said sectors are hence developed post cap removal, the resulting employment, and if you have scrupples, even indirect Halal employment, will be good for Malays.

  3. There is always the regulatory lever that the government can apply to safeguard not just Bumi, but Malaysian rights. Significant area would be in Healthcare. We can learn much from how the US, Australia and West Europeans do this.

I do have a couple of caveats though in my guarded indifference, if not enthusiasm, over this new policy move:

  1. I would oppose this if it ends up being a precursor to us signing up to the USFTA, which I believe is detrimental to the country's well-being, sovereignity and with even less benefit to be imagined now that the US economy is a mess and they have become more inward looking.

  2. I would oppose excessive liberalisation of the Financial sector... but we'll have to wait and see what gets announced there...

And the answer to the question as titled, I is believe NO. DS Najib and UMNO HAVE NOT COPPED OUT on Malay Rights... not yet anyway... hopefully not ever!

6 comments:

Wenger J Khairy said...

Saudara AKM,
To be honest my initial reaction was that your comment was kind of a 'hit and miss.' wrt to this new policy.

Number 1, this 30% quoata issue is only applied to companies seeking public listing . I thus see this as something that came out from the new Economic think thank that has gathered around DS Najib. But given that our equity capital market is completely dead in the water, to me this really is a non-issue. So immediate economic benefits - well, lets stop kidding ourselves. The KLCI will still be known as the TM-Tenaga-Maybank show. It will take much much more for this to have the 'immediate economic benefits' alluded to.

Number 2, you mention that "even if international competitors want to come in, they cannot do so without Bumi partners' citing health and transportation as examples. Lets look at transportation, the market is already well supplied by many local vendors - Tiong Nam, Tradewinds, and a whole lot of them. If we say, some one wants to make a big impact we are looking at an investment of around RM 1 billion and above. If Malaysia continues to be in the state it is, there just isn't enough demand to make any economic sense. Of course, if the Iskandar Development Region does take off , ok then I would argue that the demand will be there. And I think that big international companies can actually take a sizable chunk without the need for Malay partners. As for healthcare, the public delivery system is still the main mode for healthcare delivery, and the market is oversaturated with blood sucking private hospital chains anyway. So perhaps increased competition may drive prices lower.

Number 3 - HALAL, NON-HALAL argument. Ok fine, but which sector in particular has a significant non-halal component?

Number 4 - "There is always the regulatory lever that the government can apply to safeguard not just Bumi, but Malaysian rights."Ha ha ha, good one. The IMF projected a 3.5% contraction this year for Malaysia. Apart from palm oil, we are still yet another undifferentited ASEAN economy. New investment goes to China because of the large domestic market, coupled with the cheap labour.

When PM Najib was busy painting a rosy picture about the Malaysian economy in the late 2008, I criticized him and correctly called recession. And now people are begining to wake up, but unfortunately the world has moved on. Malaysians are still way way behind the curve in terms of understanding the forces of globalization; we think in terms of simple concepts not realizing that without a consistent growth rate of between 5-6% without inflation, our social fabric would be put under severe pressure. I will even further argue, only a complete repudiation of the 30% quota rule and full liberalization of the economy will be the bare minimum that needs to be done in order for the Government to avoid a complete collapse in the economy.

The reason goes like this. Our civil service and Bumiputera component of the economy is extremely dependent on Government expenditure. When the economy tanks like what its doing right now, Government tax revenue is greatly reduced and once again we have to go on deficit spending. Along the same time, check out the Money growth rate. So what we have been having is artificial 4-5% growth over the last 6-7 years or so, artificial because this growth came about due to a loose monetary policy which in the end raised prices. (thats why our prices are so high) And this is set to continue with the deficit spending, so inflation continues to rise, people become squeezed and what we have in the end to show?
Higher prices thats it.
How to change that?
You tell me, the only way out I see is to reduce the dependance on Government expenditure and move towards a more restrictive monetary policy. Slowly but surely, we are moving towards Latin America / Indonesia status.
Of course, with us ultras, I can gurantee any right decision will be met with the stiffest resistance.
I may be an ultra, but I am still not an idiot.

Akhramsyah Muammar Ubaidah bin Sanusi said...

Wenger J Khairy. Interesting point of view. However, you have some misconceptions that have led you down quite a few inaccurate viewpoints.

In the first place, the 30% quota issue goes beyond companies that wish to go for public listing. Significant players that wish to enter the Malaysian market, requiring licensing etc. may well be hit by the 30% rule. At the same time, the 30% rule almost always applies where government or even GLC procurement is concerned.

Otherwise, much of your views are just a matter if opinion. Stating that a recession is emminent in late 2008 is not novel, most of us were commenting of the US and UK Real Estate and Sub-Prime bubble well before. Krugman got a Nobel prize for it!

Most of us are also aware that governments tend to incline to talking up the economy to sustain feel-good as long as possible...hard to criticise lah...

However, I find your last viewpoint a little stunning, to say the least. You are advocating REDUCED gov expenditure during a recession and applying a RESTRICTIVE monetary policy? Basically, with the economy contracting, you are advocating for it to contract further?

Sorry la bro, but this IMF-esque approach was well discreditted in the 90's together with any illusion of DS Anwar's competence in talking about the economy even! Most economies are following the Mahathir approach of the 90's now... pump-priming and liberalising the economy where it hurts the locals the least.

Us turning into Latin America and Indonesia? Only is DS Anwar takes over... or if Pak Lah was still around!

Wenger J Khairy said...

Saudara Akhramsyah,

Nice rebuttal, you have brought out a lot of fair points.

