Monday, July 26, 2010

Re-jigging the mark-to-market rule

I don't really want to say, "I told you so" on the mark-to-market rule being impracticable and unhelpful, but....

As may would be aware, on 1st January 2010, Malaysia, in line with the entire world, adopted the mark-to-market rule, also known as FRS139.

Just to recap on FRS139 as extracted from this article:

Derivatives (e.g. foreign exchange contracts, options) and many financial assets such as investments in shares and debt securities are now required to be stated at fair value. The standard also introduces complex hedge accounting and impairment rules.

But, what's happening now?

The IASB is, however, currently undertaking a comprehensive review of financial instruments accounting and aims to replace IAS39 with a new financial instruments standard referred to as IFRS9 Financial Instruments.

The IFRS9 project is partly driven by requests for reform from the Group of 20 and other constituents. The IFRS9 project is divided into three main phases: classification and measurement, impairment, and hedge accounting.

The IASB aims to complete all phases by the second quarter of 2011. To date, the classification and measurement phase has been completed and draft proposals arising from the impairment phase have been issued.

Under the classification and measurement phase, the four categories for financial assets under IAS39 (namely held to maturity, loans and receivables, fair value through profit or loss, and available for sale) are replaced by just two categories i.e. amortised cost and fair value.

An entity’s “business model” condition is introduced to determine the appropriate classification for financial assets. If an entity’s business model’s objective is to hold assets to collect the contractual cashflows, then the financial assets are measured at amortised cost.

This change is intended to make it easier for entities to measure their financial assets (particularly quoted debt securities) at amortised cost rather than fair value. Hence, unlike previously, an entity does not have to hold all debt securities to maturity to qualify for amortised cost measurement.

Other key changes

There are also key changes in the accounting for investments in equity investments (shares).

Equity investments are generally measured at fair value and gains/losses on fair value changes are recognised in profit or loss. However, an entity may elect to present the fair value changes to other comprehensive income (OCI) instead. The election is irrevocable and can be made on an individual share-by-share basis.

Well, it's just an agonizing waste of time and resources.

This is the downside to having capital markets that keep inventing ways to create false wealth that has nothing to do with the brick-and-mortar real world of the real economy where people generate actual goods and services and receive a fair wage and return.

They call the invented wealth "derivatives", i.e. imaginary financial products that are derived from actual equity and financial instruments. That, if you trouble yourself to take a reality check, is all about creating illusions.

And, the greatest economic minds in the Western world are still puzzling over how to pick up the pieces when these illusory products are proven to be just that ... illusions that go "PUFF!!!" into thin air at the first sign of trouble.

How do you measure the value of that?

Saturday, July 24, 2010

BN: Reducing the Trust Deficit

Annoying as it is to all BN leaders and supporters, there can be no end to revisiting the Twelfth General Elections of March 8, 2008. The reasons are obvious. There was a material change of voting trends.

There are probably ten million four hundred and fifty-eight thousand four hundred and forty-four reasons to explain what happened.

Since I have neither the time nor the inclination I shall just choose one reason.

It's what I choose to call, "the trust deficit".

It is saying enough to say that unless you were preparing all the spices to make the greatest curry powder mix north of Kenyir Lake between the years 2003 to 2009, you should know the various hotchpot of issues and eruptions that dominated the imagination of the Malaysian electorate.

I prefer to take a quantum leap to the present and, the future.

The mission objective should be to cast BN and its components not as a dominant titan but, as a humble service provider assisting Pak Abu, Madam Tan and Mr Raju, our run-of-the-mill, garden variety Malaysian voter, our "mom and pops" — who used to support the dacing.

That is the way for BN to regain the trust of its traditional vote bank.

Trust is what drives voter sentiment and support.

It is what voters are looking for and what they share with one another.

Not long ago, trust and reputation were the domain of the BN.

