A-G's omission to act questioned

This NST Online op-ed piece jointly written by Raja Aziz Addruse and Ding Jo-Ann needs to be read in full. Raja Aziz, as many will know, is a former President of the Malaysian Bar and he remains one of the most respected lawyers in Malaysia and an authority on Malaysian constitutional law. In this piece the duties and responsibilities of the Attorney-General in relation to certain police actions are examined and questioned in relation to the A-G's apparent omission to act on recent police actions.
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THE recent arrests of Teresa Kok, Sin Chew journalist Tan Hoon Cheng and well-known blogger Raja Petra Kamaruddin under the Internal Security Act 1960 (ISA) caused concern that the government could so readily use the draconian law of preventive detention without trial to silence criticisms made against it. According to the Home Minister, the journalist had been arrested because her life had been threatened and the police wanted to conduct a comprehensive investigation. She was, it would seem, arrested under the act for her own safety.

On that basis, the arrest of the journalist was clearly an abuse by the police of their power under the ISA.

Since he is the Minister responsible for the police, the Home Minister is answerable for the wrongdoing of the police.

Kok, too, was released a few days after being detained without any plausible reason being given for her arrest. Raja Petra was ordered to be released by the court on Nov 7.

After the initial arrest under section 73(1) of the ISA, the Minister had subsequently made an order under section 8 of the act for him to be detained for two years. This order has now been declared unconstitutional and ultra vires by the court.

The question that needs to be asked is how it is that such powers are now being exercised with what appears to be scant regard for the fundamental rights, liberties and freedoms guaranteed under the Federal Constitution.

Should those conferred with such drastic powers not be advised as to the limits of their power and of their responsibility in the exercise of such powers? The person who is constitutionally entrusted with the function of advising the government and ministers of government on such matters is the Attorney-General. It is his constitutional duty to uphold the Federal Constitution and citizens’ fundamental liberties as guaranteed under Part II of the Federal Constitution.

It would have been the Attorney-General’s duty to advise the police and the Home Minister that the reasons they gave for arresting Tan and Kok under the ISA did not warrant the exercise of power under section 73(1) of the ISA.

He should also have advised the police and the Minister that there are specific prerequisites which need to be satisfied before the power of arrest and detention under the act can be lawfully invoked.

Read more here.

Right moves by MITI

The Ministry of International Trade and Industry is making some solid and sound moves. Many may feel that this blog has been parsimonious in saying positive things about the economic management of Malaysia. Unlike the mainstream media journalism, blogging is non-remunerative. There's no monetary angle except the hope that a robust and healthy economy will prosper as many Malaysians as possible.

But qualified praise is due for the latest measures announced by MITI. Qualified praise because MITI is only considering these measures which, to the mind of this blogger, are very important measures that will boost Malaysia's economic competitiveness at a time when trade and investment is getting scarce in a contracting global economy.

I'm posting it up first. Analysis later:

Malaysia yesterday moved to cut red tape in the trade and investment sectors as it prepares itself for a possible lengthy period of weakness in the global economy.

Several pre-emptive measures were announced by the Minister of International Trade and Industry, Tan Sri Muhyiddin Yassin, to ensure trade and investments continue to flow into Malaysia and industries continue to operate.

Broadly, the measures included manufacturing sector liberalisation, lowering costs of doing business and facilitation of business operations and start-ups.

They included:

• automatic issuance of manufacturing licence;
  

• removal of import duty for 48 product lines of raw materials and intermediate goods;
  

• extension of approval for representative/regional offices;
  

• ensuring the private sector fully benefits from the Asean Free Trade Area (Afta) and free trade agreements (FTAs); and
  

• enforcement of mandatory standards on imported products to protect the environment and public health and safety.

Other measures touched on:

• the intensification of targeted trade and investment promotion activities;
  

• greater participation of the private sector in overseas promotion activities;
  

• expansion of matching grants for business start-ups;
  

• revision of business licence and fees for businesses; and
  

• a review on further liberalisation of the manufacturing-related services sector.
  

Muhyiddin said the government will issue automatic manufacturing licence, starting from December 1 this year, to stimulate foreign and domestic investments in manufacturing and manufacturing-related services.

"The licence will be issued once for the lifespan of the business, and the fee has been eliminated effective June 1 2008," he told a news conference after chairing a meeting with trade associations on the measures in Kuala Lumpur yesterday.

This is the first package of measures prepared by the ministry in response to feedback received from trade and industry sectors.

Muhyiddin said the ministry would announce more measures after studying the impact of the crisis on industry sub-sectors and getting more input from the private sector.

He said that so far this year, the trade and investment figures are still encouraging, with total trade expected to reach RM1 trillion and total investment to be more than last year's.

"But the impact on the country's trade and industry sector next year is expected to be bigger.

"These are immediate steps taken to ensure that businesses, especially small- and medium-scale enterprises (SMEs), and the inflow of investment are not badly affected."

Further solid measures that MITI is reported to be considering, and should implement soonest possible are:

To further liberalise the manufacturing-related services sector, the Government is considering regional distribution centres (RDCs) be given flexibility to source raw materials/parts/components from any party.

Currently, RDCs are allowed to source only from related companies. The Government is also considering whether international procurement centres (IPCs) be given flexibility from the current requirement of the need to have a manufacturing operation in Malaysia.

With this flexibility, Muhyiddin said, an IPC could have the option for its manufacturing facility to be based locally or abroad.

The Government is also weighing whether an IPC/RDC be allowed to increase the proportion of its drop-shipment sales to the total annual sales turnover to 50%.

Currently, an IPC/RDC drop-shipment sales is limited to only 30% of its annual sales turnover.

Drop-shipment is a business practice in which an IPC/RDC does not keep goods in stock, but instead transfers customer orders and shipment details to suppliers, which then ship the goods directly to the customer.

To facilitate trading and business activities, approval for operation of representative office/regional offices will be given for five years compared with three years currently.

Taib under increasing pressure

The piece written by Joe Fernandez in Malaysiakini entitled, Many in favour of Taib going sooner, not later reflects the growing restiveness of the various communities in Sarawak against Taib Mahmud's style of aloof leadership by domination. Taib is now the longest-serving state leader ever in any state in Malaysia.

While such longevity speaks volumes of Taib's political astuteness, it also screams at the calcification of BN Sarawak.

The SUPP has a proud history of steering an independent and uniquely Sarawakian position both at the state level and the national stage. Idealistic Ong Kee Hui and Stephen Yong founded SUPP and narrowly steered the party through the Communist challenge. They opposed the formation of Malaysia. Later, upon being persuaded by Tun Razak and BN, they pragmatically joined the BN fold. But, three decades later, the SUPP has lost touch with the Chinese community. It's leadership generally carry an arrogant sneer when meeting with the rakyat.

