Malaysia Matters Podcast

Access Malaysia Today has an overview of The Economist Intelligence Unit’s Forecast on Malaysia.  The forecast worries about increased political instability and reports mixed economic news:

There have been two downgrades - in the political stability and legal and regulatory risk categories - in the latest review of Malaysia’s operational risk model.

The fate of Anwar Ibrahim, the leader of the opposition party, Pakatan Rakyat, could spark large-scale social unrest in Kuala Lumpur, the capital, which could spread to other major cities on peninsular Malaysia.

[. . .]

As a result, we have increased the political stability risk score by five points, from 35 to 40.

The economic news is mixed:

There have been opposing movements in the underlying indicators of the macroeconomic risk category. As a result, the category score remains the same, at 15.

On the one hand, real GDP is expected to slow to 3.1% in 2009, as economic growth in Malaysia’s major export markets slows significantly in that year. Growth is expected to remain sluggish in 2010. On the other hand, the government has been cutting the administered price of fuel in recent months and is expected to continue this trend over the short term as international oil prices continue to fall.

Weak domestic demand coupled with persistent falls in the price of commodities, non-commodities and industrial raw materials will exert downward pressure on overall consumer prices. We expect consumer price inflation to average 2.4% in 2009.

As was noted yesterday, the government is attempting to balance stability with liberalization.  Finding the right mix will be critical.

Keeping Malaysia’s economy growing continues to be the focus of Najib Razak:

Malaysia is open to taking additional measures to boost the economy, Deputy Prime Minister Najib Razak said on Tuesday, days after the government waived import duties on raw materials and unfinished goods.

Najib, who is also Malaysia’s finance minister, said he was reasonably confident that the country would meet its economic growth targets for 2008 and 2009.

‘We are very open to additional measures that can be taken from time to time. Obviously we are watching and monitoring the situation very very carefully,’ he told reporters.

Razak seems to recognize that gradual liberalization is the best strategy for keeping Malaysia growing in these uncertain economic times:

In an effort to revive the stock market, which has fallen almost 40 percent this year, Najib said last week he would relax ownership rules that reserve 30 percent of companies for ethnic Malays.

However, he said on Tuesday a final decision has yet to be made.

‘There is no announcement in that regard. We are open. As I said it has to be a pace of liberalisation that we are comfortable with,’ he said.

‘There is a need for us to be competitive globally. There is need for us to examine how we can overcome the current financial crisis. Gradual liberalisation is something that we will consider.’

Earlier this month, Najib, who will become prime minister in March, shifted almost $2 billion in spending to infrastructure and tax cuts from savings in fuel subsidies.

The United State is an important trading partner with Malaysia and efforts to increase investment and spur economic growth would benefit both countries.  These efforts might also lead to progress in the stalled trade talks.

In his first big decision since becoming Finance Minister last week, Deputy Prime Minister Najib Abdul Razak announced that Malaysia would not re-peg the ringgit to the U.S. dollar despite calls by former Prime Minister Mahathir Mohamad who proposed it necessary to do so on Saturday to mitigate the impact of a declining dollar.

“I wish to categorically state that we have no intention to re-peg the ringgit now or in the future. We are committed to allow the market to determine the value of the ringgit,” Deputy Prime Minister Najib Abdul Razak said.

He said it was impossible for Malaysia not to be affected by the financial crisis in the United States as 20 percent of Malaysia’s exports go to the U.S. market.

Mahathir pegged the ringgit to the dollar in 1998 at 3.8 to the dollar during the Asian financial crisis. It remained there until 2005 when Abdullah Ahmad Badawi removed the peg. The ringgit is now about 3.4 to the dollar.

Najib is reportedly meeting with US fund managers in New York this week. 

 

The issue of confidence and stability as a prerequisite for growth seems to be a theme after Anwar Ibrahim failed to deliver on his promise to capture the reigns of power on September 16.  The government is moving forward with a plan to focus on the important issues and ultimately a smooth transition:

In a minor Cabinet reshuffle today, Prime Minister Datuk Seri Abdullah Ahmad Badawi named his deputy Datuk Seri Najib Abdul Razak as finance minister.

Abdullah, who was the finance minister, will take over Najib’s defence ministry portfolio.

In making the announcement yesterday, Abdullah and Najib also said the transition plan in which the two leaders have agreed on remains intact.

