Saturday, January 31, 2009

Bank Negara's ineffective monetary policy, etc

Bank Negara's reduction of the the indicative overnight policy rate or OPR by 75 basis points or 0.75% to 2.5% has not had an iota of benefit to stimulate lending or generate positive economic activity.

There are a few reasons for the failure of this monetary policy:

Refinancing borrowings
All borrowers are motivated to re-finance their existing borrowings to take advantage of lower interest rates. This is basic business common sense. Reduce the cost of borrowing. So, at this point the reduction in bank lending rates is a zero-sum game. Worse still, this monetary policy isn't able to forestall the NPLs from ailing borrowers who are in default of their borrowing obligations.

Banks' natural aversion to risk
Banks prefer to lend to other banks. One of the Malaysian banks that is most astute at this is Public Bank. It may explain why Public Bank is consistently outperforming other banks in terms of profitability. As for lending to businesses, all sorts of risk matrices are being put in place by banks. Banks always prefer to lend to people who are cash rich and, who do not need to borrow. That is the central irony.

No sales, no need to expand business, no need to borrow
With economic contraction local consumption is declining and, export markets are disappearing. Many businesses are more worried about inventory overhang.

Without sales orders only a foolish businessman would want to expand production lines or, increase productive capacity. It would be suicidal. Those businesses that are rushing to borrow must past muster with banks' risk matrices. A good banker's instincts would be to worry about bullish borrowers in a bearish climate.

So, how effective is the policy of having an RM2 billion fund for the Credit Guarantee Corporation to guarantee up to 80% of the borrowings by SMEs? The SMEs will probably take advantage of this policy to re-finance their existing borrowings, that's all.

With jobs at risk, why buy a home now?
As for end-financing for the residential property market, home buyers are dwindling. Why risk buying a house or apartment when your income may decline or disappear as the job market comes under stress from the threat of unemployment? The end-result is fewer borrowers in this sector.

These are just a few factors that I'm hammering down from the top of my head. Didn't Bank Negara consider these factors when they instituted the stupendous 75 basis points rate cut?

The Malaysian saver under pressure
To add insult to injury, the conscientious Malaysian bank depositor is now under pressure since fixed deposit rates have fallen to below 3% per annum. This is an especially cruel blow to pensioners who depend on the interest yield to augment their pensions.

That is why, in a fit of panic, Bank Negara has instituted the RM2 billion Merdeka Bonds at a generous interest rate of 5% a year for Malaysian pensioners or, those over 55 years old.

It is obvious that monetary policy as an instrument to stimulate economic activity is quite useless at this point. Bank Negara should stop considering any further rate cuts because Malaysians will not tolerate the Japanese scenario where depositors have to pay banks for the privilege of depositing their savings. No, that will not do at all.

Another RM10 billion stimulus package?
The first RM7 billion stimulus package was directed at Valuecap and the property sector. The money apparently hasn't trickled down yet.

Speculation is rife that the next stimulus package is worth RM10 billion. Where will that go? That remains to be seen.

Focus on microfinance
Since I don't want to end on a low note I will say this. In an increasingly difficult economic climate, what Bank Negara can and, should do, is to stringently monitor the bank lending to micro-borrowers of RM50,000 and below.

These borrowers are the ones who have interesting business plans that are achievable. They need to be given a chance.

With the spectre of more Malaysians becoming unemployed, there will be more micro-borrowers. Many of these are honest-to-goodness and hardworking Malaysians who have good business ideas that can achieve break-even and paybacks within reasonable time-frames. They may just need some small capital to get started on a new career as a small-business operator.

Use the risk matrix on them, especially their background and business model. Being micro-businesses, the business model is easy to suss-out.

This is the area that Bank Negara and the Malaysian banks should focus on.

The chances of success is high.

It helps to reduce unemployment.

It will help stimulate economic activity.

It's all good with minimum downside risk.

Say it ain't so

It is easy to imagine that Malaysians who rely completely on the mainstream media news must be completely bamboozled by now. The urban Malaysians are probably more cluey and, would have caught on to the gentle decline of economy activity. As for Malaysians in the rural areas, I suspect that they are feeling the contraction too despite conflicting news reports. So, I don't think Malaysians are that easily bamboozled.

We have come to regard this ability to understand nuances as the art of reading between the lines.

Just click on most of this weekend's contents of The Star's BizNews and you will see what I mean. The reports on specific companies carry all the positive stuff. For example, Air Asia targets RM200 million profit in 2009 and Boustead Plantation REITS post higher profits.

The rest of the contents cover the entire spectrum of scary stuff. Foreboding signs is the title of Guna's op-ed piece carries his usual caustic observations on the economic management of this country (or lack thereof), An 'oxpicious' year ahead? is where Lin See Yan continues to be more and more candid about Malaysia's economic problems (perhaps being prepared to relinquish his role in the reticent Economic Council or, angling for a new gig when Najib forms his own one after March?) and, so on it goes. 

And, to underline in bold that the economic problems are escalating without saying so, the feature articles are focused on the banking sector's declining lending and the NPL situation (very subtly) using titles such as Riding out the financial storm, How the banks are coping and so on.

To someone who has blogged extensively on the economic challenges for many months now, this is a case of the mainstream media being too little, too late.

The role of the mainstream media as the so-called Fourth Estate, has been absent for a long time. Many blame it on repressive laws such as the odious Printing Presses and Publications Act. The Internal Security Act has something on economic security that probably scares the crap out of the Chief Editors.

But, really, are we that bereft of writing talent that there are no journos with the penmanship to be able to highlight economic issues without having to rant and rave about politics and personalities?

By not stating the obvious on an area as neutral as economics, the Malaysian mainstream media has done a great disservice to the Malaysian public. It failed to get the Malaysian government to stir from its slumber. It failed to highlight the problems, both systemic and human, that may have helped to bring into sharp relief the shortcomings that needed to be addressed months ago, perhaps some time in February 2008.

Malaysians journos need not be that intelligent on economics. There were plenty of analysts that were writing reports on the declining state of the Malaysian economy throughout the second-half of 2008. The analysis were already done and written up with plenty of colourful diagrams, bar charts and pie charts. 

If the political masters had been annoyed with certain penetrating pieces on the state of the economy, the Chief Editors should muster all their skills to deal with them. 

But, it would appear that after years of emasculation we do not have anyone in the Malaysian Fourth Estate that can rise beyond reporting on past events and calling it news. Every penetrating report that is written is reviewed from the perspective of which politician or which political party that will benefit from such a report; never, ever from the perspective of whether the public needs to know about it ... even neutral topics such as economic news is edited on that basis.