The Dayak community has deliberately been kept in a lost world by the persistent and consistent loss of potential leaders who are co-opted into the world of largesse offered by Taib and BN Sarawak. The Dayak leaders in BN Sarawak voluntarily undergo a political neutering process, trading the rights and honour of their own community in favour personal gains, political and economic. Truly, early leaders like Stephen Kalong Ningkan would weep for the Dayak community that has never recovered from the sacking of Ningkan as Chief Minister.

The Fernandez piece in Malaysiakini reflects the growing restiveness of Sarawak's various communities who are increasingly aware that they are disenfranchised and, in many ways, betrayed by BN Sarawak leaders who have become callous towards the needs of the ordinary rakyat. Read the Malaysiakini piece in full below:
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Except for one studied reaction from a political secretary to Sarawak Chief Minister Abdul Taib Mahmud, all the others in a selected SMS sampling of several key opinion leaders in Sarawak agreed wholeheartedly with Kuching MP Chong Chieng Jen that the former

MCPX

should step down sooner rather than later.

The opinion leaders sampled covered members of parliament, state assemblypersons, political secretaries and senior party activists, all from the ruling BN component parties.

“It’s naïve to think that the chief minister’s coming or going is at the call of an opposition MP or several MPs,” went the only response that seemed to veer towards Taib. Like the others polled, he wanted his name kept out of the public limelight.

Another who had watched the interview and was queried on this reply, responded: “Yes. But what he (Chong) said is very damaging. Others will use the interview to whack Taib with it. The incestuous role of CMS is being queried.”

“True also. The truth is Taib’s critics have no plan of their own for the governance of Sarawak . . . . and no resources,” said a senior party activist in PBB (Pesaka Bumiputera Bersatu), Taib’s party.

Asked what he meant by resources, he replied: “Resources for the fight to take over the government.”

What's his excuse to stay on?

The fact that the Taib family is well-heeled is in no doubt, a point repeatedly stressed by Chong in his appearance on the ‘Uncensored’ talk show hosted by Malaysiakini editor Francis Paul Siah. The show was recorded on Thursday.

Short of labeling Taib as extremely corrupt, Chong pointed out that the chief minister can be accused of improper dealings and getting caught in conflict of interest situations in feathering his own nest in the years he has been in power.

“Wow!” was the response from a senior state cabinet minister. He added that his silence to a renewed query can be taken as a sign that he agrees with Chong but on condition that his name was not revealed.

A third response: “What he said is an understatement of the decades that Taib has been in power.”

“It will eventually become really embarrassing,” said a state assemblyman from a rural seat. “What’s his excuse to stay on? He should leave it to the younger generation. I think that it’s now a race between Taib, Samy Vellu and Pairin to see who can stay on the longest. My guess is that Taib will be the last to go, fortunately or unfortunately, and probably Samy the first.”

One was hopeful for the future: “I don’t think that the tsunami will come to Sarawak. But you can never tell.”

Other responses were along similar lines although there were some who simply responded: Ha Ha Ha.

It’s anyone’s guess what such responses mean. It could either mean that Chong is just a mosquito bite, so complete is Taib’s vice-like grip on the state, or it may mean that they are tickled pink that Taib is coming under increasing and greater public scrutiny for outstaying his welcome, among other things.

Those polled had been informed and asked a simple question: “Kuching MP Chong Chieng Jen has called on Taib, in a Mkini.tv interview, to step down as chief minister. He has cited various reasons - hanging around too long, having done more harm than good and, legally speaking, indulging in improper dealings and conflict of interest situations to feather his own nest. He once reminded Taib of a Confucian proverb: “If the leader is rich and the people are poor, then that leader ought to be ashamed of himself.”

“What do you think? Be brief.”

Son, niece in Parliament

In the March general election, Taib recommended his son, Sulaiman, for a parliamentary seat and later a post in the Federal Cabinet. He also fielded a niece. In the 2006 state election, the chief minister brought in a brother as a state assemblyman.

Sulaiman was executive chairman of RHB Bank for a time until Bank Negara ruled, citing conflict of interest, that he could not hold the post.

However, the son of the chief minister is more remembered for the alleged assault on a former television personality Avaa Vanja Ramli (photo) in a Kuala Lumpur night club in 2003 than for his role as a banker or legislator.

Sulaiman is now the deputy tourism minister.

Taib became chief minister of Sarawak in 1981 - the same year Dr Mahathir Mohamad became prime minister. He took over from his maternal uncle Abdul Rahman Yakub who assumed the post of the Sarawak Governor for a term.

The next state election is not due until 2011 but could come as early as next year, sources say. Taib is said to be in the best of health although he had been diagnosed not so long ago with colon cancer. He has been under medical treatment and supervision in Singapore and Australia but shows no signs of slowing down or making way for a new line-up.

In the past, Taib had often talked about grooming his successor from a possible list of three but, except for Abang Johari Tun Openg , the other two either quit or were left out from being in the running. Taib has often hinted at the possibility of packing Abang Johari off to the Federal Covernment but apparently fears a Malay backlash. Similarly, he has blown hot and cold with Alfred Jabu, his deputy for 27 years and the leader of the Pesaka wing in PBB.

Taib now has his work cut out as Jabu has become increasingly unpopular among the Dayaks and has been accused of trying to emerge as the self-appointed paramount chief of the Dayaks by bullying his way in the selection of Dayak MPs and state assemblypersons for all BN component parties.

Islamic hedge funds

I have no claim to any expertise in Islamic finance. What little I do know about Islamic financing has impressed me. There is a principle against usury. This underlies the principle of Islamic financing that is characterised by partnership and common venture between the lender and borrower.

Islamic finance is principles-based and values-based. 

So, when I hear that the Securities Commission (SC) is working on a plan to establish Islamic hedge funds, I am rather perplexed. Here's an interesting extract from the NST Online report:

Speakers at the forum (on Islamic capital market) said there is a growing number of investors in the world who require alternative Islamic investments such as hedge funds. 

The problem, however, is that there hasn’t been broad acceptance for hedge funds among syariah scholars and investors. “They are saying, ‘Do we need to go down this route at all?,” said Iqbal Asaria, a director of UK-based Amiri Capital Services Ltd, an Islamic asset manager.

Good question. Does Islamic financing need to go down the route of creating hedge funds?

These guys can say anything they like and create whatever legal fiction that is possible to squeeze conventional notions of hedge funds to become Islam-compliant. But I don't think the key principles of hedge funds will be any different. Read this:

A hedge fund is a private investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of activities than other investment funds and also pays a Performance fee to its investment manager. Although each fund will have its own strategy which determines the type of investments and the methods of investment it undertakes, hedge funds as a class invest in a broad range of investments, from shares, debt and commodities to works of art.