Nowadays, a surfeit of spending huge sums to maintain "share of voice"—marketing speak for outspending rivals to drive political brand loyalty—and endlessly reminding voters of the "unique selling proposition" of BN rings hollow.

There is a disconnect.

That approach doesn't work so well now—and not just because rising costs and prices, job insecurity, religious attrition, cultural marginalisation and a widespread sense of alienation have made traditional BN voters disinclined to part with their vote.

The days of Malaysian voters passively absorbing a TV commercial—or, the evening news- or, the morning headlines-or, for that matter, a banner ad fluttering forlornly on a streetlamp—are over.

Even before the Twelfth General Elections, political parties with trust issues had failed to realise that they couldn't keep talking past the problem with slick television, radio and print media exposure.

Now, it would appear that they are still in denial mode.

The one takeaway that any would-be BN political leader should get from this post- if I may be so audacious to say -is, to stop dishing out the same drivel and start trying to build credibility by telling Malaysians at large how well-managed BN is (the implicit message being that BN is better run than the other guys).

Most Malaysian voters are honest-to-goodness small business owners or employees.

They have strong opinions about how political parties are led.

They will trust a political party they believe is run really well.

It's really easy for voters to check and verify a political party's true behaviour to find out if a political party's actions match its words.

But, a word of caution.

Trust-related campaigns only work if there is a message that people want to believe in.

You cannot spin a Malaysian voter base that doesn't want to be spun.

Friday, July 16, 2010

How to Avoid a Double-Dip Global Recession

Roubini has come up with another lucid and cogent set of categorical policy measures that, in his view, will go far to stave off and, avert a global double-dip:

There is an ongoing debate among global policymakers about when and how fast to exit from the strong monetary and fiscal stimulus that prevented the Great Recession of 2008-2009 from turning into a new Great Depression. Germany and the European Central Bank are pushing aggressively for early fiscal austerity; the United States is worried about the risks of excessively early fiscal consolidation.

In fact, policymakers are damned if they do and damned if they don’t. If they take away the monetary and fiscal stimulus too soon – when private demand remains shaky – there is a risk of falling back into recession and deflation. While fiscal austerity may be necessary in countries with large deficits and debt, raising taxes and cutting government spending may make the recession and deflation worse.

On the other hand, if policymakers maintain the stimulus for too long, runaway fiscal deficits may lead to a sovereign debt crisis (markets are already punishing fiscally undisciplined countries with larger sovereign spreads). Or, if these deficits are monetized, high inflation may force up long-term interest rates and again choke off economic recovery.

The problem is compounded by the fact that, for the last decade, the US and other deficit countries – including the United Kingdom, Spain, Greece, Portugal, Ireland, Iceland, Dubai, and Australia – have been consumers of first and last resort, spending more than their income and running current-account deficits. Meanwhile, emerging Asian economies – particularly China – together with Japan, Germany, and a few other countries have been the producers of first and last resort, spending less than their income and running current-account surpluses.

Overspending countries are now retrenching, owing to the need to reduce their private and public spending, to import less, and to reduce their external deficits and deleverage. But if the deficit countries spend less while the surplus countries don’t compensate by savings less and spending more – especially on private and public consumption – then excess productive capacity will meet a lack of aggregate demand, leading to another slump in global economic growth.

So what should policymakers do? First, in countries where early fiscal austerity is necessary to prevent a fiscal crisis, monetary policy should be much easier – via lower policy rates and more quantitative easing – to compensate for the recessionary and deflationary effects of fiscal tightening. In general, near-zero policy rates should be maintained in most advanced economies to support the economic recovery.

Second, countries where bond-market vigilantes have not yet awakened – the US, the UK, and Japan – should maintain their fiscal stimulus while designing credible fiscal consolidation plans to be implemented later over the medium term.