This bizarre situation only points to the widespread belief that the rot in Malaysia's socio-political fabric is so deep that only a major change can reverse the rot.

As for the economic malaise that is creeping into all levels of the Malaysian community, the laggard mainstream media reports confirm the belief that things are worse than what is reported. The BN leaders running the Federal Government are now caught in a fix that they created for themselves ... some call it a credibility gap. Others call it the uncomfortable splat sound from the shit hitting the fan

Thursday, January 29, 2009

Semi-skilled foreign workers to work in SCORE?

This latest post by Dr Brian Anthony at the Dayakbaru Weblog contains a highly relevant set of questions that the BN Sarawak State Government led by Taib Mahmud should answer. I am reproducing the post here. This is a wake-up call for BN Sarawak that the end is near with these types of myopic and self-serving policies that are dressed up under the guise of economic development that does NOT provide any direct benefit the people of Sarawak in such a basic area as semi-skilled employment:

The below news is exactly what I have expected and this is totally unacceptable by the people of Sarawak. Dayakbaru will take the lead to protest this move. SCORE is said to be created to generate 1.5 million job. Before we even begin, the Chief Minister already started to play his manipulative hand on labour requirement.

You can expect the Chief Minister’s next step - he will announce that Sarawak will import semi-skill labour from a specific country. Before that, a certain arrangement would be made to put labour supply business under a limited monopoly.

What is Happening?


“Sarawak will relax its immigration policy to open up the state in a controlled way to allow semi-skilled immigrant workers to be employed in the various sectors in preparation for the implementation of the Sarawak Corridor of Renewable Energy (SCORE).” (Borneo Post)

Internal Labour supply

What is the number of labour that is needed and what classification / category of skill are required?

The Sarawak government led by the Chief Minister is always issuing very “blur and sweeping “statement that is almost of no use to the people of Sarawak. Can the Labour Department or SCORE issue a specific information on the labour requirement.

Otherwise I can only thing of dubious intention of certain politician to make money out of labour supply at the expense of Sarawak workers.

This is an open challenge to the intellect (senility) of the Sarawak Chief Minister.

These are simple question for a man who may be too senile to answer. We know that the ADUN - BN members are all turning into “stone” now thus the questions.

  • How many semi-skill worker do SCORE need and of what skill is required and when?
  • When is this labour requirement needed?
  • Can we train our current unskilled labourer to be semi-skill using a robust system of training - practical approach.
  • What wage scale are the government going to offer this group of semi-skill imported worker and what would be the salary scale given to home grown semi-skill worker?
  • If imported workers are semi-skill in category do you accept that the local workers would be the “general labourer” earning less in their own country compared to foreign worker?
  • Are you not ashame of not being able to produce semi-skill worker in your great and progressive Sarawak?
  • Is Malaysia ( Sarawak) less develop than the country where you are suggesting to import workers?

I would proposed that SCORE or whatever authority is involved to identify the type of skill required in SCORE and set up training centres to produce these workers among the local population. If the government is thinking of giving peanut then of course you will get monkeys.

How much money and resources is required to set up this training centres in Sarawak? In the first place Sarawak should be equip with more technical and practical training centres to increase the capability - human capital development in Sarawak.

What is the State Minister in-charge of Human Resources development doing about Human Capital development. These training centre is unlike setting up of universities - it doesn’t cost that much money. More money is spent in projects in Sarawak that is not contributing to the well-being of the people of Sarawak.

What is SCORE requirement for professional and Managerial people?

My questions are:

  • has the State government took specific and focus action to generate the correct graduate that would be able to serve SCORE
  • why is SCORE still “blur” or “silent” about their requirement - are you sure you know what you are doing.

The State Government cannot continue to mislead the people or not showing good managerial skill in managing SCORE so much so almost everything and requirement are on “urgent mode”. Or is it possible that those working in SCORE now are made up of LAZY people and with no INITIATIVE in their work?

Choosing an easy way out

The State government MUST not choose the easiest way out of lack of skill workers problem in Sarawak. Malaysia has been talking about developing human capital and why are we building dam that we do not need. Why are we going into Kuching beautification program intensively when that is not helping the poor people. Why are we developing unnecessary service - broad band services for poor areas in Sarawak when even Kuching wifi services is still poor.

The government must invest in technical training centres. We must have proper refresher training program otherwise how will the government open up new opportunities for the people of Sarawak and improve their living standards. SCORE is an example - where the government fail even to exploit the potential of earning for te Sarawak population. The Government shown have known and do something about iy.

Sarawakian working outside Sarawak

The Sarawak State is not even shameful that it cannot provide job for its people in Sarawak. The West Malaysian State accepted Sarawak workers and train them. In the most unfortunate manner, the Sarawak State Government do not seem to have training centre to train the Sarawak people across sarawak. It is only Oil and Gas related industries that is doing the training for its workers - permanent or otherwise.

We should not talk of vocational school only for young people. The working people or those people who are without work should be call for training and given allowance. The Federal government spend almost $54million for such scheme to train graduate - now can’t the state government their population into semi-skill workers.

The Sarawak State Government must act more responsibly to its own people.

Shame to the Sarawak Government

The State government talk and promote BIG BUSINESS and they can’t even develop the skill of their population to make them productive. The government prefer to import semi-skill workers and the unskilled workers in Sarawak will become labourers. The big money will go back to foreign country while the local unskilled workers in Sarawak suffers and living below poverty line. Where will be their hope and future.


That is the problem Mr. Chief Minister when you overstay in your job and get too rich. You will not listen to what the people tell you. You will be blind to their problem and because the power that you have build in Sarawak you will use it to find an easy way out of your problem.

Then the poor people remain poor and come election you pay them some money to vote for you and promise them “give away”. Then they will return you. If these people of sarawak are helpless and cannot think for themselves - you being the Chief Minister must see to it that this should not be the case.

Change your approach or if you cannot think too much - leave your post. You are sick and old already. If you think that Sarawak still cannot go without you it is because of you.

We Sarawakian will be able to look after ourselves without you - so say goodbye. Dayakbaru wish you all the best and enjoy your retirement.

Dayakbaru says:

Don’t sell out semi skill job to foreign workers - we produce our own in Sarawak.

Wednesday, January 28, 2009

UMNO and BN: Is re-invention possible?

It must have been painful for someone like Ku Li to write posts such as this one here. Being such an integral part of UMNO during the 1970s and being mentored by no less a leader than Tun Abdul Razak, one can imagine his thoughts on how UMNO has evolved or, more accurately, regressed vis-a-vis the Malay community and the larger Malaysian community.

The thoughts penned by Sakmongkol and Another Brick in the Wall also point towards the need for UMNO to re-invent itself.