As the name implies, hedge funds often seek to offset potential losses in the principal markets they invest in by their investments using a variety of methods, most notably the term "hedge fund" has come to be applied to many funds that do not actually hedge their investments, and in particular to funds using short selling and other "hedging" methods to increase rather than reduce risk, with the expectation of increasing return.

Hedge funds are typically open only to a limited range of professional or wealthy investors. This provides them with an exemption in many jurisdictions from regulations governing short selling of interests in the fund. A hedge fund will nevertheless commit itself to a particular investment strategy, and therefore often particular investment types and leverage levels, via statements in its offering documentation, thereby giving investors some certainty regarding the nature of the fund.

Hedge funds dominate certain specialty markets such as trading within derivatives with high-yield ratings and distressed debt.

Now, I ask again, does Islamic finance REALLY need hedge funds?

The scary thing comes from this part of the same NST Online report:

While risky, it is an opportune time to launch Islamic hedge funds now as many conventional hedge fund companies have ceased to exist after being badly hit by global credit crisis.

Following the logic of that deadpan observation, the SC is considering Islamic hedge funds AND the timing is perfect because the conventional hedge funds ARE DEAD.

And, WHY are the conventional hedge funds dead? The obvious answer is that the hedge funds took on too much risk to the point where they could not figure out how much risk they had taken on. So, when the underlying assets started to drop in value, the entire unwieldy edifice of hedge funds started to crack and tumble like a house of cards. It was a flimsy asset foundation to start of with.

I think it is surreal to hear that the SC is actually considering Islamic hedge funds. Hedge funds are no different from derivatives, both of which are the principal causes of the current global financial turmoil.

No matter how you dress it in Islamic verbiage, a hedge fund is a hedge fund. It is an instrument designed to play with chance but instead of calling it chance, they call it risk. It means the same thing.

I say to the SC, go forth on Islamic hedge funds and run the risk that when the Islamic hedge funds get implemented and played out and crash in the next cycle (Oh Yes! There WILL be another cycle as surely as the seasons change) the credibility of Islamic finance will be severely damaged.

Go back to the core principles of Islamic financing. Stick to the core principles and do not deviate too far from it. This has been the underlying strength and proven resilience of Islamic financing. 

Mark my words, Islamic hedge funds are the proverbial Trojan horse that will mortally wound the nascent Islamic finance industry. 

Sarawak PKR gets big boost

Malaysiakini's report that sole Independent state assemblyperson in the Sarawak State Assembly Gabriel Adit has made the crucial decision to join PKR will give a big boost to PKR as it prepares for the next state elections due in 30 months.

The PKR gathering tonight in Sibu, will be a big celebration. PKR has gained very significant inroads into the Dayak community assisted in great measure by the draconian and high-handed attitude of Taib Mahmud and his 29 lame duck Dayak state reps.

I'm sure Malaysiakini will not mind my posting Tony Thien's report in full. I have highlighted in bold the interesting parts of Tony Thien's report:

Adit, 58, is a four-term representative who retained the predominantly-Iban Ngemah seat in the 2006 state election on an independent ticket.

He will officially hand over his membership application form as well as those from his supporters during a 300-table dinner organised by ‘Friends of PKR’ in Sibu on Saturday. Adit is the organising chair of the event.

It is learnt that many members of a Dayak-based state BN component party will also be handing over their application forms to PKR advisor Anwar Ibrahim, the guest-of-honour, for the evening. Several top Pakatan Rakyat leaders from PKR, DAP and PAS as well as their state leaders will be present to witness the event.

Malaysiakini also learnt that Beginda Minda, the ex-publicity chief of PRS president Dr James Masing-led Balleh division who made the news recently with his call on Chief Minister Abdul Taib Mahmud and Deputy Chief Minister Alfred Jabu to resign, and his supporters are also expected to join PKR at the function.

Although several leaders of state BN component parties have been reported in a national daily as saying they are not perturbed by the news of Adit’s impending move to join PKR, it has come at a time when there are also reports of groundswell support for PKR, especially in the rural areas.

Most popular party

A Merdeka Centre survey conducted after the March 2008 general election indicates that the most popular party among the Dayaks in Sarawak today is PKR.

There are several reasons why this is so, and among the concerns to Dayaks is the way the present Sarawak government handle the Native Customary Rights (NCR) land issue.

This has seen growing conflict on the ground between NCR landowners and plantation and logging companies and the government and increasing cases of litigation brought before the courts in Sarawak.

Adit was first elected to the state assembly in 1991 and has retained it successfully ever since.

A Canadian graduate in sociology and political science and closely related to former PBDS president and former federal minister Leo Moggie, he is respected within his own community and is known to be patient and not afraid to criticise the state government.

This personality has not endeared him to some top leaders in Sarawak, including the chief minister.

It was hardly surprising that the state BN leadership did not pick him to contest in the last state election which forced him to defend the Ngemah seat as an Independent.

He defeated BN-PRS candidate Alexander Vincent, a Masing relative, by a majority of more than 500 votes.

With Adit joining PKR, the party will now have two state assemblypersons. The other is Dominique Ng who represents the Chinese-majority seat of Padungan.

Adit conceded that there is a limit to what he can do, but by joining PKR he hopes to open the doors for other BN representatives to fight for change which he says looks inevitable, given the growing discontentment among Sarawakians against the state government.

He would not want to say more except that once he is officially in PKR, he will help his colleagues at state and national levels to build up the party’s grassroots where it counts most ahead of the state elections.

Twenty-five minutes too late

Adit told Malaysiakini that over the past several days during the sitting of the state assembly, he was approached by a number of BN representatives who tried to dissuade him from joining PKR after news of his intention leaked.

“I quoted to one of them the title of a Michael Learns To Rock (MLTR) song Twenty-five Minutes Too Late and that I have made up my mind,” he added in jest.

Apart from the Merdeka Centre findings on responses in rural constituencies to PKR, many state BN leaders, especially from the Dayak-based parties, acknowledge the growing anti-BN sentiments on the ground, sparked by issues such as land and certain policies on education and economic opportunities.

But that change may not come easy, with almost everyone acknowledging Taib’s strong and powerful grip on Sarawak’s power politics but one of his senior party colleagues has warned that unless the NCR land issue is resolved, it could potentially become a dynamite to create a political tsunami in the next state election.

But it has been noted that many state BN top leaders appear to be still in a state of denial, believing that under Taib’s leadership the state BN will remain formidable and should be able to remain in power for some time to come.

However, if Adit and more BN elected representatives who, to quote him, have a bitter-sweet experience inside BN, follow him to PKR, that might change the perception.

There are 29 Dayak-majority seats, 27 Malay/Melanau (Muslim)-majority seats and 15 Chinese-majority seats in the 71-seat state assembly.

Presently, DAP has six seats, all Chinese-majority, PKR one Chinese-majority seat and Independents two Dayak seats.

BN’s Sarawak United People’s Party (Supp) could end up even worse in the next state election with the DAP expecting to make further inroads.