By giving his deputy heavier responsibilities, the PM will hope to put an end to speculation over the transition plan which will see Najib taking power by 2010.

The swap in portfolios was announced after today’s Cabinet meeting.

This, they argue, is in stark contrast to Anwar who seems intent on destabilizig things in order to win a political advantage:

Prime Minister Datuk Seri Abdullah Ahmad Badawi today described Parti Keadilan Rakyat (PKR) de-facto leader Datuk Seri Anwar Ibrahim as a “threat to the nation’s economy and maybe safety”.

He accused Anwar of deceiving the public by saying one thing and doing another, and of berating the country to the extent of discouraging investors.Speaking to reporters after the cabinet meeting yesterday, Abdullah said: “We are facing inflation and in the midst of this, what Anwar is doing has resulted in fund managers discouraging investors from investing in Malaysia due to the uncertain political scenario.

“By talking about changing governments, Anwar has muddled the economy as some investors have been advised to stay away from the country for the next 10 years, and to wait and see where the country is headed. What he is doing has affected the government, the economy and workers.”

Has the political momentum changed now that the 16th has passed?  It would seem the ball is in Anwar’s court.  If he doesn’t produce something more than promises soon, his critics charges will have been proved accurate.

What is often overlooked is the fact that, aside from being accused and imprisoned for sodomy back in 1999, the other charges Anwar was incarcerated for were related to malfeasance and corruption. But the fruit of likely corrupt activity that Anwar partook in during his time in the public trust during the 1990’s was not yet evident.

Work done by TerrorFinance.org points to the lucrative May 2006 IPO of Al-Baraka Banking Group, (ABG) - an entity who’s chairman, Salah Kamel was responsible for the purchase of shares of Bank Islam that at the time was a Malaysian government-owned entity and allegedly involved in laundering funds belonging to the Third World Relief Agency.  Anwar has been, and still is a member of the board of directors.

Further, it appears that while Anwar was Minister of Finance in the mid-90’s he sold the government’s remaining shares of Bank Islam to SAAR Foundation, headed by an individual named Jamal Barzinji. At the same time, SAAR foundation was financing Anwar’s International Institute of Islamic Thought. Barzinji was a director at each organization. 

For the entire article go to: 

http://www.terrorfinance.org/the_terror_finance_blog/2007/02/yassin_alkadia_.html

As an uncertain financial climate weighs on the US economy, appreciation for the significant bearing it has on the well-being of Malaysia’s economy is gaining attention in the press.

Shankaran Nambiar, writing for the Star, points out that, aside from the strain on the economy resulting from home-grown problems, that “shock waves” emanating from the US have a big impact on the Malaysian situation.

He points to data from the US dot-Com collapse in 2001 showing that the Malaysian growth rate slid to 0.5% In the meantime, with the US the largest destination for exports at 16% of the total, and with a substantial portion of the 15% that goes directly to Singapore eventually ending up in the US, a slowdown in US importation due to a shaky economic footing will mean a downturn for Malaysia as well. 

Nambiar points to milestones in making his case.

There was a double whammy June and July. After losing hundreds of thousands of US jobs in the first half of 2008 and with the rate of inflation at its highest in 17 years in June, the July IndyMac failure and Fannie and Freddie bailout underscored the enormity of the 2007 mortgage crisis, the full effects of which likely not yet have been felt.

With some reports that more than a million US citizens have been foreclosed upon.

In late February, Nouriel Roubini, in a written testimony to the House of Representatives’ Financial Services Committee, claimed that the US economy was at risk of a systemic financial meltdown. Roubini, a professor at the Stern School of Business, New York University, presented eight reasons why he thought a financial meltdown could not be avoided.

Structurally, the US economy has not been on solid ground for some time now. Its budget deficit has been rising, and now amounts to about US$357bil. It has a current account deficit of about 5.5% of gross domestic product, which declined from a deficit that stood at about 7%, a few years ago.

By many accounts worst is not over for the US economy. In addition to falling consumer confidence, high inflation, and reduced demand from firms, the US dollar is expected to drop further. The dollar, which has already dropped by 21% against the currencies of its major trading partners, is expected to drop further, reducing the purchasing capacity of Americans.

And with 60% of the economy reliant upon consumer purchase, that spells real trouble.

The result of all of this, according to Nambiar, is the likelihood that Malaysia will impose increasing interest rates in an attempt to stave off inflation in response to developments in the US, and thereby subsequently hamstring domestic investment.