Ku Li's recent offerings include the following extracted passages:

I have long said that UMNO and the BN must change fundamentally or become irrelevant. That change cannot wait, as one General Election and two bye-elections have shown us. The proposals I made last year to democratize and clean up the party were opposed by its leadership. I called for the Party to hold an EGM to reflect together upon the meaning of its losses at the Election and I proposed that we remove quotas for nomination, and scrap the delegate system in favour of direct election to key positions. I said that the party needs to be democratised, after which key party positions should be separated from government office.

We are told that all that has been done so far to effect change is to “compile all the proposals on renewal measures from an Umno retreat and several discussion sessions,” that is to say, not much. It’s nice to compile ideas, but change requires hard decisions and leadership.

It cannot have escaped the notice of many (I hope) that Ku Li directed his views not just at UMNO but, also at the other BN components.

The problems that confront UMNO is equally present in the likes of MCA, MIC and SUPP.

Ku Li's observation about the compilation of renewal measures apply to the other BN components too.

There is a strong sense of a crumbling empire. The leaders have vested and self-interests so deep that they refuse to consider the greater interest of the party and the ideals that the party was formed to champion.

The followers of these leaders are typically sycophantic. They do not oppose or offer contrarian views because they live off the largesse dispensed by the leaders.

Those that develop a spine are quickly marginalised and eliminated together with anyone that supports them. Many of these recalcitrants are also opportunistic about grabbing the spoils of war, having little real interest in the future of the party.

There is an embedded belief in UMNO and all BN component parties that money is still the only factor that will sustain their hegemony in Malaysian politics. This is how out of touch the leaders and the party hacks are.

For the other BN components, the sad truth is that they refuse to change until UMNO changes. One clear evidence of this attitude of BN component parties is my indictment of the MCA in a post entitled, MCA can't turn multiracial until UMNO does???

I have blogged about the need for BN to seriously look into changing its playbook in The problem with "Business as usual".

The portents look as bleak as ever. There is a continued pretense at sounding macho. Just read about the drivel that Ong Tee Keat still dishes out from the dusty playbook that probably dates back to Tun Tan Siew Sin's equally ineffective time. Read here.

At the rate things are going, the so-called tipping point that will engender a genuine re-invention (or demise) of all BN component parties will take place only after a debacle in the next General Elections. For the avoidance of any doubt, by debacle, I mean a situation where UMNO and BN has insufficient seats to form the Federal Government.

Saturday, January 24, 2009

Happy Chinese New Year

GONG XI FA CAI to all Malaysians who are celebrating the welcoming of the Lunar Year of the Bull

Picture courtesy of this site.

The God of Prosperity (Cai Shen) is featured because he stands for all things that are good including wealth and prosperity NOT just in material terms but also a good environment and a happy Life. This I wish for all Malaysians of all ethnicity, class or creed. 

And, to ALL Malaysians, do have a HAPPY HOLIDAY. To the balik kampung drivers, please drive safely. 

Klang River may get a facelift

I am pleased to read in the NST that the Selangor State Government plans to solve the Klang Valley area’s chronic congestion with a public-transport blueprint including boats and trains that may cost RM50 billion (US$14 billion).

The 10-year program involves turning the brown Klang River, flowing west from Kuala Lumpur through Selangor state, into a waterway clean enough to attract commuters.

Sungai Klang was the artery that provided the lifeblood for the region that we now know today as the Klang Valley, the most densely populated area in Malaysia.

It connected the tin-rich settlement of Kuala Lumpur to Klang and the muara that led to the exchange of goods.

So economically prominent did that muara become that, after detailed surveys, Frank Swettenham's Administration commissioned the opening of a viable port at the rivermouth. It's initial name was Port Swettenham. That romantic colonial name was replaced by the functional name, Pelabuhan Klang or Port Klang. Being a frequent visitor, I may have some more to say about Port Klang at some stage later on.

For now, I hope that economic and development planning takes the stage, front and centre. And, I truly hope that Mentri Besar Tan Sr Khalid Ibrahim will successfully navigate the narrow selat between State-Federal politics and the rational dictates of economics and development.

The much-maligned and abused Sungai Klang has received the same treatment as with almost all riverine matrices in Malaysia. After being an artery that helped to create the settlements and economy, the river is treated like a longkang for over 5 decades now.

Why is it that Malaysian development eschews river frontage? There are very few exceptions.

I completely share his sentiments as quoted: “Now I have to juggle the politics so that the federal government will feel it’s their idea, not mine,” Khalid said. “So long as I get a clean river and public transport, I don’t mind.”

Friday, January 23, 2009

Nonverbal Obama: Aside From His Words

I figured many Malaysians (especially politicians, would-be and long-suffering ones) would be interested in William A. Gentry's essay in Businessweek on the body language that President Obama conveyed when he was delivering his Inaugural Address. So here it is in full:

President Barack Obama's inaugural address today offered his first official opportunity to set the tone and share his vision for his fledgling Administration. In addressing fellow Americans for the first time as President—against the backdrop of a severe recession marked by massive layoffs, foreclosures, and numerous other problems—it was critical for Obama to inspire hope and project confidence.

The words he used were essential to his message. But his nonverbal behaviors were just as important, if not more so, in getting his message across. Research shows nonverbal communication conveys as much as 93% of the emotional meaning behind what is said. People respond strongly to what they see, or to the tone of voice that is used to speak the words they hear. Everything from dress, the amount of physical space between the speaker and audience, hand gestures, posture, facial expression, and tone of voice can make or break a leader's message. With Obama on center stage, here is what I, a researcher and commentator on leadership and nonverbal communication, observed watching his inaugural address on television.

Leaders in general will use different nonverbal behaviors and actions when addressing a crowd or making a speech than they would in a one-on-one situation. For example, Obama made good use of eye contact with individuals during his debates with John McCain in the fall. During the beginning of his address today, however, he reached out to a large audience by talking to the extreme left and extreme right of the crowds and not focusing on smaller sections or individuals. It seemed he was concentrating more on trying to connect deeply with the many millions listening and watching on the national mall than with those viewing on television.


Though it is indeed a difficult task to engage millions of people spanning a lot of space and the temptation to play for those many millions watching on television screens the world over must have been great, Obama was able to hold the attention of those watching in person. His intelligent use of eye contact, constantly spanning the entire crowd rather than looking just in one particular place or speaking mostly to those nearest him, made him appear entirely aware of the enormity of the crowd that was intently listening to his words and vision.

I also noticed Obama's use of hand gestures. Research has shown that hand gestures are used more than smiles to address a large crowd because they are more visible. Normally, hand gestures are used to convey power and dominance. Obama used his hand gestures infrequently, mainly keeping them inside his body line, to emphasize points or key words.