PBB’s Malay/Melanau-majority seats may be tough to crack but PKR is confident of giving PBB a run for their money given the known dissatisfaction within the Malay community against the state leadership over a number of issues.

The opposition will have to win half or more of the Dayak seats plus a majority of Chinese seats as well as a number of Malay/Melanau seats to topple the state BN government.

Remove personal differences

PKR’s prospects have been bolstered by a growing number of bumiputera professionals joining the party. It does not lack potentially good candidates to fill the many seats.

Supporters are urging PKR state leaders to remove personal differences and close ranks as well as for the party at the state level to forge a better working relationship with Sarawak DAP.

It’s not clear what role the other state opposition parties Snap and Star will play.

It is possible that if a broader understanding can be reached they will get to contest some seats if the right candidates come around, without opposition parties taking on each other for the same seats.

Learning from past electoral experiences and the need to avoid a clash among themselves, DAP and PKR are likely to agree on seat allocation, especially in Chinese-majority areas.

Sources said that the PKR national leadership want to see the party’s state organisation further strengthened, after Adit’s entry into the party, with strategies more focused on the objectives it has set out to achieve in Sarawak.

The question ahead of the huge Sibu gathering is after Adit’s entry and that of his supporters applying to join the party at the same time, what significant impact will it have especially in the rural areas.

Will, as the Ngemah state representative hopes, it open the doors for not just more BN reps but also the grassroots of other Dayak-based parties to join PKR?

Economic caveats

The pronouncements emanating from the Economic Council is music to the ears of this blogger. It signals an intention to strengthen the important features of the Malaysian economy at a time when the global economic recession is just beginning to set in. It won't be a smooth ride. The job of the Malaysian economic managers is to keep the economy on as even a keel as possible.

Having set aside some time to ruminate, this blogger is ready to examine the Economic Council's pronouncements a little deeper. The blue sections are extracted from the Star Online report.

The Government-initiated Economic Council is working on a “New Strategy Package” to focus on medium and long-term structural issues affecting the economy.

The government will need to provide more details on this nebulous term structural adjustment which can be taken to include matters such as:

• Cutting social expenditures, also known as austerity,
• Focusing economic output on direct export and resource extraction,
• Devaluation of currencies,
• Trade liberalization, or lifting import and export restrictions,
• Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets),
• Balancing budgets and not overspending,
• Removing price controls and state subsidies,
• Privatization, or divestiture of all or part of state-owned enterprises,
• Enhancing the rights of foreign investors vis-a-vis national laws,
• Improving governance and fighting corruption.

As you can see, the phrase structural adjustment can mean any or, all of the above and more. Let's have some more details as soon as possible, please.

Minister in the Prime Minister’s Department Tan Sri Amirsham Aziz said the council would identify constraints on the economy and re-look at development strategies. “These measures include attracting more foreign direct investments from high-surplus countries, stimulating domestic investment, taking advantage of China’s and India’s growth, promotion of tourism and construction activities.

First, attracting FDIs is the conventional wisdom for generating economic growth. To-date, FDIs in Malaysia have exhibited an interest in Malaysia as a relatively competitive venue for semi-skilled labour. Malaysia is quite far away from being a high-skilled labour venue despite over a decade of government talk about building knowledge capital. As this blog has said over and over again, the starting point is primary and secondary education. Without a strong foundation in the technical subjects of Science and Maths taught in the English language, the pipeline carries only low-quality products that are good only for low-skills and semi-skilled labour.

Second, domestic investment can be stimulated by lowering the lending rates, something that the Bank Negara is expected to do, perhaps by 50 basis points resulting in a 0.5% reduction in lending rates. The caveat I offer is that domestic investment depends on domestic and export demand and consumption. The SMEs will not invest unless there is demand. So, stimulating demand is also on the cards. This is not a quantitative game of pouring money into the economy from the supply-side and demand-side and, expecting stimulation. Rather, it is a qualitative game of identifying the sectors of the economy that has genuine multiplier effect. I can tell you that the property sector isn't the correct place to suntik modal...the multiplier effect of that sector is dodgy. But, let's leave that for another blog post.

Third, tourism is a no-brainer. It's already the third largest contributor to Malaysia's GDP. Tourism has genuine multiplier effects on the economy. But, there are so many structural problems in the Malaysian tourism sector. Public toilets need to be even cleaner. Taxi services are still appalling. Public transportation, in general, is very badly connected from one sector to another...and, yes, it affects tourism because many, many tourists like to move around by themselves.

Finally, construction is a nebulous term. Construction for infrastructure must also be qualitative not, quantitative. More money needs to be given to local councils to repair infrastructure. The Second Penang Bridge needs to get going even faster. But, tenders must be kept open. The days of negotiated tenders are over.

Amirsham said the country needed to rely less on low-skilled foreign workers and step up human capital development to move up the value chain.

“We have plans to reduce reliance on low-skilled foreign workers in the construction, manufacturing and services sectors to 300,000 from the current 600,000 over the next two years,” he said.

Well, if you've read earlier entries in this blog, you will know how well-received these words must be to this blogger. The Minister needs to quickly unveil the plans. And, this blogger is very, very curious about how the low-skilled foreign workers that are mostly involved in the construction and plantation sectors will be replaced by Malaysian workers. The key factor to facilitate the shift from foreign workers to locals must lie in the wages. Will there be a national minimum wage policy. RM1,300 to RM1,500 is a good range to start with.

And, as for human capital development and moving up the value chain, the starting point, just to reiterate, must be in the education system. No solid Mathematics, Science and English grounding and we may as well file the Minister's words as pure rhetoric.

Economic Planning Unit director-general Tan Sri Dr Sulaiman Mahbob said the reforms being looked at included liberalisation of business and professional services, a high-income policy and flexibility in employment of foreign experts.

My position on liberalisation is quite strongly made earlier. However, I am in a generous mood this morning. I am now prepared to agree with liberalisation. To Hell with the consequences. Maybe Malaysian professionals need a swift kick in the backside to get going. So, bye-bye low-skilled foreign workers, welcome skilled foreign professionals. Maybe the unemployable local graduates can be re-trained by the foreign skilled professionals or, replace the low-skilled foreign workers in the construction and plantation sector....why not?

He (Sulaiman Mahbob) said measures to promote entrepreneurship included reviewing rules and regulations pertaining to the Foreign Investment Committee.

The FIC rules are a protectionist disincentive to Malaysia's competitiveness in attracting FDIs. With the rise of Vietnam, Malaysia's past attractiveness is fast losing its allure. Like a narcissistic ageing Hollywood actress, Malaysia badly needs elective surgery to get a facelift and various augmentations. Eliminating the 30% Bumiputra equity in more and more industrial and manufacturing enterprises is long overdue. But, I want to warn Pemudah that talk is cheap. From experience, we hear all these pronouncements. But the FIC administration has a mind of its own. It will still issue conditional approvals with a 30% Bumiputra equity. Wanna bet? And, they wonder why investors complain...