(i) I did not see PM Najib explicitly state that the procurement policies of GLCs were to be changed by this. I admit I could be wrong, but it is only in the blogs that I see people mention that this requirement pertains to GLC spending. So thats why I completely discount it, to me, I will only read what PM Najib said, and the only take away I have is that this rule applies to perhaps incorparation of a Bhd status company (with the required paid up and authorized capital - ok may be it still won't go for listing so I accept your point there.)GLC's are free to use whatever metric they want, whether it is 30%, 50% or 100%. I think most of them adopt the 80-100% metric practically speaking.

(ii) I totally agree. What i was saying was not novel. In fact we can say its common sense, or even any simpleton who can add and subtract would come to the same conclusion. Unfortunately, our then Finance Minister said something that the economy was good there is no problem blah, blah, blah. Even the old grand master of voodoo economics, said that the economy was not going to be affected by the global financial crisis. Now they are changing the story after less than 4 months. One should seriously look at the credibility issue.

(c) Movement towards a more restrictive monetary policy....
DSAI once mentioned about creative destruction when he was DPM. That was perhaps the right way forward, we did not pay the price in 1998 to get rid of all the incompetent and corrupt practises then, and we continue to do it now. One example is Tengku Din's expose on Sime Darby.

(b) The grandmaster of voodoo economics somehow has led people to believe that his method was correct in tackling the financial crisis. Ok, if that is the case why did not the ringgit rebound after that? The Korean won and the Thai Baht certaintly did, in fact if you look at a pre - post crisis view, you can see that the ringgit was perhaps slighltly better than the Rupiah in terms of devaluation. The 1998 crisis was a sole result of economic mismanagement and unprecendented stupidity amongst our business elite (borrow $USD, cash flow in RM), today Hungary and a lot of other Eastern European countries are in the same boat, but I don't see them blaming Soros and company.

The Big Debt Burden(c)Right now we have borrowings of RM 300 billion, and if we continue with this loose monetary policy, it will probably shoot up to RM 400 billion by the end of next year.

This would put severe pressure on the ringgit and drive up prices. Why because of the economic mismanagement over the last 22 years, Malaysia is now operating more or less at its potential GDP. The potential GDP should be much much higher but we all should thank the 4th PM for that. So all Government expenditure will do in the long run is to just raise prices, come on , you also have to sit down and ask yourself why are prices of foodstuff, services and all other manners of basic neccessities rising year on year on year?

Pressure on the RinggitIf we continue with this loose monetary policy, I expect the Ringgit to cross the 4.00 band well and through ( unless there is a deal with Singapore for Iskandar DR). If there is no deal, our tax base cannot support this kind of debt and we are laying a mega time bomb for the young generation (13-18 yr olds).

The only way is to cut the crap out of the economy. Let the companies which are badly run fail for once and for all and not have them continue to drag down the economy due to the endemic corruption and inefficient business practises.

Crowding Out EffectSecondly, when the Government goes and borrows this kind of money, there is something known as the crowding out effect. Business now have to compete with the government for access to capital, and in the end, what I see is that the businesses which have Government connection will have preferential access to new businesses as opposed to businesses who don't. Some of the latter will close down, others will seek newer opportunities in other countries. So after a while, our market will be dominated by more inefficient businesses who over time will get into the same set of problems , and require further Government expenditure to bail them out. I say this taking a 3 - 5 yr outlook, too often most of the policies in Malaysia is short sighted and cooked up by hacks.


Ask around, and you may be surprised that a sizable proportion share my views.

Wenger J Khairy said...

forgot to mention,
hope you are feeling better and your back is well healed.
WJK
(i respke you being able to blogg from the hospital bad)

Akhramsyah Muammar Ubaidah bin Sanusi said...

Wenger J Khairy. Thanks for your response. FYI, my back is feeling better and I have been discharged from hospital already, but still have to take it easy - my wife would kill me if she knew I was up blogging on the PC now, but it is so much easier than doing so with a PDA!

On your views being agreed by many people now, having a popular view doesn't mean it is right! Many people are claiming a lot of things about how DS Anwar's approach 'could have' worked in 1998, but the reality at that time was Tun Dr M and NEAC gave it time to work, but the metrics were all indicating IT WAS FAILING.

At the same time, DS Anwar's approach was seen to be similar to the IMF's approach... an approach which the IMF has since agreed was NOT SUCCESSFULL especially compared to the Malaysian model introduced by Tun Dr M for the late 90's recovery. This is the same recovery model that is being used internationally now, with some addaptations.

You will find few people who would endorse the IMF/Anwar model for recovery now. Creative Destruction sounds cool maybe, but is socially disasterous. It leads to high unemployment, failed mortgages, reduced economic entities and financial institutions, and all at a time of crisis, where speedy recovery relies on the survival of as much of the economy as possible.

What should be done during a crisis is a realignment of the economy, but it can be done whilst minimising the pain to the populace. E.g. in the last crisis, the focus was changing the regulatory framework by enhancing the strength of institutions like the Securities Commission. This time, DS Najib is trying to liberalise sectors of the economy.

My biggest concern of your views is that it seems to confuse our government's success in managing the late 90's crisis and the aftermath through to 2004 with the period of expansionist corruption, nepotism and incompetence from 2004to end 2008 when we changed Finance Ministers. You should look at both periods as separate.

Finally, successful assessment of economics must be absent of dogma...

When trying to answer my challenge on your incorrect support of a restrictive monetary policy during economic crisis, you use DS Anwar's 'Creative Destruction' dogma, then talk of 'not paying the price of incompetence and corruption'... but the 3 are not directly related! Unless of course you're buying into Anwar's propaganda..which isn't economics..

wanbaki said...

bang...
bila bercakap ekonomi dalam politik habih laaaa...

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