Instead of relying on hand gestures, Obama chose tone of voice as his most evocative and powerful nonverbal behavior. He altered it frequently to match his message. The taking of the oath of office was not his strongest moment. Obama started making his declaration too soon, and there were some awkward moments of confusion between him and Chief Justice Roberts during the rest of the swearing-in. However, Obama's confident tone during his inaugural speech helped him recover his air of command and impart strong meaning to his words.


In addition, he conveyed appropriate gravity when talking about all the problems and crises the nation faces, from a weak economy and costly health care to failing schools and poor energy policies. And his tone of voice became louder and his delivery more confident and steadfast when he declared that these problems and challenges will be met. In stark contrast, his tone became more quiet and inviting as he pledged to work closely with countries around the world.

I was also struck by Obama's facial expressions, or lack thereof. He did not smile excessively during his inaugural address, which appropriately and respectfully reflected the serious times in which we live. He conveyed a powerful sense of optimism and a compelling vision of a brighter future more through his tone of voice than any other nonverbal behavior. His words were, as usual, eloquent. His tone of voice especially drove those words to those in person in Washington and to people like me, watching on television or on the Internet around the world.

Obama's inaugural address was honest, motivational, and inspirational, which a speech by a leader at such a critical point of time needs to be. I felt that the tone of his first Presidential address to the people of the United States was serious yet optimistic, as befits the challenges ahead. When addressing followers for the first time, especially when bad news and distress are top of mind for those to whom he is speaking, a leader needs to be authentic, visionary, inspirational, and charismatic.

Through Obama's nonverbal communication, he conveyed to people who listened to and viewed his speech that he understands the seriousness of the crises and challenges ahead, the importance of reaching out to both allies and enemies, and that he is confident but not arrogant about his ability to lead.

Thursday, January 22, 2009

Singapore's USD13.7 Billion Resilience Package

Singapore has just unveiled their Budget 2009. I'm still poring over it. There's a link at the end of the post to the web page that contains the full text of the Singapore 2009 Budget.

The Singapore Budget contains a S$20.5 billion (US$13.74 billion or RM49.5 billion) stimulus package to help companies and save jobs along with a one percentage point cut in corporate tax as the small island state copes with its worst-ever recession.

The stimulus package (called the Resilience Package), comes on top of regular government spending, includes S$5.1 billion on training and other measures to save jobs and S$5.8 billion to stimulate bank lending.

To paraphrase the Singaporean Finance Minister, Tharman Shanmugaratnam, the so-called resilience package will not get Singapore out of a recession. But it will help avert an even sharper downturn, and more lasting damage to the Singaporean economy.

The Resilience Package of S$20.5 billion for FY2009 will have five components:

  • First, jobs for Singaporeans. They will spend S$5.1 billion to help preserve jobs.
  • Second, stimulating bank lending. They expect to extend S$5.8 billion in government capital for a Special Risk-Sharing Initiative. A small fraction of this is likely to be eventually expended on provisions for loan losses.
  • Third, enhancing business cash-flow and competitiveness. They will implement tax measures and grants for businesses that will cost S$2.6 billion.
  • Fourth, supporting families. They will spend S$2.6 billion to support Singaporean households this year. This is on top of the benefits the households will derive from the measures to preserve jobs.
  • Fifth, building a home for the future. They will spend S$4.4 billion on developing first class infrastructure for the island and on expanded provisions for education and healthcare.

The Singapore government aims to front-load the spending on some of the measures, beginning in March 2009. Certain measures are expected to stretch beyond 2009 and will therefore have an impact on future budgets, on top of the S$20.5 billion package this year.

It is a significantly expansionary Budget in the financial year 2009. There will be a Budget deficit of 6% of GDP in FY2009. This is the largest deficit the Singapore government has budgeted for to-date.

For the serious readers read the full Budget here.

Interest rates reduced by 75 basis points

It is heartening that Bank Negara has finally acted to reduce the Overnight Policy Rate (OPR). To reduce it  by 75 basis points or 0.7%, signals a serious intent to meet the threat of economic contraction head-on.

The implication of an OPR reduction is the reduction of the Base Lending Rates (BLR) of banks, making bank borrowings cheaper.

The idea is, of course, to provide greater liquidity for commercial and other economic activities.

SRR also reduced
The Statutory Reserve Requirement (SRR) for banks has also been reduced from 3.5% to 2%. Again, this signals clear intent by Bank Negara to provide banks with additional liquidity for borrowers.

Good moves
These are important economic policy measures and, not a moment too soon.

Will the banks lend more aggressively?
Now the challenge will be to encourage banks to adopt a more conscientious approach to loan applications. For the economic managers, this will be the next arena for battle in the continuing war to keep the economy on a positive and even keel.

Wednesday, January 21, 2009

Political leverage from a bad economy

In the wake of the U.S. Presidential Inauguration, like many, my mind is directed towards the importance of speech as a form of communicating and framing key policy issues. Not just any speech, mind you. Not the type of speech that we have to endure when attending seminars or conferences.

I mean important speeches that set the tone, tempo and timbre of a major economic policy shift.

Before I launch into this point, I have to say that I have been rather perplexed by the BN Federal Government for many, many months now.

Certainly, since the March 8, 2008 General Elections there has been evidence of shell-shock within the ranks of BN component parties and, within UMNO itself. Losing the Permatang Pauh and Kuala Terengganu by-elections has added to the negative pall.

There has been much fixation on internal issues within BN component parties on reform and re-branding.

There has also been excessive concentration of time, energy and resources on staging pitched battles with Pakatan Rakyat and the states under PR control. It is a truncated trench warfare that will yield mere inches of political advantage either way.

Such a political tactic never gives the incumbent party any advantage. Such a political tactic only serves the challenger. If you don't believe me just watch the original Rocky movie. The unknown challenger lost on points but immediately gained celebrity status while the world champion was disgraced despite being a victor.

Frankly, all the potshots taken between BN and PR and the Federal Government with Pakatan -controlled states is just tactical political nonsense that hardly carries any real impact on the wider plebiscite.

Worse still, such matters can be classified as trivial nonsense that is meant to occur in a robust democracy anyway.

Worst of all, playing up such politicking earns hardly any plus points but, instead, puts the UMNO and the BN component parties in a bad light in the eyes of the general public.

The public perception may well be, that the apex leadership of UMNO and BN component parties should be focusing on things that matter in the daily lives of all Malaysians. And, what is that? To colour my point I need to borrow the famous line written (possibly by James Carville) on a white board in the basement of the Arkansas Governor's Mansion in 1991 (or, was it 1992) that the thing which matters to all Malaysians is, It's the economy, stupid!