He said for long-term sustainability, there was a need to broaden and raise the efficiency of revenue collection, review subsidies and accelerate the implementation of projects.

Efficiency of revenue collection is one thing. But, it is very strange that the Inland Revenue has revenue collection targets. It's a scary thought that a revenue collection body behaves like a sales and marketing entity. And, if you know the income tax laws, you will know that the principle is pay first, talk later. I believe that the revenue collectors must be taught some sensitivity to the likelihood that they may be one key factor in dampening the investment climate by treating taxpayers in their usual roughshod manner. The last time I checked, the Income Tax Act and Customs Act were classified as economic regulations, not penal codes.

“Moving forward, we’ll promote projects with higher domestic content, less leakage and higher returns while looking at the efficiency of expenditure,” Sulaiman said.

This awareness is necessary. But, again, the economic managers have to identify the areas where Malaysian SMEs can be assisted to enter into the higher value-added sectors that produce the components are currently being imported. This will plug the leakages from the economy.

On human capital development, he (Sulaiman Mahbob) said there would be a review of the wage structure.

“Measures include strengthening skills training and retraining, firming up collaboration between industry and universities as well as raising productivity,” he added.

Review of the wage structure. Is that a reference to the national minimum wage policy that I touched on above? The are many salutary effects to having a minimum wage policy. But the major caveat is that minimum wages MUST come together with higher productivity. This is the challenge for all stakeholders in the Malaysian economy.

IPPs, Tenaga and Telekom

This was a post made on November 4 by the new DAP Economics Advisor, Chi Chang. In it he addressed the matter of electricity supply, Tenaga, IPPs and, he also dealt with Telekom and streamyx. Chi Chang knows what he's talking about and, I agree with his analysis:

Electricity tariffs were raised 24% in June. Oil prices have since fallen dramatically and people are now demanding Tenaga reduce power tariffs. But our electricity is generated using gas and coal, for which prices are still high.

In fact, the main beneficiary of the 24% electricity tariff hike is Petronas, which more than doubled its gas price to Tenaga – to RM14.31/mmBTU, from RM6.50/mmBTU! Besides higher gas prices, Tenaga is also incurring higher coal prices, which at about US$95 today are still 25% higher than the average US$76/MT Tenaga incurred in its last financial year ended Aug 08. The pain will be made even worse by the depreciating ringgit.

Some numbers will illustrate this. That 24% tariff hike will add about RM5.5bn p.a. to Tenaga’s revenue. Of that, RM5.3bn goes to third parties, leaving Tenaga with just a measly RM200m of the RM5.5bn additional revenue:

RM4.2bn (76%) goes to Petronas to cover the increased price of gas;

RM1.0bn to cover higher coal prices:

a. RM0.3bn because of the the US$ increase in price to US$95; and

b. An additional RM0.7bn due to the weaker ringgit, assuming an average RM3.70:US$1

instead of RM3.30

RM135m for capacity payments to new IPP Jimah.

In fact, by next year, Tenaga will be in a negative situation again because capacity payments to Jimah will rise to RM 700m! If you want lower power tariffs, the appropriate targets are the IPPs which have earned exorbitant returns and Petronas, not Tenaga.

Tenaga is under-appreciated. Its services have improved tremendously in recent years. So tremendously that we don’t appreciate how much effort goes into delivering that stable and reliable power supply.

If Telekom were running the power sector, we would still be suffering frequent brownouts (noisy fixed lines is the telecoms equivalent), blackouts (unstable Streamyx connections) and some areas without power at all (sorry, tak cukup kapasiti di sana untuk talian baru).

And yet Telekom gets a RM2.4bn handout of taxpayers’ money to do high-speed broadband while Tenaga is pilloried for high power tariffs which are not its fault in the first place.

If there’s one GLC to target for inefficiency, it’s Telekom. Why do we still have to pay Telekom RM25/month for fixed line ‘rental’? My housing estate was built in the 1970s. Surely after over 30 years Telekom has already more than covered its capital cost of laying down the telephone lines. And then there are the huge issues with Streamyx ….

Maybank Says Annual Profit to Decline as Market Deteriorates

Bloomberg reports on Maybank:

Nov. 11 (Bloomberg) -- Malayan Banking Bhd., Malaysia's biggest bank by assets, expects profit to fall for a second year as the worldwide economic slowdown heightens the risk of bad debts and makes it harder to sell loans.

Maybank, as the Kuala Lumpur-based company is known, today reported a 22 percent drop in fiscal first quarter profit, and said the market will become ``more challenging.'' The chances of loan growth are ``moderate,'' and profit in the year ending June 2009 will be lower, the bank said in a statement.

Maybank this year embarked on its biggest overseas spending spree, paying $2 billion for control of Indonesia's sixth-largest lender, and for stakes in banks in Pakistan and Vietnam. Chief Executive Officer Abdul Wahid Omar, who joined in May, is digesting the assets in a financial crisis that's forecast to push Malaysian economic growth to an eight-year low in 2009.

``Challenges in the domestic market intensified following the global financial meltdown,'' Abdul Wahid said in the statement. ``We are adopting a conservative outlook for the financial year ahead.''

Net income at Maybank in the three months ended Sept. 30 fell to 572.2 million ringgit ($160 million), or 11.72 sen a share, from 735.4 million ringgit, or 15.12 sen, a year earlier. Profit fell even after a one-time gain of 483.8 million ringgit, which Maybank had earlier set aside in case the Indonesian deal failed and the Malaysian lender lost its deposit on the purchase.

Net interest income, or revenue from loans after deducting interest paid to depositors, fell 3.5 percent to 1.27 billion ringgit. General expenses, and personnel and marketing costs rose. The bank recovered fewer bad loans, while income from stock broking and insurance also fell, Maybank said.

`More Difficult'

Maybank stock has dropped 40 percent this year, trailing Malaysia's main share index, which has lost 38 percent in the same period. Maybank today fell 0.9 percent to 5.5 ringgit. Earnings were released after the stock exchange closed.

The market and the economic conditions have become ``more difficult,'' Maybank said in its statement. All this year's acquisitions aren't yet adding to profit, it said.

The bank this year spent S$1.77 billion ($1.2 billion) for control of PT Bank Internasional Indonesia, $742 million for 20 percent of Pakistan's MCB Bank Ltd. and $93 million for a 15 percent stake in Vietnam's An Binh Bank.

Abdul Wahid is seeking income outside his domestic market as prospects for earnings growth in Malaysia worsen.

Shrinking Profits

Profits at Malaysian banks, including Bumiputra-Commerce Holdings Bhd. and Public Bank Bhd., will shrink an average 6 percent in 2009 as bad debts rise, and loan growth and capital markets slow, analysts at Aseambankers Malaysia Bhd. said Nov. 3.