Third, over-saving countries like China and emerging Asia, Germany, and Japan should implement policies that reduce their savings and current-account surpluses. Specifically, China and emerging Asia should implement reforms that reduce the need for precautionary savings and let their currencies appreciate; Germany should maintain its fiscal stimulus and extend it into 2011, rather than starting its ill-conceived fiscal austerity now; and Japan should pursue measures to reduce its current-account surplus and stimulate real incomes and consumption.

Fourth, countries with current-account surpluses should let their undervalued currencies appreciate, while the ECB should follow an easier monetary policy that accommodates a gradual further weakening of the euro to restore competiveness and growth in the eurozone.

Fifth, in countries where private-sector deleveraging is very rapid via a fall in private consumption and private investment, the fiscal stimulus should be maintained and extended, as long as financial markets do not perceive those deficits as unsustainable.

Sixth, while regulatory reform that increases the liquidity and capital ratios for financial institutions is necessary, those higher ratios should be phased in gradually to prevent a further worsening of the credit crunch.

Seventh, in countries where private and public debt levels are unsustainable – household debt in countries where the housing boom has gone bust and debts of governments, like Greece’s, that suffer from insolvency rather than just illiquidity – liabilities should be restructured and reduced to prevent a severe debt deflation and contraction of spending.

Finally, the International Monetary Fund, the European Union, and other multilateral institutions should provide generous lender-of-last-resort support in order to prevent a severe deflationary recession in countries that need private and public deleveraging.

In general, deleveraging by households, governments, and financial institutions should be gradual – and supported by currency weakening – if we are to avoid a double-dip recession and a worsening of deflation. Countries that can still afford fiscal stimulus and need to reduce their savings and increase spending should contribute to the global current-account adjustment – via currency adjustments and expenditure increases – in order to prevent a global shortage of aggregate demand.

Failure to implement such coordinated policy measures – to sustain global aggregate demand at a time when deflationary trends are still severe in advanced economies – could lead to a very dangerous and damaging double-dip recession in advanced economies. Such an outcome would cause another bout of severe systemic risk in global financial markets, trigger a series of contagious sovereign defaults, and severely damage the growth prospects of emerging-market economies that have so far experienced a more robust recovery than advanced countries.

Wednesday, July 14, 2010

MCA's relevance

The brickbats thrown at Donald Lim's call for a Perkasa-like Chinese Malaysian movement in recent days is well-deserved.

The brickbats thrown at Liow Tiong Lai's call for an RM1 billion further infusion of funds to Chinese-language schools, on the premise that it will win BN and MCA further support of the Chinese Malaysian voters, is also well-deserved.

Donald's premise

Donald's premise is that an ultra movement claiming to represent "rights" of the Chinese Malaysian community will catalyse the Chinese Malaysian community to rally around the MCA and, therefore, BN.

Donald's logic must have been founded on the perceived sex appeal of Ib and Perkasa.

There is, of course, no foundation to Donald's logic.

How a Vice President of the MCA can make such a call is beyond comprehension.

The Chinese Malaysian community has always been robust, rugged and resilient. It's hallmark is industriousness, adaptability and flexibility. In this regard, the community mirrors all Chinese communities in a global disapora.

If there are any "rights" that the Chinese Malaysians community craves for, it is the right to be left alone (especially from the taxman) and, the right NOT to see its hard-earned tax contributions frittered away by corrupt practices, favouritism and general wastages in the Government and its agencies.

In this sense, is the desire of the Chinese Malaysian community any different from that of any other Malaysian community?

This is the naked truth that Donald is in denial of or, worse still, that Donald fails to see at all.

I offer only one abbreviated acronym that Donald and the MCA needs to immediately deal with: PKFZ.

Deal with that one and, Donald and the MCA can talk turkey with the Chinese Malaysian community or, any other Malaysian community for that matter.

Tong Lai's premise

Tiong Lai's call for an additional RM1 billion funding for Chinese-language schools in Malaysia is wrongly premised. His purported belief is that such a move will garner more support for MCA and BN from the Chinese Malaysian community.