Here's my humble suggestion of a game plan:

Say that Malaysia's economic contraction is due to externalities
Take a leaf from Dr M's playbook in 1997-1998. Our economic contraction is due to the economic crisis that started in the U.S. It has affected the whole world. No one can blame UMNO or BN for the shit. But loads of blame can go to Wall Street and the Western capital markets and their unwieldy financial systems and their lack of regulations or good governance. Blame them for creating a global economic crisis that is hitting countries like Malaysia who needs export income and, is dependent on global trade.

So, why is the First Minister of Finance (and Prime Minister-in-Waiting) so reticent about stating loudly the prognosis of the Malaysian economy in 2009? Why is the entire slate of economic managers within the Federal Government so nervous about disclosing any bad news? Why are they so defensive?

Najib should demonstrate his leadership credentials by marshalling all these economic agencies to manage the expectations of the Malaysian public. Blame the Western world for their greed. Cry out that the economic tsunami is hitting Malaysia and, it may get worse.

A blood, sweat, toil and tears speech is needed
Najib should give a Churchillian blood, sweat toil and tears speech on the economic challenges.

He should start by painting a gloomy picture. In the first part of such a speech, he should trot out negative economic forecasts on affected economic sectors. He must warn all Malaysians regardless of race, colour, creed or class, that the economic downturn will leave no one safe. That, these are dire economic times.

In the second part of that speech, he should begin to bring a stentorian voice to challenge all Malaysians regardless of race, colour, creed or class, that in the face of such adversity Malaysians need to rise above petty partisan politicking that does not serve the national interest, which is to create a shared prosperity and peaceful way of life.

In the final part of the speech he must outline specific target sectors for the second economic stimulus package.

Repeat the above many times
Keep hammering away at the dire economy. Keep challenging Malaysians to rise above their stations. Challenge Malaysians to set aside petty differences. Challenge them to unite for the sake of common goals - a good job, good health, good education, a safe home, a peaceful way of life. Now, which Malaysian can say no to this?

I believe this op-ed piece supports my proposition above. Muhiyiddin is off-tangent when he decries the need for UMNO to have a "wow" factor. This is not the Malaysian Idol show. But a strong assertion on sound economic management and clear economic stimulus goals will provide a very sound platform from which UMNO and BN will have a fighting chance to avoid perdition. 

Tuesday, January 20, 2009

Us and them

Here's what Malaysia's main economic manager is quoted as saying just today in relation to the possible probability of a second stimulus package that may possibly deal with some probable areas that may or may not be possibly specifically dealing with some likely areas of the economy pending a probable series of studies on the unspecified probable areas of the economy in light of the possible probability of a downturn that has some possible probability of occurring in some way but which is not specific in impact in any material respect:

"We have to launch the first package and get it off the ground first, then we will come in with the second package.

"The features and focus might be slightly different. For example, how do we deal with companies that might be on the verge of retrenching their workers, what kind of assistance can the government give," he said, insisting the stimulus package would not take the form of bailouts but assistance.

(He) refused to delve into when or how large this second injection would be, merely stating that it would be "not too long" from now and that he would need to "look into our reserves and see."

(He) also said that a "Projects Management Unit" had been set up to ensure government agencies and ministries speed up the implementation of projects from funds allocated under the first package, which was announced by the DPM late last year.

"The first package is already fully allocated and now it is time to implement. If all of it is spent this year, it will result in a 1 per cent growth in GDP," he said, clarifying that this was part of the 3.5 per cent growth forecast by the government.

(He) added that while analysts differed in whether there is a recession or not, the second stimulus would ensure that Malaysia does not dip into recession.

Read the report and find out who is quoted above here.

Contrast the above with an extract of a statement made by the Ministry of Trade and Industry of a neighbouring country:

The Ministry of Trade and Industry (MTI) announced today that it expects the (blank) economy to grow between -2.0 per cent and 1.0 per cent in 2009, lower than the -1.0 per cent to 2.0 per cent range it had forecast in November 2008.

The global economic crisis has worsened since November, with sharp declines in global demand, trade and investments. According to the World Bank, global trade volume will decline by 2.1 per cent in 2009, the first contraction in 26 years. Since November, analysts have shaded down their growth forecast for the US, Europe and Japan by about one percentage point. The growth outlook for the regional economies has also deteriorated, with more economies now expected to register negative or flat growth next year.

These developments will affect the sectors in the (blank) economy that rely on the movement of goods and services in the region, such as the wholesale & retail sector and the transport & storage sector. Manufacturing will be weighed down by falling demand in the developed economies, while financial services will see a sharp slowdown reflecting weak financial markets and credit growth. The slowdown in these sectors will spread to the domestically-oriented segments of the economy, such as property, retail, and business services.

Advance GDP Estimates for Fourth Quarter 2008

The weaker prognosis for the (blank) economy in 2009 is also based on the sharp contraction seen in the fourth quarter of 2008. Advance estimates[1] show that gross domestic product (GDP) in the fourth quarter contracted by 2.6 per cent in real terms over the same period in 2007, following the decline of 0.3 per cent in the preceding quarter. On a seasonally adjusted, annualised quarter-on-quarter basis, real GDP fell by 12.5 per cent, compared to a decline of 5.4 per cent in the third quarter of 2008.

Go to the Official Website of that country's Ministry of Trade and Industry by clicking here.

Read also that country's Minister's oral reply to a question on the economy in the legislature as extracted at the same Official Website here. They just revised their GDP contraction further downwards from negative 2.0% to negative 5%.

*Sigh* Malaysia desperately needs qualified economic managers to head the economic ministries such as Finance, International Trade and Industry, Domestic Trade, Transport, etc.

NPL watch

The nerves are getting frayed. It's the nail-biting time. If you look at the chart that I extracted from here, you will see that the NPL trends up to November 2008 looks pretty good. 

This is the type of chart that is hazardous for Malaysian economic managers to rely on since there is a 2-month lag. The reason is simply because if one were to look away from the charts into the current situation, the sense would have to be that the NPLs are likely to climb up from December 2008 and creep further upwards as 2009 progresses. There are plenty of anecdotal evidence pointing towards this scenario. 

The question is, will the economic stabilisation package or stimulus package do the trick to prevent such trends from worsening? Tengku Razaleigh Hamzah has expressed misgivings. I suspect many more will share the same sentiment.

The point is that Malaysia's economic managers must manage expectations and air policy scenarios to a wider plebescite than the bunch of fellas in the so-called Economic Council whose best shot seems to be a stimulus package for their pet sector, construction and property development. 

Malaysia has a larger talent pool of economic managers than that. Why all the hush-hush? Could it possibly be due to fear of being exposed as having been ignorant about the economic scenarios and trends?