Bank loans in Malaysia will increase 4 percent to 5 percent next year, Aseambankers said, cutting its forecast from 7 percent to 8 percent.

Malaysia's government last week said 2009 economic growth will slow to 3.5 percent, the slowest in eight years, as the global financial crisis hurts worldwide trade.

In August, Abdul Wahid said he's seeking to expand in higher-growth nations including China and India, focusing on building its Islamic banking business in the region.

He set a target of being among the top five banks in South and Southeast Asia by assets, market value and performance by 2015.

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It's not going to be pretty at the rate things are going.

The mixed effects of foreign capital

The Economist piece poses the question, Is foreign capital a luxury that developing countries can live without? Have a read if you care to:

WHEN Hank Paulson, America's treasury secretary, urged China to liberalise its capital markets earlier this month, he sensed a hardened reluctance in his hosts. “There's no doubt that what is happening in the US markets is clearly giving the Chinese pause,” he said. America's subprime meltdown is not, it seems, the best advertisement for unfettered finance elsewhere.

Against this backdrop, Dani Rodrik of Harvard University and Arvind Subramanian of the Peterson Institute, in Washington, have published a timely reappraisal of financial globalisation. They conclude that it is far from obvious that developing countries benefit much from opening up to global capital. In principle, the free flow of capital across borders makes funds available more cheaply to poor countries and, by lifting investment, boosts and raises living standards. The trouble is, economists have struggled to establish a strong link between freer capital flows and speedier economic development.

That has not stopped researchers from looking, and many believe a tangible connection will soon be found. Perhaps the effect is not picked up in studies because capital flows are hard to measure accurately, argue the optimists. Messrs Rodrik and Subramanian are not convinced: measurement error bedevils many studies, but that has not barred researchers from establishing that policies to improve education or trade are good for growth.

Perhaps foreign capital helps indirectly—by disciplining policymakers or by promoting reforms that improve the financial system. The authors say it is possible to make the opposite argument and find indirect costs. Plausibly, lifting restrictions on capital flows could undermine the domestic financial system because spendthrift governments can tap a larger pool of funds abroad. Also, the well-off have less incentive to lobby for reforms at home if they are free to store their wealth overseas.

Perhaps, then, the gains from globalised finance are latent and will be unleashed once catalysing reforms are in place? Maybe they will. But the wish list of complementary measures is difficult to tick off. Economies might reap the benefits of foreign capital more fully if property rights were stronger, contracts were more enforceable, and if there were less corruption and financial cronyism. But the authors point out that if poor countries could carry out such ambitious reforms “they would no longer be poor” and financial globalisation would be “a clearly dispensable sideshow”. With so much else to do first, liberalising capital flows would not be an obvious policy priority.

Foreign capital ought to be good for countries that have profitable ventures that lack funding because of low savings at home. But Messrs Rodrik and Subramanian argue that for many countries, it is not low savings but a shortage of good investments that is the binding constraint. Weak property rights, poorly enforced contracts and the fear that profits will be siphoned away make it hard to conceive of ventures that might generate a reliable return. When investment opportunities are scarce, capital inflows simply displace domestic savings and encourage consumption.

Read more here.

Krugman's conundrum

From the Economist comes an interesting piece that examines Paul Krugman's research paper for the Brookings Institution that examines the link between trade and wage inequality. Here's a sample:

“THIS paper is the manifestation of a guilty conscience.” With those words, Paul Krugman began the recent presentation of his new study of trade and wages at the Brookings Institution. Mr Krugman, a leading trade economist (as well as aNew York Times columnist), had concluded in a 1995 Brookings paper that trade with poor countries played only a small role in America's rising wage inequality, explaining perhaps one-tenth of the widening income gap between skilled and unskilled workers during the 1980s. Together with several studies in the mid-1990s that had similar findings, Mr Krugman's paper convinced economists that trade was a bit-part player in causing inequality. Other factors, particularly technological innovation that favoured those with skills, were much more important.

At some level that was a surprise. In theory, although trade brings gains to the economy as a whole, it can have substantial effects on the distribution of income. When a country with relatively more high-skilled workers (such as America) trades with poorer countries that have relatively more low-skilled workers, America's low skilled will lose out. But when the effect appeared modest, economists heaved a sigh of relief and moved on.

In recent years, however, the issue has returned. Opinion polls suggest that Americans have become increasingly convinced that globalisation harms ordinary workers. As a commentator, Mr Krugman has become more sceptical. “It's no longer safe to assert that trade's impact on the income distribution in wealthy countries is fairly minor,” he wrote on the VoxEU blog last year. “There's a good case that it is big and getting bigger.” He offered two reasons why. First, more of America's trade is with poor countries, such as China. Second, the growing fragmentation of production means more tasks have become tradable, increasing the universe of labour-intensive jobs in which Chinese workers compete with Americans. His new paper set out to substantiate these assertions.

That proved hard. Certainly, America's trade patterns have changed. Poor countries' share of commerce in manufactured goods has doubled. In contrast to the 1980s, the average wage of America's top-ten trading partners has fallen since 1990. All of which, you might think, would increase the impact of trade on wage inequality.

Read more here.

Liberalisation of the services sector is a threat

I want to start off with a few things that Malaysia's economic managers have been quoted as saying:

Najib wants to make structural changes to encourage better and competitive economic growth, encourage more investments from the private sector in the local economy and implement progressive liberalisation of the services sector.

Najib says the liberalisation of the services sector, particularly in professional and logistics, will soon be announced to allow a more competitive environment in the country.

Najib says Liberalisation of the services sector will encompass professional services and logistics but will not include the banking industry.

Abdullah Badawi said that while the stimulus package announced by Najib last week was a short-term policy response, the Government believed it should also take the opportunity to address medium and long-term structural issues and formulate a strategic package to ensure rapid growth of the economy.
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Competitive economic growth
Competitiveness is a nebulous word, even between and amongst economists. Krugman thinks it should refer to productivity. Others believe that it refers to comparative advantages such as cheaper labour.

What was Najib referring to?

Pleading with FDIs to come to Malaysia by offering longer pioneer status, longer tax holidays, cheaper land cost, guaranteeing cheaper labour and so on is being competitive, too.

There is the type of competitiveness that results from Malaysian-owned goods and services providers being of a higher value and higher quality.

There's another type of competitiveness that arises from offering cheaper venue and cheaper labour and lower tax rates.

What kind of competitiveness should Malaysia aspire to?

Liberalisation of the services sector
When Najib and Muhiyyidin talks of liberalisation of the services sector particularly in professional and logistics a cold shiver runs up my spine.

All I can see are foreign lawyers, architects and engineers setting up shop in Malaysia. Mind you, they aren't interested in Malaysian clients. They'll be looking towards dominating the services needs of the FDIs in Malaysia.

