A common destiny for Malaysians

This month saw the passing of Malcolm Fraser of Australia and Lee Kuan Yew of Singapore. Both men were giants in their time.

Events such as these must, of necessity, compel thinking Malaysians to reflect on the changing fortunes of countries like Australia and Singapore and compare them with our own changing fortunes in Malaysia.

Just as the great historians, Will and Ariel Durant liked to ask, we have to also ask the same question of ourselves, HOW HAVE WE PROGRESSED...AS A NATION?

What made Lee Kuan Yew tower above his contemporaries in the realm of political leadership was his ability to gather around him a cohort of like-minded colleagues to plan, strategise, visualise and exhort their countrymen to pull together and share a common vision and work towards a common destiny.

Of course, there was dissent. Such are the vagaries of human communities anywhere. That made the sheer willpower and charisma of Lee Kuan Yew and his cohort all the more impressive.

Actually, whenever I consider Lee Kuan Yew's political life, I am often drawn to that one pivotal moment in the PAP party assembly in the 1950s when Lee was pitted for PAP's leadership against the charismatic, Hokkien speaking orator, Ong Eng Guan. It was Toh Chin Chye who, as the Chairman, gave his casting vote in favour Lee that decided the course of contemporary Singapore history under Lee Kuan Yew's iron-willed leadership and relentless vision of material progress.

Did Toh Chin Chye ever rue his casting vote? 

But, as usual, I digress...

One of the common refrain of Lee Kuan Yew's during the torrid decades of the 1950s and 1960s, when Lee and his cohort had to fight the threat of Communists, racial unrest and political rivals was the need for law and order. Yes, it was to quell and hammer down dissent. He was consistent in declaring without apology, that law and order was needed in order for Singapore to develop and progress.

This hearkens to the time when we had a strong and charismatic leader in Dr M. Love him or hate him, Dr M gave us a direction in which we could chart our course as Malaysians. We could go with the flow or, we could go against it. Either way, there was direction.

In recent years what we have experienced as Malaysians is an exhausting drama that has no script.

Everyone is an anti-hero.

There is no sense of direction. No leadership.

There are plenty of swirls and eddies that makes us nauseated.

When we try to sit down and focus on our work, we are distracted by rubbish political nonsense that does nothing to help with our work.

There is plenty of religious strife, racial polemics and corrupt practises.

But. Where is the common destiny for all Malaysians?

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.

When strategies are threatened by unexpected externalities

Quite frankly I haven't been keeping an eye on Singapore's strategic move to create two super-duper casinos, one in Sentosa Island to be operated by Malaysia's Genting group and, the other one by Sheldon Adelson's Las Vegas Sands.

The casinos were another bold move designed to pull Singapore further away from its dependence on electronics exports and trans-shipping. And, to pull away from countries like Malaysia who are earnestly nipping at Singapore's heel in chasing up the value chain.

But, in the wake of the Wall Street turmoil and the following global credit crunch, Sheldon Adelson's empire which includes the Macau Venetian, is teetering on the financial brink. This is may force Singapore's Tourism Board to keep the ambitious project on track by cash infusion or guarantee the debts of the Marina Sands project.

Singapore will obviously take the long term view. And, the long view is that both casino resort projects will pay off in a massive way for Singapore to widen and diversify its economic base to include that of becoming a truly world-class leisure capital.

In the mean time it has to navigate the choppy waters of economic and financial turmoil with very steady hands and plenty of courage. Read Time for the report.

Even when the strategy is threatened by the externality of the global recession and credit crunch, Singapore is likely to stay the course because the casino resort strategy still makes plenty of sense.

NOL

Singapore's Neptune Orient Lines finally decided to walk away from its attempt to acquire the Hapag Lloyd container division of TUI AG. Instead, a Hamburg based investor group has agreed to buy the Hapag Lloyd container division of TUI AG for 4.45 billion euros (USD6.11 billion). News of the sale came after Neptune Orient Lines (NOL) dropped its bid on Friday to focus on managing APL’s container business.