Monday, January 19, 2009

Political uncertainties not a factor in Bursa

You've got to listen to Mark Mobius when he says something. He's been in charge of Templeton Asset Management for Asia's emerging markets for quite a while. He's usually very candid because he manages a huge investment fund. Close to US$30 billion (RM108 billion) in assets.

So, this time around, Mark Mobius has made the observation as reported in the Edge Daily, that against the backdrop of a volatile trading environment and global economic downturn, the Malaysian market presented investment opportunities because of attractive valuations and its steadiness compared with other markets.

"The Malaysian stock market has not gone up as much as other emerging markets in general. Neither has it gone down as much, so the market tends to be steadier in that sense," he is quoted as saying.

Mobius also said that the political uncertainties in the country would not have a significant impact on the stock market.

He observed that the government institutions are in place and it will continue to operate no matter who is in power. He reckoned that the market will take a life of its own. He was of the view that share valuations in many cases in Malaysia are attractive so there are opportunities to come in, buy and invest.

Now that's a qualified thumbs-up for Malaysia from Mobius.

But, we cannot overlook the fact that Templeton has had some discomfitting exposure to Satyam, the Indian IT outsourcing company which is mired in a financial scandal which may account for Mobius's unusually generous comments about Malaysia. Usually he's not that generous.

Still, if Mark Mobius is correct in saying that politics is not a factor that drives the market sentiment at Bursa Malaysia then, what does drive the recent negative sentiment?

Could the negative market sentiment possibly have a probable link to the putrefying state of the real economy?

Just, maybe?

Innovation disconnect

I couldn't help shaking my head and sighing as I read the NST report entitled, Biotech grants going to waste? It just confirms what we've all feared.

There is a seriously lackadaisical attitude in the approach that Malaysian government agencies, which includes public universities, take when handling taxpayers' money. Get this portion of the report; out of the 5,232 R&D projects implemented under the Seventh and Eighth Malaysia Plan, only 5.1 per cent were considered as having commercialisation potential. Picture on the right courtesy of NST.

Knowledge for knowledge's sake can be a wonderful thing. It is a hallmark of many great tertiary institutions. But this is quite different. It is different because this particular issue involves a deliberate process where taxpayers' money is allocated in the form of grants to public universities to finance the undertaking of R&D projects.

So, if the Biology Department of a public university wants to study the mating habits of worms, it surely can't be for any genus of worms. The research scope should zoom in on the types of worms that has a salutary effect on agriculture. And, not just any area of agriculture but a specific crop. Otherwise, it's just a waste of taxpayers' money.

It's different if you don't use taxpayers' money. For example, Miriam Rothschild, scion of the English branch of the fabulously wealthy Rothschild family was an avid entomologist. She could self-finance her passionate research into and, compiling a veritable taxonomy of insects, thereby, advancing human knowledge of this area of biology.

But, the R&D in Malaysia's public universities do not have such luxury. Therefore, there must be accountability in using taxpayers' money. All R&D proposals must have clear objectives that must pass muster with commercial needs.

Alas! I am reminded of Juvenal's maxim, quis custodiet ipsos custodes (who will guard the guards themselves?).

This seems to be a problem that dogs the public sector in Malaysia.

Sunday, January 18, 2009

Ku Li: Malaysia's economic State of Play

After re-reading in The Edge, Tengku Razaleigh Hamzah's speech entitled Restoring Confidence at ASLI's 11th Malaysia Strategic Outlook Conference 2009, I have to borrow wholesale, the text of that speech from Another Brick in the Wall's blog.

Ku Li's speech examines the current government's reticence on addressing the forthcoming economic challenges. He touches on Malaysia's past competitive strength and expresses concern with Malaysia's current economic position on laggard productivity and lack of competitiveness.

True to form, Ku Li does not leave us with a sense of nostalgia about the possibilities for Malaysia if this former Minister of Finance is given a future role in nurturing Malaysia's economic health and nudging our economy towards a more positive strategic direction. Instead, he leaves us at the end of his speech with two interesting strategic goals.

This is one speech that is worth reading line-by-line instead of a quick skim. A cursory read does not do justice to to the incisive thoughts and deliberate emphasis that Ku Li has given to the country's current crop of economic managers. Read on.  

A problem of confidence

The present financial crisis started in a speculative housing bubble in the US, inflated on greed and irrational confidence. Shady practices went mainstream under the wing of weak financial governance. When the bubble burst, gold-plated names on Wall Street were implicated. A massive loss of confidence in the financial sector has crippled credit flow worldwide. Consumption has contracted as households put off expenditure out of uncertainty. Investment has retreated. There has been a massive loss of confidence.

2. Expectations are a central factor in macroeconomic booms and busts. If a sharp loss of confidence is an endogenous part of the problem, a restoration of confidence must be the beginning of the solution. However, if we have learned anything at all from the crisis, this cannot be hollow confidence, but confidence based on a clear appreciation of our prospects. The lesson of the global economy is that false confidence based on irrational hope leads to collapse, disillusionment and pessimism.

3. We need a sound appreciation of our reality before we can dream of changing it. We need to face harsh truths before we can believe in ourselves and inspire others to believe in us. In coming to that sound appreciation here in Malaysia we have run out of time for politically manipulated messaging and sugar coated evasions.

4. Let us just begin by acknowledging that we will not be spared the effects of the global economic crisis.

5. Our leaders only undermine the government’s credibility when they paint an alternative reality for us.

I understand we don’t want to frighten markets and voters unnecessarily, but we do not live in an information bubble. Only the most resolutely ignorant can now pretend that all shall be fine while the rest of the world deals with what Jeffrey Sachs has called “a world economy teetering on the brink of unprecedented catastrophe.”  Leaders who deny the seriousness of the crisis only raise the suspicion that they have no ideas for coping with it. They undermine the government’s credibility when that very credibility, that confidence, is a key issue.

6. We are a trading and exporting nation. While we were relatively shielded from the first wave of financial failures there is no escape from the sharp demand slump in the global economy. The Government and Bank Negara maintain that our growth rate this year will be 3.5%. I fear it could be well under that. The latest numbers show a plunge in industrial activity, with manufacturing output in November, down 9.4 percent from a year ago. December may well be worse. Exports are down. There has been a dramatic swing in the balance of payments to a RM31 billion deficit in the third quarter, from a surplus of RM26 billion in the second. Anyone looking at the size of the downturn and at its swiftness can only wonder if we will be sailing through. This crisis really “went global” only in the final quarter of last year, but within that single quarter manufacturing both here and in Singapore contracted by more than 10 percent on the previous year. Policymakers in Singapore appear far more alarmed than our own. After having declared a recession, they found that the effects of the crisis were far worse than they thought. We are just at the beginning, and the bottom is not yet in sight.