Does anyone actually, seriously believe that?

Again, I offer only one abbreviated acronym that Tiong Lai and the MCA needs to immediately deal with: PKFZ.

Regaining relevance

This will have to come later. Duty calls.... :(

Post March 8, 2008, the great socio-political and socio-economic issues in Malaysia have been laid bare. It does not take any effort to purchase any number of books that have spawn from that Great Wakeup Call.

To reconstruct and reposition itself, the MCA has to do what none of the BN components have been truly able to do to-date - to wake up from the state of denial.

If we ignore the school of thought that inferred that the Great Wakeup Call was due to the sheer attractiveness of Pakatan Rakyat, then, we are left with the other school of thought which inferred that the Great Wakeup Call was a warning shot by the Malaysian electorate over the bow of the BN supertanker.

Why did the electorate do that?

Why did a large proportion of the Semenanjung Malaysia electorate reject MCA and BN?

I am still puzzling as to whether any real post-mortem was done by MCA and its BN brethren. The operative word is "real".

That is why I say that the MCA and its BN brethren is still living in Egypt - a state of the Nile (sic) denial.

Perhaps the sarcastic moniker given by one Sinnathamby Rajaratnam of the Peoples Action Party, who contested and won the Bangsar parliamentary seat in 1964, is still apposite of the MCA. Certainly Tiong Lai seems to think so.

Rajaratnam said that the abbreviated name "MCA" meant "Money Changes All".

For completeness, he also said "UMNO" meant "U May Not Oppose".

He also said "MIC" meant "May I Come-in(?)".

Has anything changed since then?

More importantly, has anything changed since the Great Wakeup Call?

Sunday, July 11, 2010

Krugman and Ferguson: liberal and conservative

On the eve of a massive day of reckoning between the Orangemen and the Iberians with a Catalan spine; a mighty battle that may see the Dutch prevail...if von Bommel and de Jong can stymie Iniesta and Xavi...if Kuyt and Robben can interchangeably outflank the Spanish centre and confuse Xabi Alonso and Puyol...if Latin emotions lose out to Dutch cool...if...a bird's brain has better intuition than the psychic powers of a spineless octopus...

On this eve, I am taking some time out to make some observations on the ongoing pitched verbal battle between Paul Krugman and Niall Ferguson.

Paul Krugman.

Krugman has advocated strongly for further economic stimulus packages to be rolled out to ride over the spectre of a double-dip recession. That is his proposed remedy.

Ferguson believes that further deficit spending will leave governments and nations and economies in tatters and drown in a sea of debt.

Niall Ferguson.

Krugman has, in interviews, hearkened (with a straight face) the historical phenomenon where the Great Depression only truly ended when World War II happened, the War causing the U.S. Government to embark on a massive public spending programme. That was a tad too glib for my liking.

I tend to lean towards Ferguson in this debate.

Instead of further deficit spending I would urge governments to look into two key policy measures.

Krugman and Ferguson are in mutual agreement that the key issue is unemployment. But they differ on the economic policy prescriptions to reduce unemployment.

Being a liberal, Krugman is sceptical that the private sector can voluntarily unlock their savings and start re-investing (and, therefore, start employing).

Krugman, in the same interview that I saw, made another glib remark that the best and most immediate way to reduce unemployment was for governments to employ more people in the public services! As I said, a tad too glib for me. And, coming from a Nobel-winning economist at that! (Though the catty response would be that the Nobel Prize Krugman earned was for trade NOT fiscal policy).

The Krugman prescription leaves too many loose ends in economic policy not the least of which is a huge mountain of debt and, possible hyperinflation from overprinting of money.

First, tweak tax policy

The first policy imperatives that governments should look into to stimulate economic activity and stave off a double-dip is to tweak the tax rates.

Corporate and personal income tax rates should be reduced. This will stimulate private investment for sure. And, consumption spending will tend to increase since taxpayers will have greater disposable incomes unlocked by the reduction of income tax.