That left the Hamburg-based group, led by Klaus-Michael Kuehne, the majority investor in Swiss logistics company Kuehne & Nagel, the city of Hamburg, and bank M.M. Warburg partner Christian Olearius, as the only remaining bidder for Hapag-Lloyd, whose fleet of 130 ships makes it the world’s fifth-largest container carrier.
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It’s interesting to note that Klaus-Michael Kuehne is also the majority investor in Swiss logistics company Kuehne & Nagel. As the sale is finalized, it will be interesting see how K&N will leverage this new found relationship with Hapag and how that will affect Hapag’s current alliances with forwarders globally if at at all.

Key phrase
The key phrase that I want to highlight is the part that mentions that NOL is walking away from the Hapag Lloyd deal in order to focus on managing APL’s container business. APL or American President Lines is a container shipping company acquired by NOL some years ago. By all accounts, APL is very well-managed. I have done a post on this a while back.

In itself, the phrase seems simple and clear enough. But, read in the context of the Singapore government's forecast of negative GDP growth in Singapore and, the current global economic turmoil (it doesn't matter that there has been a rebound ranging from 2% to 12% in Asian and European bourses, against January 1 figures everyone is still down some 30% to 50%) this is an exercise in risk management by the Singapore government-linked NOL. It is prudential management.

Maybank-PII
Likewise, Singapore government-linked Temasek Holdings is divesting its stake in the Indonesian bank PII. The rationale would be similar, in broad terms, to NOL's decision.
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But, Lo! and Behold!, Malaysia's Maybank is proceeding to acquire PII at valuations conducted earlier in the year, before the current economic turmoil. Go figure.

Singapore first Asian economy in recession?

NST Online reported that Singapore has become the first Asian economy to fall into recession. This view by analysts comes in the wake of the Singapore government's downward revision of its full-year growth estimate and, the decision to ease monetary policy for the first time in years.

The Singapore Ministry of Trade and Industry lowered the city-state's full-year growth forecast to around three per cent, citing a slowdown in the global economy and key domestic sectors.

The move came as the ministry released preliminary data showing that real gross domestic product (GDP) declined by 6.3 per cent in the third quarter after contracting 5.7 per cent in the previous quarter, the ministry said.
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While it did not describe the economy as being in recession, a technical recession is generally defined as two consecutive quarters of contraction in economic output.

To deal with the downturn, the Monetary Authority of Singapore (MAS), Singapore's de facto central bank, said it was easing monetary policy for the first time in more than four years.

Induced recession?
This piece of news struck me because the Singaporean economy is a robust one. So, for Singapore to superlatively become the first Asian economy to enter recession strikes me as being very odd. Unless....

This is an interesting lesson in economic management, I believe. In the previous blog I had used the word induce. There is a strong possibility that the Singapore government is pre-empting the real wave of economic turmoil that affects the real economy where goods and services are produced and consumed.

There is a first-mover advantage in being ahead of the economic turmoil by inducing a recession. This is not a crazy as it sounds.

Think about it. The analysts are saying that Singapore is in the process of entering a recession. They say that this is a technical recession meaning that there will be (one quarter has passed but the second quarter in question is a forecast by the Singapore government) two consecutive quarters where negative growth is recorded. It is not a real recession yet.

This is a warning and alert by the Singapore government. It is a call to all players in the Singapore economy that the sh** is about to hit the fan.

The smart players, say, in the already moribund property sector, must take this as a signal to push out and sell as much of their property inventory as possible and use the cash to de-gear.

Likewise with manufacturers and wholesalers and retailers. The message is to pare down their inventory pronto. The signal is for them to reduce their bank borrowings as much as they can.

For the strong players, a lower interest will enable them to restructure their borrowings and use the cheaper working capital to make their production and marketing processes even more efficient.
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And, when the real recession hits, the Singapore economy will be cushioned from the worst of it. They will get some hits, of course. That cannot be helped. But there will be fewer casualties and, their confidence would, by then, be on the mend. It really is quite a good tactic.
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Lessons
Malaysia's economic managers must pull out their note pads and take notes on this. It really is a good plan. Better to suffer a little now than be annihilated later.