7. Three and a half percent growth, even if we achieve it, will not create enough jobs to employ the large number who enter the workforce each year from our young population. Given our demographic profile and the fact that we are an oil exporter, our baseline do-nothing growth figure is not 0% but closer to 4%.

8. We do have a problem. Now we need to acknowledge that we are not in good shape to deal with it. After early decades of rapid progress, it looks like that economic growth has flattened, our public delivery system calcified and our economic leadership run out of ideas.

The financial crisis in the context of our developmental path

9. Malaysia is squeezed between being the low cost manufacturer we once excelled as, and the knowledge-intensive economy we are failing to become. Our years of sustained high growth ended in 1997 with the Asian Economic Crisis. With the subsequent rise of China and India as low cost producers with giant domestic markets, the manufacturing sector which propelled that growth is being hollowed out.

10. We are in the infamous “middle Income trap”. No longer cheap enough to compete with low cost producers and not advanced enough to compete with more innovative ones, we find ourselves squeezed in between with no economic story. Successful economies, like successful companies, need a compelling story, and we don’t have one. With falling communications and transport costs, the skilled engineers, managers and designers of the rich countries are pairing themselves to the cheaper labour of poor countries to extract productivity and cost benefits. The global integration of labour markets favours both rich and poor countries and stagnates the wages of those in the middle that are neither smarter nor cheaper. That means us. Our working people have suffered stagnant wages and a rising cost of living.

11. According to the World Bank, Malaysia’s share of GDP contributed by services was 46.2% in 1987. How much did you think it was twenty years later in 2007? 46.4%.

How much do you think the real wages of our workers grew between 1994 and 2007? By 2.6% in the domestic sector and by 2.8% in the export sector.

Unskilled migrant workers, documented and undocumented, make up 30-40% of our workforce. Meanwhile, alone in East Asia, the number of expatriate professionals here has decreased. Alone in East Asia, private sector wage increases follow government sector increases, not the other way around.

Did we have to learn about this from the World Bank? What has the EPU been doing? Has the cabinet pondered these numbers? Have we had a national discussion about what this?

12. The only long term path to prosperity is increased income through increased productivity. Sustained productivity growth is the engine of China’s unbroken run of high growth. Our failure to increase productivity and working incomes has been masked by an influx of cheap labour. That cheap labour has become another crutch for us.

13. Low growth

a) The other thing masking our underperformance over the last decade is the fact that in this time the world economy has experienced its biggest expansion in recorded history. We have averaged 4 to 5 percent growth throughout a historic boom over which world economic growth has averaged 4.5 percent. Meanwhile the two most populous nations in the world have been growing at or near double digit rates, multiplying per capita incomes and lifting hundreds of millions out of poverty in the greatest expansion of human welfare in history. That boom is over and we have missed it.

b) By analogy, when we view the report cards of our own children, we set our expectations against what they have been given and what they were capable of in the past. Turning to our own country, so richly endowed with natural and cultural resources, a stable society and good institutions, we see a failing report card. Instead of educating our young to be competitive we have turned out large numbers without the skills and attitudes suited for basic work, let alone for the global economy that is not out there somewhere but on our own shores. Each decade we have discovered new ‘peer-countries’ against whom we might look decent because we have fallen out of the league of the last set of peers. We fail to notice we have been relegated. Remember that in the 60’s we were classified with Taiwan and Korea, in the eighties with Singapore and Hong Kong. Now we are less “relevant” than Vietnam as an investment destination. I remember receiving delegations from Taiwan and Hong Kong who came to learn from us.

14. Inequality

We cannot comfort ourselves that we have sacrificed growth for social equity. Despite the strong redistributive measures the government has pursued for decades, our Gini coefficient, the standard measure of inequality, has been ballooning. In this region only Papua New Guinea is more unequal. We have the most unequal income distribution in Southeast Asia. If there is supposed to be a trade-off between growth and equity, we have not made it. We are failing on both growth and equity.

15. What does it take to make the leap from middle to high income? The countries that have done it recently, Korea, Taiwan, Hong Kong and Singapore, have one feature in common: they were able to learn from previous crises. Without a buffer of natural resources, each of these economies was more exposed than we were. In relative terms, because they are even more trade oriented than we are, each may be harder hit by this downturn than we are. But we miss the picture if we stand by and comfort ourselves that we are ‘shielded’ because our capital markets have been less open. Our very problem may be that we have been shielding ourselves from learning, which requires systematic change in behaviour or knowledge informed by experience.

16. The criterion of success for making the developmental leap, the key differentiator between the leaders and the also-rans, is not immunity from economic crises (after all, if you have a Stone Age economy, you are completely immune) but the organizational capability of governments to learn and re-organize around new national economic strategies through these crises. Each major crisis is either an important opportunity to transform the economy or a major setback to our ambitions. The question is whether our policymaking and policy implementing apparatus is set up, motivated and led to learn from this crisis. It is a question of the capability of government and governance.

17. We must also retrain and re-skill those who lose their jobs because of this crisis. This cannot be done in the present ad hoc manner. It must be a coordinated program, with courses matched and tracked to learners according to a National Skills Plan which in turns supports a vision for the Economy. Those lost jobs, especially in the manufacturing sector, will not be coming back. We better have a plan and a vision.

18. What are the consequences of sailing into an economic storm in our present condition, after a decade of lacklustre performance and with no plan, no vision for sustained high growth? We can look at two scenarios: breakdown or relegation.

a) Breakdown
As a developmental state, the legitimacy of our government is based on its guarantee of social peace and economic development.

As Professor Clive Kessler has observed: “Social peace in Malaysia depends upon the continuation, and the continuing expectation, of economic growth and prosperity; while economic growth and prosperity depend upon the continuation and assurance of social peace.” This reciprocal relationship between peace and growth makes us prone to a vicious feedback cycle: if either engine were to fail, the other would fail with it, and take us down a spiral of failure with a painful end. Our margin for error is slimmer than we think. Our socio-political setup implies that we don’t have a smooth glide down to complete irrelevance. Like a bicycle or an airplane we need to be running at a certain speed to avoid falling off.

b) Relegation
On a second scenario we might just coast through the downturn. However we will emerge with an economy that has failed to gear up to the demands of the global economy, fallen yet further behind along our developmental path and locked ourselves tighter into a long term pattern of low growth. Sooner or later will come that painful reckoning described in the first scenario. We should view the crisis in the context of our history as a young nation. The last time the world faced a contraction of this size Malaysia did not yet exist. The crisis is has broken out at a critical point in the development paths of our economy and our political system. Put these three factors together, and we have a perfect storm: an unprecedented need for leadership at just the moment when our system for selecting and legitimizing political leadership appears to be broken.