Among the professions, the least affected by the liberalisation will be the accountants who have been absorbed by foreign international partnerships four decades ago. For law firms, only one or two have forayed further from Malaysian shores. There's no data on their success rate in setting up beach heads.

Competitiveness of the Malaysian logistics players
As for the logistics sector, there will be a huge influx of foreign logistics players. There'll just be a handful of Malaysian logistics players going beyond Malaysia. And, they'll experience severe competition and, I predict that they'll close shop very, very quickly.

Why liberalisation of the services sector will NOT benefit Malaysia
I want to emphasise here, very strongly, that Malaysia's economic managers are behaving like fools.

The liberalisation of the Malaysian services sector will have an adverse effect on locally-owned enterprises. The foreign service providers will swamp the entire sector. This is not a xenophobic observation but a practical one.

It is NOT that Malaysian service providers are not skilled. The reason why there will be inflow of foreign service providers and zero outflow of Malaysian service providers is very simple.

Trace the history of movements of foreign accounting firms to Malaysia, trace the movement of foreign courier companies into Malaysia, trace the inability of Malaysia's shipping companies to compete with foreign shippers and you will find the same story: The services sector follows the growth of local companies going offshore.

Mitsubishi produces Panasonic electronic goods and, loads them into lorries belonging to Integrated Logistics which is partly owned by the Japanese and, into containers belonging to Mitsui-OSK Lines and, hauled to Port Klang and, loaded onto Mitsui-OSK containers lines.

Taiwanese electronic manufacturers produces electronic goods that end up in Evergreen containers and loaded onto Evergreen Lines container ships.

A U.S. or European FDI will seek out a law firm that originates from or, have a tie-up with a law firm that originates from the U.S. or Europe. The law firm is appointed by the international headquarters.

So, I ask again, what is the edge or benefit that Malaysia is getting for Malaysian logistics providers and professionals in the liberalisation of the services sector?

And, if it is so beneficial how come the banking sector is excluded from the liberalisation?

Penang sets up investment advisory panels

GEORGE TOWN: The state government has set up two advisory panels to spearhead efforts to turn Penang into a top notch location of choice for investors in the manufacturing and services sectors.

Chief Minister Lim Guan Eng said the panels -- Penang Industry Advisory Panel and the Penang Services Advisory Panel -- would propel the growth of the two main contributors to the state's economy.

"These panels will provide the window of opportunities for experienced industrialists and businessmen to participate and further contribute to the economic growth of Penang.

"The two advisory panels will comprise experts from different backgrounds, experiences and skill sets from the industry and services sectors. The establishment of both Advisory Panels will enable the state to harness the breadth and depth of the expertise, skills and experiences of the members," he said.

Lim said the Penang Industry Advisory Panel would represent the electronics, ICT, biotechnology, medical devices and all the supporting industries in the manufacturing sector.

Read more here.

No par value regime for Malaysian companies

KUALA LUMPUR: The Corporate Law Reform Committee (CLRC) has recommended that two “archaic concepts” in relation to share capital — authorised share capital and par value — be abandoned.

The proposals are among 188 final recommendations made by the CLRC under the Companies Commission of Malaysia’s (CCM) corporate law reform programme, which began in December 2003.

CLRC recommends that shares of all companies should no longer have a par value attached to them, and a company limited by shares is no longer required to state its authorised share capital in its memorandum.

Under a no par value (NPV) regime, companies would not have to maintain a share premium account and could elect to capitalise their profits without any issue of new shares, to capitalise their profits coupled with the issue of new shares to shareholders, or to consolidate and subdivide the NPV shares.

CLRC proposes a mandatory conversion of all shares to shares of no par value and the utilisation of the share premium account within a transitional period of two years.

Read more here.

ACCA backs mark-to-market accounting

KUALA LUMPUR: The Association of Certified Chartered Accountants (ACCA) has come out in support of a Malaysian decision to adopt an accounting standard that makes it mandatory for publicly listed companies to value financial instruments in their books according to fair market value.

ACCA global president Richard Aitken-Davies said the adoption of International Accounting Standard 39 (IAS 39) — accounting for financial instruments — would better reflect the globalised nature of the world’s economy, and, if properly implemented, could provide greater risk disclosure.

“We (ACCA) support the standard and in fact, there was a lot of pressure on the International Accounting Standards Board (IASB) to abandon the fair value mark-to-market for this type of asset or liability,” he told The Edge Financial Daily.

“We resisted that. We believe that the concept of fair value is essentially right because what it does is give investors and other stakeholders an assessment at a certain point in time what their assets and liabilities are.

“What fair value tries to do is to record what’s happened in the organisation and give an indication as to what that means for the future of the company. Fair value, properly implemented, gives enhanced information to people who have invested in the company and to people who may want to invest in the company.”

Presently, only financial institutions in Malaysia are required to mark to market the financial instruments in their books. By 2010, all publicly listed companies would be required to adopt IAS 39 in line with the country’s efforts to fully adopt IAS.

However, not everyone is happy with the proposal. Critics argue that the implementation of IAS 39 might aggravate volatility in markets because otherwise healthy companies would be required to write down bad assets in their books.

Responding to the concern, Aitken-Davies said the solution was to require firms to make more concerted efforts to disclose risks and educate their investors about the company’s health.

Read more here.

Respect the Right to Peaceful Assembly

This is the statement issued by the Bar Council which I agree with and, support:

Freedom of assembly and freedom of expression were again dealt a severe blow yesterday with the arrests of 23 citizens – including journalists and activists, a Member of Parliament, State Assemblypersons and a City Councillor – who were participants in a peaceful gathering to commemorate the first anniversary of last year's BERSIH rally.

The Bar Council is alarmed at the disproportionate and heavy-handed approach adopted by the police, who purportedly began dispersing people as early as an hour before the start of the vigil. Needless physical force was allegedly used during the arrests, causing injuries to a number of participants. Such unprovoked intimidation and oppression is unjustifiable as the group was reportedly calm, did not pose any threat to public order and was merely exercising its democratic rights.

While the Bar Council disagrees with the laws curtailing the right to assemble and express dissent, we are concerned that the authorities seem to use these laws selectively to disperse and arrest demonstrators. Several demonstrations against the Pakatan Rakyat government's policies in Penang and Selangor have proceeded without much harassment nor arrests by the police.

This gives rise to the perception that police actions are not based on any objective criteria relating to preservation of public order. Such subjectivity breeds the notion that the authorities act in a biased, or even arbitrary, manner.

We call on the police to protect the rights of speech, expression and assembly of all those who legitimately engage in expressing dissent, fairly and without bias.

Paradise sTorM has two posts here and here that gives an account of what transpired at AmCorp Mall, Petaling Jaya on Sunday night.