In the context of Malaysia, I say again, bring both corporate and personal income tax rates down to a top rate of 18%.

Second, reduce public spending and government size

Commensurate with the reduced tax revenue, governments should reduce public spending. This will be in tandem with the growth of private investment and consumption.

At the same time, the bloated civil service should be downsized to reduce operating expenditure.

I realise that the difficult issue, one which liberals like Krugman are sceptical of, is whether the private sector will rise to the incentive offered by the reduction of income tax or, just sit on their fat tax savings.

It all boils down to confidence.

The capital markets throughout the world are highly concerned about greater deficit spending and more stimulus packages. This must surely be indicative of a fairly rational market environment that will respond positively to the effort by governments to pare down their bloated bureaucracies and profligate spending. The market will also respond positively to the likelihood that consumption will increase as disposable incomes increase.

This creates a virtuous cycle.

In contrast, increased deficit spending which increases public debt and increases the threat of hyperinflation creates a potential vicious cycle.

There, I said it.

Donald and Ib: A descent from the heights

Here's an interesting angle to ponder over. It isn't new. But, it never gets old:

Napoleon complex is a colloquial term describing an alleged type of inferiority complex which is said to affect some people, especially men, who are short in stature. The term is also used more generally to describe people who are driven by a perceived handicap to overcompensate in other aspects of their lives. This term is also known as Napoleon syndrome,
Short Man syndrome, Little Man syndrome and Small Man syndrome. It does not appear in the Diagnostic and Statistical Manual of Mental Disorders (DSM).

The Napoleon complex is named after French Emperor Napoleon Bonaparte. The conventional wisdom is that Napoleon overcompensated for his short height by seeking power, war and conquest. However, Napoleon was actually of average height for his time period and misconceptions may have been due to an incorrect conversion of his height. Historians have now suggested Napoleon was 5'6 (1.68 m) tall. Napoleon was often seen with his Imperial Guard, which contributed to the perception of him being short because the Imperial Guards were above average height. In psychology, the Napoleon complex is regarded as a derogatory social stereotype.

Friday, July 9, 2010

Asia Alone

Taking an ASEAN-centric perspective of the world is necessary and relevant. This is particularly so for the people who live in Southeast Asia.

It is in this sense that I find Simon Tay's book, Asia Alone: The Dangerous Post-Crisis Divide From America, compelling.
At the risk of an unfair summation, Tay's core proposition is that whilst both the United States and China perform their delicate dance at many levels, both nations need to take cognizance of the virtuous leveraging effect that ASEAN can play as a middleman of sorts.

One analogy of Tay's thesis is that ASEAN is the hub while China is a spoke.

The other analogy that strikes me, being Malaysian (of course) is the idiom Gajah sama gajah berjuang, pelanduk mati di tengah-tengah.

In other words, Tay is mindful that ASEAN is a stakeholder in the tense jostling between the U.S. and China. More than that, Tay is voicing an ASEAN perspective and makes a case that ASEAN has a pivotal role to play as a positive interface between the U.S. and China.

I dare say that ASEAN has hitherto engaged and, understands the nuances of both the U.S. and China at every level - cultural, political, social and, most certainly, economic.

That said, there are a few observations that may be relevant.

(I will continue in a bit. Got some things to do first. *sigh*)

Everyone knows Samuel Huntington's thesis about the clash of civilizations.

Some may recall Martin Jacques's scenario of "when China rules the world".

For us, in ASEAN, our biggest fear is not so much hegemonic projections by either the U.S. or China.

No, I submit that our biggest fear must be that of becoming irrelevant in a multi-polar or, worse still, bi-polar world.

The fear is not so much political irrelevance so much as economic irrelevance.

We risk becoming economically irrelevant if the U.S. and China enters into economic amity. Thankfully, that "IF" is a big and unlikely one given the significant relationship gaps between the two giant nations.