Where next

20. My reading of where we stand may seem harsh, but perhaps the world is harsher. I don’t wish to offend, but I believe we need to grasp the peril of our situation clearly before we know what to do next.

21. In the medium term we need to make a developmental leap. But a leap is not a straight-line projection of the present. It is not about doing more of what we have done. We are not going to get there putting up more highways, declaring more Growth Corridors or planting more oil palm. The way up is a complex achievement that in turn depends on transformative improvements in governance and a successful reform of our political system.

22. The world recession is a critical opportunity for us to re-gear and re-tool the Malaysian economy because it is a challenge to take bold, imaginative measures. It lights the fire under our feet to make transformative improvements in governance and politics. It also demands that the government spend boldly on the right things, in the right way, to stimulate demand.

23. Two criteria for ‘the right things” would be those public investments with the widest multiplier effects, over the short and the longer term. Over the short term, there are often tradeoffs between impact on demand and on improved economic capacity. Over the long term, the two are the same. The “long term multiplier” is nothing less than the improved capacity of the entire system.

24. So we must think carefully about what we spend the “fiscal stimulus” on. There is no such thing as a free lunch. We will be going into deficit to finance this stimulus, so it can’t be about just spreading money around. So far there has been no impact from the stimulus package announced in November, nor was it clear what the economic thinking was behind that measure.

25. We don’t need another stimulus “package” of spending here and there. What we need, and what the crisis gives us a chance to implement, is a set of bold projects with an economic story behind them to help Malaysia make the developmental leap we have been missing. We have a once in a lifetime economic challenge. We must meet this challenge with a historic sense of purpose. That means, not with a “stimulus” consisting of ad hoc pork barrel expenditures but a set of public investment projects guided by a vision, designed around a strategy and governed with bullet-proof integrity.

26. Let me suggest two programmes and an enabling set of reforms.

Oil and Gas Centre

27. Oil and Gas has served us well, but we have still not tapped our strategic strength in this sector despite our unmatched natural and strategic advantages:

a) Malaysia is the leading Oil and Gas producer in the region. Our proven reserves have been augmented by major discoveries in recent years.

b) More than half the world’s annual merchant fleet tonnage passes through the Straits of Malacca, with most of it continuing into the South China Sea. Oil flows through the Straits of Malacca are three times greater than that through the Suez Canal and fifteen times greater than flow through the Panama Canal. We live alongside the most important oil shipping route in the world. Our fifteenth century ancestors may have done more to tap that advantage than we.

c) We have in Petronas one of the leading oil companies in the world.

d) We have strong trade links to Middle Eastern oil producers.

28. We could do much better. Consider that despite having no oil resources, Singapore is among the top three global players in trading, refining and manufacture of oil and gas equipment.

29. Three years ago, while Malaysia still held the OIC chairmanship, I proposed a National Strategic Plan with the vision of developing Malaysia into Asia’s Oil and Gas centre, with leading capabilities in refining, shipping, distribution, storage and downstream production.

30. We should develop offshore storage facilities for other producer nations with high country risk. Oil and gas exploration, extraction and production are increasingly technology driven, high value operations in themselves as oil becomes scarcer. There will be large payoffs for having our own R&D capability in exploration, extraction and production. We should specialize in energy technology, including alternative energy sources for a carbon-constrained future.

31. We should form partnerships along the value chain. These could include a network of agreements with Gulf producers and with major consumers to improve oil security. We could form G-to-G partnerships in ASEAN, provide tax incentives and craft innovative Production Sharing Contracts,

32. Here’s the exciting thing. For all these ventures to work we need greatly improved capabilities to finance and trade oil and gas. Given our very special geographic and strategic advantages, we should build the first spot and futures Exchange for Oil and Gas in an OIC nation.

33. Whatever the government chooses to do, it should understand that for us to get on a higher growth plane we must specialize, and we must have a government capable of providing the direction, drive and executive capability to foster that specialization. Globalisation requires a relentless focus on competitive advantage. We need our own story.


34. Let’s start a program to bring home ownership to the whole country. The construction sector creates multiplier effects in more than a hundred other industries. It provides work in everything from insurance to advertising to materials supply. Of all the national projects we could undertake, few could have such a large social as well as an economic multiplier effect.

35. 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.

36. 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.

37. Financing for this investment could come from modifications to EPF, with matched contributions from the government towards the value of the property. Because it comes out of savings, this spending would be non-inflationary. I can think of few better ways to get the economy humming again, give our citizens a focal point of hope and pride, and weave a safety net that also encourages savings and enterprise.

Public sector reform

38. We cannot wait till the crisis blows over to tackle the public delivery system head on. This is because we will need an upgraded public service just to implement such large public programs successfully.

39. The need for improved governance is greater, not less, in challenging economic times. When Franklin Delano Roosevelt implemented the New Deal to push America out of the Great Depression, many feared that this would present a huge opportunity for graft. Confounding these expectations, the New Deal programmes were implemented with unprecedented transparency. FDR did this by building oversight into the implementation of his rescue program.

40. Similarly, the two programmes I have suggested would come to nought if they were derailed by the corrupt practices that have become the norm in this country. Instead of rescuing our economy they would become millstones around our neck. As part of the project management of these programmes we should set up powerful, independent divisions devoted to investigating complaints of fraud.

41. Today the role of the public sector is a lot more complex than anyone could have imagined even a decade ago. A “public delivery system” that was designed for the challenges of the 1950’s cannot possibly cope with the complex demands of the globalised 21st. The current crisis propagated worldwide in internet time as regulators scrambled to catch up. 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.

42. 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 used to operate. Many of us remember it.


43. What I have outlined this afternoon are just my suggestions. I am sure there are many other ideas in this distinguished company.

44. Let me end where I began, with the question of confidence.

45. We need to restore confidence in our basic institutions, our leadership, the integrity of the Federation, the rule of law and our national Constitution. This is of a piece with the vital economic confidence needed to unleash credit, investment and consumption, and get everyone working. We need to restore confidence in Malaysia.

46. 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.

47. The country can no longer afford a political class out of touch with reality that trades on yesterday’s political insecurities and a government that has forgotten its purpose. We need a renewal of leadership as a first step to restoring true confidence.

48. The economic statistics are mere indicators of the activities and expectations of the unique national community we are trying to build, so that building an economy and building a nation, providing good governance and being truthful, are not things that can be achieved apart from one another. To reignite our confidence would be to revitalise the project of building Malaysia.