The Truth About Productivity

This piece by Gene Marks pushes the point I've been trying to make about productivity in a much clearer way than I can:

Preliminary third-quarter productivity figures for the U.S. came out Thursday, and it seems businesses are getting more whimper than bang for their buck. Productivity gains clocked in around 1.2%, lagging behind the first two quarters of 2008; at non-durable goods manufacturers, productivity decreased by 7.3%.

Productivity is to the economy what gas is to an engine. It is what drives corporate earnings and thus stock prices. But there's more to it than that. The real key to productivity--and thus performance--is not maximizing it at all costs. It is maintaining a level of consistency.

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Take it from Haig Nalbantian, labor economist at Mercer, the giant human resources consulting firm. A few years ago, Nalbantian ran a study looking at the link between plant-level productivity and the market value of U.S. manufacturers. The goal was to determine if companies with the highest employee productivity also returned the most value to their shareholders.

"What we found was surprising," says Nalbantian. "It wasn't the companies with the highest productivity that were most profitable. It was those companies that consistently maintained their productivity that built the most value."

Great businesses can't crank through a job at record pace this month only to fall down on the next. Options traders may love volatility, but customers, vendors and shareholders decidedly do not.

"High productivity is not about finding some best practice," says Nalbantian. "At best that gets you to competitive equilibrium."

Mercer studied the correlation between plant-level productivity and financial performance at 993 companies (with a total of 11 million employees and $2.7 trillion in sales) over a 30-year period. I won't bore you with the particulars, but here is the wisdom: Higher productivity essentially acts like an intangible asset that carries significant market value.

Put another way, companies that maintain a decent level of productivity are rewarded more than those that hit higher highs but can't sustain them.

"If you figure out how to manage your operations more effectively and maintain that advantage, investors perceive that and value you more highly," says Nalbantian.

How much higher? "There's a two-to-one relationship," he adds. "In other words, a 10% higher productivity at the plant level converts into a 5% higher market value." Translation: a bigger payday when you decide to cash out.

I didn't have to look far for more proof of that premise. My friend who works in a college admissions office offers this example: A high school kid submits a transcript pock-marked with As and Cs, while another posts solid Bs. In the end, the average grades are about the same, but all else equal, who do you think gets the nod? The solid-B producer, says my friend. Even schools eschew volatility.

How to measure productivity? There are two approaches, says Nalbantian.

The first looks at output (number of widgets, billable hours, service calls, whatever) per dollar spent to generate it. Just make sure the numerator and denominator are measured over the same timespan. If you care about output per hour, make sure to divide by the hourly wage. Simple, but crude.

A more honest picture of productivity looks at the total invested capital needed to achieve a given level of output. Example: Your customer service rep may resolve 50 calls a week, but that same rep may have drawn on additional internal or external resources to handle those calls. Those other costs have to be captured in that ratio, too.

No matter what method you choose, remember that the key is consistency. Says Nalbantian: "Companies get obsessed on reaching a level of productivity, when they should really be focusing on how they're going to sustain that level."

Should we restrict foreign fund inflows?

This was the title caption for P. Gunasegaram's op-ed piece in Star Biz today. He discussed the dilemma of small capital markets like Malaysia's where the market capitalisation of one and one-half of a Wall Street-listed giant is equal to the value of the entire Bursa Malaysia.

The piece wondered aloud at the wonderment cum hatred that came with each flow and ebb of foreign funds into our little playground. Now, of course, there is an ebb tide. Hence, the op-ed piece.

The piece suggests the introduction of a capital gains tax. The suggestion is that the tax, just like the old Real Property Gains Tax, could be graduated, getting lower and lower and eventually diminishing to zero, say after three years of holding the shares. The initial tax rate could be say 40% of capital gains, falling to 30% in the second year, 20% in the third year and zero in the fourth year.

Pretty radical, huh? I make no judgment because it needs to be thought through. This blog has also made some radical suggestions before.
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Long-term funds vs hot money
There are long-term foreign funds that enter Malaysia in the form of FDIs. The op-ed piece is not addressing these long-term funds.

It addresses the hot money funds that rushes in when there is a perceived under-valuation of sectors within the Malaysian economy and, specifically to the publicly-traded shares of the companies listed on Bursa.

These hot monies represent the type of foreign fund inflows that, during can easily be mistaken for Malaysia's growing wealth. For example, between 1992 and early 1997, Malaysia's economic managers thought that the hot money that had been circulating in the KLSE were long term foreign funds.

Economic plans were put in place where the centrepieces were the Bukit Jalil Sports Complex, the new capital of Putrajaya and, KLIA.

Then came the collapse of the Thai economy that had heavily borrowed US Dollar-denominated loans. And, everything fell down.

And so, consider these questions that have swirled in my mind from time to time:

What is the economic value of hot money to Malaysia?

What is the economic value of an active stock market to Malaysia?

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.

Electronics industry needs sufficient human capital

There is a need for sufficient human capital for the electronics industry, as it is a significant contributor to the Malaysian economy, said the Minister of International Trade and Industry Tan Sri Muhyiddin Yassin.

The industry is the largest sub-sector within the manufacturing sector in Malaysia in terms of output, employment and exports, he added.

“For the period January to July 2008, the industry recorded a 28.8% of total employment in the manufacturing sector,” he said in his speech at the Panasonic Scholarship Award 2009 ceremony here yesterday.

Muhyiddin also said from last year until August 2008, the electronics industry recorded the second largest investment of RM16.3 billion (147 projects), after basic metal products which had a total capital investment of RM39.5 billion (93 projects).

The electronics industry was mainly driven by foreign investment with projects approved accounting for 95.9% of the RM15.6 billion total in 2007.

Muhyiddin said the initiative by Panasonic would complement government efforts to provide a sufficient supply of human capital for the industry. Apart from upgrading the skills of employees locally, the group also sends them to Japan for training. Source: Edge Daily

The Minister has shown an awareness that the workers of Malaysia need sufficient skills to support the Electrical and Electronics (E&E) industry.

Will there be a plan to improve education and skills training for Malaysians?
Now, will the Minister earnestly work with the Minister of Human Resources, the Minister of Education and the Minister for Higher Education to improve the education and training pipeline to ensure that there is sufficient education and skills for the E&E industry and all other industries in Malaysia?

Will there be a strategy to increase SME involvement in E&E?
Will the Minister earnestly put in place the necessary policies that will help Malaysian SMEs in the E&E sector and all other manufacturing sectors to move up the value chain with new production technology so that Malaysia does not remain overly dependent on FDIs to drive the E&E sector?

Will there be consultation and financial support for SMEs?
And, will the Minister consult with the SMEs and provide financial support to the SMEs to ensure that the goal of increasing the SMEs share of the E&E sector is met?

Will the Minister keep us informed?
Finally, will the Minister keep the Malaysian public informed of all measures planned?