In this regard, it is not only ASEAN that is thankful, so would be the Europeans and South Americans.

That said, many are aware that the U.S. is the "yang" force aggressor in the China-U.S. relationship. It is the same story between the U.S. and just about any other nation.

At 200+ years of age, the U.S. is a relatively young country. Wealthy (still) and misguidedly dogmatic and doctrinal. What annoys everyone is that the U.S. wants us all to photocopy and imbibe the Declaration of Independence and the U.S. Constitution.

Their world view has vestiges of sanctimony. They freely admit their faults but doggedly maintain that in an imperfect world, their model of values comes closest to the ideal.

This value system finds some degree of expression in the heroic ability of John Wayne to discharge a single shot from a Colt 45 and bring down half a dozen Native American Indians, the ability of one Bruce Willis to turn the tide against a well-armed group of terrorists, the courage and recklessness of one Clint Eastwood to defy convention and rules to bring down the bad guys with his trusty Magnum gun (with the classic phrase, "Make my day").
As the rest of the world are entreated with this message, we are also treated to the wonders of Cola drinks, popcorn and jeans.

Many believe that this form of pop culture carries an ideological thread that is exported globally to widespread acclaim.

What exasperates the U.S. is that after the visual and audio imagery ends, the rest of us walk away from the cinemas back into our dictatorships and corrupt practises!!!

Of course, I have been simplistic in painting the foregoing. But, I believe there is a grain of truth in it.

How else do we explain the general support of the U.S. populace toward the Invasion of Iraq and the War in Afghanistan?

How else can we explain why even Obama, who is definitely more enlightened than Bush Jr. continue to subscribe the the Occupation of Iraq and Afghanistan?

Simon Tay's proposition is, if I may say, a reminder that being a little cluster of nation states, ASEAN should see the abrasive U.S. worldview as an opportunity for the little guys to use themselves as bridges between the U.S. and larger countries like China and, even india and, possibly even the Middle East.

This would be a strategic coup and an astute mode of tactical leveraging.


And, what would be the dividend for ASEAN's offer of being a bridge?

Okay, world peace and regional peace is *yawn* the obvious public line.

The real intent should be to gain economic benefits.

That would make the endeavour worth the effort.

Saturday, July 3, 2010

Turning a new PAGE: Engaging Perkasa?

The Parents Action Group for Education, better known by its acronym PAGE, has now been officially registered as a society.

PAGE has a website here and a blog here.

I attended PAGE's soft launch this morning and signed up as a member.

There's some coverage by the Malaysian Insider on the event and news that PAGE has had a fruitful engagement with the Malay rights group Perkasa to garner support for PPSMI here. Talk about strange bedfellows!

I guess only Dr M can get different groups of Malaysians with seemingly different proclivities to get engaged and go to bed together, in a manner of speaking.

Well, as long as the romp is productive, one has to be circumspect, I guess.

The issue of maintaining the teaching of Science and Mathematics in the English language is a serious one, though. And, as I said above, PAGE is leaving no stone unturned to garner maximum support for the cause.

Politicians are all about votes. To get Muhiyiddin to reverse the decision to scrap PPSMI, PAGE needs to have a large number of members and supporters. Politicians fear and respect large numbers of angry voters. And, beware of angry parents.

I do urge you to sign up as a member. Put the fear into these politicians about the issue of abolishing PPSMI.

The Application Form can be printed out here.

Membership fees are only RM20-00 and information on the payment of the membership fees and contributions can be found here.

Thursday, July 1, 2010

Tun Omar Ong Yoke Lin

In August last year, in the run-up to the Merdeka celebration, I blogged about a pivotal piece of our history. It was about a friendship between two men that led to the first collaboration between UMNO and MCA. That collaboration led to the formation of the Alliance Party coalition that comprised UMNO, MCA and MIC.

One of the men was Ong Yoke Lin. Tun Omar Ong Yoke Lin's place in Malaysia's history is secure.

I just read about his passing at age 92. I offer my condolences to the late Tun's family.

In Tun's honour, I reproduce below the blog post I did on 13 August 2009:

Merdeka lessons: The value of friendship

As the leaders of UMNO and MCA grapple with pockets of implosion due to circumstances that are either beyond their control or, of their own doing, the Merdeka fortnight approaches.

And, as the mood of the country turns schizophrenic, from bouts of racialism and multi-racial friendships, the Merdeka fortnight approaches.

The importance of friendship among Malaysia's leaders cannot be ignored and, the stories of past friendships should never be forgotten.

One of the useful things about having been an avid bookworm since my teenage years, particularly on books written about Malaysian politics, is that I have been able to build up a fairly respectable personal library.

One of the greatest pleasures of a book afficionado is to be able to browse. The pleasure is all the greater is one browses one's own stock of books. I wish to refer to a fairly obscure book published in 1979. It's an semi-autobiographical work by TH Tan, a name that now hardly warrants a footnote in Malaysian history books.

Mohammed Tahir Tan Hong Hye also known as T. H. Tan, was a Singapore-born journalist and politician who became the Secretary of the Malayan Chinese Association (MCA) and the first honorary Secretary-General of the Alliance Party in Malaya. He is mainly remembered for being among the three men (the others being Tunku Abdul Rahman and Tun Abdul Razak) who took part in the UMNO-MCA Alliance delegation to London in 1954 to demand for an effective elected majority in the Federal Legislative Council of Malaya.

He embraced Islam in his later years due to his utter love and respect for the values that Tunku Abdul Rahman demonstrated and, later, became one of the key persons in the founding of PERKIM. Ironically, the onlyonline biographical input on TH Tan that I could find is in the Singapore National Library website. That is a sad testimony to how badly unavailable Malaysian archival records are. How to learn Malaysian history like that?

Anyway, in 1979, TH Tan published The Prince and I, which provides a good and solid and highly readable account of the events leading to Merdeka and the ensuing years.

Here is an extract of TH Tan's book that describes how the personal friendship between Ong Yoke Lin of Kuala Lumpur MCA Branch (later Tun Omar Ong Yoke Lin, past Speaker of Dewan Negara and founder of the air-conditioning company, OYL Industries Bhd) and Datuk Yahaya bin Abdul Razak of Kuala Lumpur UMNO Branch had the impulse to moot the idea for an UMNO-MCA alliance to contest the Kuala Lumpur Municipal elections in 1952. from here.

This was the seed that was planted that became a sapling that grew into the Alliance Party (Parti Perikatan) and, later grew into a massive tree that we now know as Barisan Nasional.

They were school friends. They held a series of meetings between themselves to discuss the impending Kuala Lumpur Municipal Election which the British Administration agreed to under pressure of public opinion. Having agreed between themselves that co-operation was not only practicable but, indeed, essential for political progress, Datuk Yahaya and Ong Yoke Lin brought the proposition to their respective State party chairmen. This led to a formal meeting between UMNO and the MCA, under the chairmanship of Col. (now Tun) Henry HS Lee.

The meeting unanimously decided to form an UMNO-MCA "merger" to contest the Kuala Lumpur Municipal Eelections. This was reported to the national Presidents of UMNO, Tunku Abdul Rahman and of MCA, Datuk Tan Cheng Lock, both of whom unhesitatingly gave their blessings.

Thus was the Alliance born.

Historians may embellish TH Tan's version of events with the context of the times and, that Tan Cheng Lock had one foot in Dato' Onn bin Jaafar's Independence of Malaya Party (IMP) camp at that point in time. But, my point is a simple one.

It is a historical fact that Datuk Yahaya Abdul Razak of UMNO and Ong Yoke Lin of MCA were schoolmates and friends. That rapport was the catalyst and balm that sparked the idea of two communal parties to form an historic alliance.